The Latest: Biden, McConnell close to a deal on tax hikes but hung up on spending cuts

According to WaPo’s Lori Montgomery and Paul Kane Vice President Biden and Senate Minority Leader Mitch McConnell were close to a deal Monday to cancel historic tax hikes for most Americans. But they were still hung up on spending, with Democrats resisting a Republican proposal to delay automatic spending cuts for just three months.

As President Obama prepared to deliver remarks about the “fiscal cliff” at 1:30 p.m. at the White House, negotiators for the administration and McConnell (R-Ky.) appeared to have nailed down many of the most critical tax issues, including a plan to let taxes rise on income over $450,000 a year for couples and $400,000 a year for individuals, according to people in both parties familiar with the talks.....

Find out more at http://www.washingtonpost.com/business/fiscal-cliff/biden-mcconnell-continue-cliff-talks-as-clock-winds-down/2012/12/31/66c044e2-534d-11e2-8b9e-dd8773594efc_story.html?wpisrc=al_comboPNE_p

The Two Sides Are Now Absurdly Close On A Fiscal Cliff Deal — Here's The Latest Offer

From Clusterstock’s Main Man, Henry Blodget: The Democrats made several key concessions yesterday in the Fiscal Cliff negotiations.  As a result, the two sides are absurdly close together. If we don't get a deal at this point, the entire country will be justified in being outraged.  Here's the Democrats' latest offer, as reported by Lori Montgomery and Paul Kane of the Washington Post:

* The Democrats agreed to raise the income threshold for tax increases to $450,000 a year (couples) from the prior $250,000. The Republicans are insisting on $550,000 threshold. This is a massive tax cut for almost the entire country relative to the rates that will otherwise take effect on January 1. (So agree on $500,000 already and call it a day.)

* However, to the Republicans' chagrin, the Democrats insist on raise capital gains and dividend taxes to 20% on households over $250,000 and reducing some of the allowable deductions. Importantly, this, too, is a massive tax cut relative to the scheduled changes, which would boost dividend taxes to 40% on incomes over $250,000….

Read more: http://www.businessinsider.com/fiscal-cliff-deal-2012-12#ixzz2GeHgdKBy

Damage Already Done: Signs of Negative Economic Impact Growing

Even if lawmakers manage to avoid most of the $500 billion in tax increases and spending cuts set to take effect this week, the risks to the U.S. economy have risen as consumers and investors recoil from Washington's latest budget spectacle, the good folks at WSJ report.

Consumer confidence and stock prices have sagged and could continue sliding. Households and investors could pull back more if lawmakers fail to reach any agreement, or one that leaves in place several measures that would curb economic growth in 2013.

The latest negotiations resemble the 2011 debt-ceiling fight, which showed how 11th-hour deal making can cause serious trouble. Then, despite an agreement, the economy and markets faltered as the world outside Washington focused on the implications of an ugly process….

Don’t stop now.  Find out more at http://online.wsj.com/article/SB10001424127887323635504578211970166499436.html?mod=googlenews_wsj

Trader Confidential: What'll Get Me Back Into Market

From CNBC: After recently exiting the stock market completely, OptionMonster's Jon Najarian revealed on Friday what would make him jump back in.  On "Fast Money," Najarian said that worries in the first few weeks of January about extension of the federal debt ceiling would push the stock market lower.

"I would like to see that same sort of panic that lifts us into the mid-20s for the VIX (^VIX). I don't want to see that, folks," he said. "I'll get back in because I anticipate that panic."

Najarian said that he expected to see more of the same kind of political gridlock that has marked efforts to avoid the series of tax hikes and spending cuts known as the "fiscal cliff."  "They will do the same thing with the debt ceiling, and that's why I think we're going to see a pop in the VIX," he added…….

Read more at http://finance.yahoo.com/news/whatll-back-market-trader-115246042.html

Here's Why There's STILL A 2-1 Chance Of A Fiscal Cliff Deal Before The Deadline

From BI: Lately we've been closely following Eurasia Group analyst Sean West (find him here on Twitter) who has been "dovish" all along on the outcome of the talks.  We asked him after today's festivities whether he is still optimistic, and he says he is, and that he puts the odds of a deal at "2-1."

The key development today, says West, is that Senate leadership has brought other Senators into the fold:

I'm looking for a deal to be announced overnight or in the morning.  Leadership has now brought all their members into the loop so they will have ownership and little reason to complain about swift Senate action. The House is more of a wildcard but I bet if the White House and Senate get a deal, The House will pass it and stop the fiscal cliff before it starts.

