Wednesday, September 19, 2007
If Only The Fat Lady Would Stop Caterwauling
Absolute Capital seems to be saying that you absolutely won't be able to get your capital back for a year:
Absolute Capital Management Holdings Ltd. halted withdrawals from eight hedge funds with $2.1 billion of assets after co-founder Florian Homm quit.In today's environment, that 530 billion, which is about 1/4th of total capital, will be written down at least 20-30%.
The firm will seek to extend a lock-up on redemptions for a year while it restructures the funds, Absolute Capital said in a statement today. Seven of the pools hold over-the-counter U.S. stocks that can't be sold at the prices the firm has on its books, affecting as much as $530 million of assets.
Absolute Capital clients tried to withdraw more than $100 million after Homm quit yesterday in a dispute over pay for the firm's fund managers. Homm, 47, managed three of the funds affected, and oversaw the others as co-chief investment officer. Shares of the company, which has its main offices in Majorca, Spain, slumped 84 percent in the past two days.
I wouldn't go off on a euphoria binge due to yesterday's cuts. Every structural problem that existed yesterday still exists today. On the other hand, the future for genuinely good companies probably got a bit better. The investor beatings related to malinvestment will continue until morale improves. Morale will improve after all the rocks have been turned over and all the bad debt written down, so that is a long way in the future.
As expected, Fannie & Freddie are getting permission to increase their portfolio sizes. Fannie's stock shot up this morning.
Without a word, he just held up a hand-lettered sign on-camera:
So far, so good. Stinky deals on Monday, if anything, seem to be provoking even more disgust. Rates on decent deals might be coming down a bit. The CPI/starts news is sobering up our euphoric equities traders a bit, all except gold bugs who believe with a passion that is inexplicable to all that are not of their faith.
As to the rate cut. GMAFB. "Yesterday I was afraid to borrow 5.25% money to invest in worthless MBS paper. Today 4.75% money makes that worthless MBS paper look like a safe bet." All this did was loosen a little cash flow in the IBs and biggies until the effects more than pass through and they are stuck paying an even greater inflation premium.
In my own way I have a suggestion for the pithy phrase to describe the last few days: The lifeboat survivors are starting to drink seawater.
You are right about the inflation; it's a tight margin the Fed must walk.