Why does this matter?

The caucus briefings today were an opportunity for rank and file Senators to be brought into the process and understand what each side had put on the table. It's no longer a secret one on one negotiation; some members might have had qualms about fast tracking the product of a totally private negotiation. Now swift passage of any deal will be easier, at least in the Senate.

And fundamentally, both sides really want a deal now...

Read more: http://www.businessinsider.com/sean-west-why-theres-a-2-1-chance-that-we-get-a-fiscal-cliff-deal-tomorrow-2012-12

Hedge Funds Cut Bullish Bets to Lowest Since June: Commodities

Did somebody use the word recession?  According to Bloomberg’s Elizabeth Campbell hedge funds cut bullish commodity bets to a six-month low as mounting concern that slowing economic growth will erode demand drove prices toward the first fourth-quarter retreat since the global recession.

Speculators reduced net-long positions across 18 U.S. futures and options by 11 percent to 675,625 million contracts in the week ended Dec. 24, the lowest since June 19, U.S. Commodity Futures Trading Commission data show. Gold holdings reached a four-month low, while those for copper dropped for the first time in five weeks. Investors are the most bearish on natural gas since May.

The Standard & Poor’s GSCI Spot Index of 24 raw materials fell 3.2 percent since Sept. 30, the first retreat for the period since 2008.

Don't take our word for it. Go to http://www.bloomberg.com/news/2012-12-30/hedge-funds-cut-bullish-bets-to-lowest-since-june-commodities.html

Pimco: 2013? More job woes and slow going

From Bloomberg: Bond guru Bill Gross has spoken: he expects stocks and bonds to return less than 5 percent in 2013 as high unemployment persists, he wrote in a Twitter post.

The message from Gross, manager of Pacific Investment Management Co., the world’s biggest bond fund, affirms what he wrote this month in his December investment outlook.

Newport Beach, Calif.-based Gross wrote yesterday in the post: “2013 Fearless Forecasts: 1) Stocks & bonds return less than 5 percent. 2) Unemployment stays at 7.5 percent or higher. 3) Gold goes up.”

US bond markets are scheduled to close early today and remain shut on Jan. 1 for the New Year’s Day holiday. Stock trading in New York will be closed tomorrow….

Read more at http://www.nypost.com/p/news/business/pimco_sees_more_job_woes_and_slow_JRkuiAFpC1zTkFtu1mzc0J

SandRidge Fires Back at Hedge-Fund Claims

From WSJ Blogs: SandRidge Energy went on the offensive against a major shareholder’s push to replace the company’s board and amend its bylaws, describing the proposal as an attempted coup by a self-interested and uninformed investor.

TPG-Axon Capital Management LP filed consent solicitation documents with the Securities and Exchange Commission earlier this week, asking shareholders to approve a plan to change SandRidge’s bylaws and to replace its entire board of directors, including Chief Executive Tom Ward.

The fund, which owns 6.7% of SandRidge, has sharply criticized SandRidge management in a series of letters and filings in recent months, saying that the company has spent recklessly and incoherently, without regard for shareholder value.  SandRidge shot back in its own filing that TPG-Axon is an “opportunistic investor with short-term interests,” and said the slate of nominees (which includes TPG-Axon founder Dinakar Singh) are not familiar with SandRidge’s operations or with the oil and gas production sector….

Read all about it at http://blogs.wsj.com/deals/2012/12/28/sandridge-fires-back-at-hedge-fund-claims/

Evil & SAC: A fascination of Wall Street, and investigators

From the NY Times: You want the headquarters of Steven A Cohen, one of the most successful financial speculators of our time, to look like Dr Evil’s secret lair. But it is just another office-park building, a low-slung affair of tinted glass and red brick, on the southern fringes of Stamford, Conn……

It is, perhaps, understandable. On Wall Street, Cohen is envied and feared in equal measure. Hedge fund managers like him have helped redefine what it means to be rich, even if most ordinary people don’t quite understand what they do or how they do it....

For years, the investigations had swirled around SAC, but that was about all. Then, on the afternoon of Nov. 28, the word went out across Wall Street: the Securities and Exchange Commission was warning that it might go after SAC, too….But there is also this undeniable fact: The government inquiry has linked six former SAC employees to insider trading while at the fund; three have pleaded guilty….

Find out more at http://www.business-standard.com/india/news/a-fascinationwall-streetinvestigators/496607/

Hedge funds throw Revel casino a lifeline

The backers of Atlantic City’s nearly-broke Revel casino are making another risky bet.. The same group of investors that put roughly $1 billion in the casino’s parent company, Revel Entertainment, are loaning it another $150 million in a bid to keep the doors open through next summer, a source close to the situation told the NY Post.

“This is an act of desperation,” the source said. If they did not loan the money, Revel would have gone broke in a matter of weeks and their investment would have been worthless, the source added.

Now, they hope Revel can stay in business for a few more months, giving the backers time to restructure and ultimately sell the casino.  Revel — the first major Atlantic City casino to open in 10 years — has been a huge disappointment since it opened for business this spring…...

http://www.nypost.com/p/news/business/hedge_funds_throw_revel_casino_lifeline_0ivATjyvfnCzkMY34oBzDJ

Here Are 44 Companies That Get Slammed If The Government Slashes Spending

BI’s Rob Wile reports: Every company has been bracing for the fiscal cliff in their own ways.

Some have been delaying capital expenditures until uncertainty clears up, while others have been dumping cash on their shareholders in the forms of special or accelerated dividends.

But the companies significantly exposed to government spending can do little but lobby as they wait to see how sequestration will unfold…….

Check here to see the companies with the most fiscal cliff risk http://www.businessinsider.com/companies-exposed-to-government-spending-2012-12?nr_email_referer=1&utm_source=Triggermail&utm_medium=email&utm_term=Money%20Game%20Select&utm_campaign=MoneyGame%20Select%202012-12-28&utm_content=emailshare

Massive East Coast Port Strike Averted

A possible strike by 14,500 longshoremen at 14 major East Coast ports has been averted, the Federal Mediation and Conciliation Service (FCMS) announced today.

The main issue of contention between the International Longshoremen's Association and the U.S. Maritime Alliance was container royalties, payments made to workers based on how much cargo they handle.

In a statement today, George H. Cohen, director of the FCMS, announced the strike, set to begin on December 30, would not go forward….

Read more: http://www.businessinsider.com/east-coast-port-strike-averted-2012-12

Hitler parody leaves French bank BNP red-faced

From mobile.france24: French banking giant BNP was left red-faced this week after it emerged managers were shown a motivational video featuring a parody of a famous scene from the film "Downfall" in which Adolf Hitler is portrayed as the boss of Germany's Deutsche Bank.

It’s a scene that has been parodied thousands of times before to comic effect. But it appears not many people have seen the funny side of one particular version made by executives of French bank BNP Paribas.

The moment in the 2004 German film "Downfall" when Hitler, played by Bruno Ganz, berates his generals upon realising the war is lost has been reworked to satirize just about every crucial moment in modern sport and politics.

Whether they portray the Führer realising that Manchester United have lost the league title or that Barack Obama has been re-elected, the spoof videos have proved undisputed hits on YouTube.

But the version created by two executives at BNP is unlikely to go viral. In the video, which was shown to around 100 managers from around the world at a seminar in Amsterdam last year, Hitler is turned into a fuming boss of Germany’s Deutsche Bank reacting furiously to news that BNP has gained an edge in the foreign exchange market…..

Read all about it at http://mobile.france24.com/en/20121221-france-bnp-paribas-deutsche-bank-hitler-parody-video-downfall

Pimco ♥ New York

From Bloomberg: Pimco’s Bill Gross more than doubled his holdings of municipal debt sold in New York, helping propel the world’s largest bond fund to its biggest investment in local securities in six years. The $285 billion Total Return Fund, which Gross runs at Pacific Investment Management Co., boosted its New York state allocation to about $3 billion in the quarter ending Sept. 30, from $1.4 billion as of June 30, according to a regulatory filing....

More?  Turn to http://www.nypost.com/p/news/business/pimco_new_york_BGpwg4bVd40z9bSYqmwMsN

Porsche wins dismissal of U.S. hedge fund lawsuit over VW

Reuters reports that Porsche Automobil Holding SE on Thursday won the dismissal of a New York lawsuit by 26 hedge funds that accused the German automaker of causing more than $1 billion of losses by cornering the market in Volkswagen AG shares.

A five-justice panel of the New York State appeals court in Manhattan unanimously found that Porsche had met its "heavy burden" to establish that the state was the wrong place in which to bring the lawsuit.  That panel reversed an August 6 ruling by New York State Supreme Court Justice Charles Ramos that let the case by hedge funds including Glenhill Capital LP, David Einhorn's Greenlight Capital LP and Chase Coleman's Tiger Global LP proceed.

The funds accused Porsche of engineering a "massive short squeeze" in October 2008 by quietly buying nearly all freely traded ordinary VW shares in a bid to take over the company, despite publicly stating it had no plans to take a 75 percent stake.  When Porsche revealed it had amassed control of roughly three-quarters of VW, shares of VW soared, briefly making the Wolfsburg-based carmaker the world's biggest company by market value. The surge caused losses for hedge funds that had bet on a decline in the stock price.....

More?  Go to http://www.reuters.com/article/2012/12/27/us-porsche-volkswagen-lawsuit-idUSBRE8BQ0G320121227

Adventures in Banking: Citi, 4 Other Banks Fined $3.35 Million Over Muni-Bond Lobbying

Bloomberg’s Brian Chappatta writes:  Citigroup Inc. (C) and Bank of America Corp.’s (BAC) Merrill Lynch are among five firms that will pay $4.48 million to settle regulatory claims they used funds from municipal and state bond deals to pay lobbyists.

Local authorities were unfairly asked to reimburse payments that the firms made over five years to the California Public Securities Association, a lobbying group, to help influence the state, the Financial Industry Regulatory Authority, which oversees securities firms, said today in a statement. The firms inadequately described the fees, wrapping them into bond- underwriting expenses, Finra said.

More?  Check out http://www.businessweek.com/news/2012-12-27/finra-fines-five-banks-including-citigroup-goldman-on-lobbying#r=bloomberg

Some 'Cliff' With Your Coffee? Starbucks Urges Unity

According to CNBC Starbucks will use its ubiquitous coffee cups to tell U.S. lawmakers to come up with a deal to avoid going over the "fiscal cliff'' and triggering automatic tax hikes and spending cuts.

Chief Executive Howard Schultz is urging workers in Starbucks' roughly 120 Washington-area shops to write "come together'' on customers' cups on Thursday and Friday, as U.S. President Barack Obama and lawmakers return to work and attempt to revive fiscal cliff negotiations that collapsed before the Christmas holiday.

Whether members of Congress actually drink in the message is another matter. While the concentration of Starbucks cafes is high in the vicinity of the White House, it's relatively low near the U.S. Capitol. Members of the House and Senate enjoy private dining facilities and many of their offices have coffee machines….

More?  Check out http://www.cnbc.com/id/100339489

Hedge Funder Builds U.S. Largest and Most Expensive Home

When is too much too much?   It’s a question the tiny hamlet of Hastings-on-Hudson is asking these days.  The town will boast one of the largest and most valuable homes in the country when hedge fund founder David E. Shaw's new residence is completed according to Rivertown‘s daily voice.

Shaw's Rivertowns residence, which is perched on a hill with a panoramic view of the Palisades overlooking the Hudson River, is being built on several prime properties along a stretch of Broadway just south of the Dobbs Ferry-Hastings line. The founder of D.E. Shaw & Co. had been planning the large house for several years.  Early reports estimated the home would cost $75 million, but the value of the home will be fully assessed when construction is complete. The 4.5-acre estate will include a 30,000-plus square-foot single-family house, said Hastings building inspector Deven Sharma. The land previously held two houses and a swimming pool that were removed to make room for the new project, according to Planning Board documents…

More?  Check out http://rivertowns.dailyvoice.com/news/top-stories-2012-hedge-funders-reported-75m-home

Rajaratnam agrees to pay $1.5 million in SEC case

U.S. hedge fund manager Raj Rajaratnam has agreed to pay disgorgement of about $1.5 million in a civil lawsuit filed by the Securities and Exchange Commission, and to waive his right to appeal the judgment, according to Reuters..

Rajaratnam would make the payment, representing the profits obtained by unlawful means, to the SEC within 90 days after the entry of the final judgment in court records, according to a filing.

Rajaratnam, currently serving a 11-year prison term, was convicted of securities fraud and conspiracy in May 2011. He was accused of running a network of friends and associates who leaked corporate secrets to him for years….

Read more at http://www.reuters.com/article/2012/12/27/us-rajaratnam-seclawsuit-idUSBRE8BQ01B20121227

..And Another Analyst Indicted...... on IBM Insider-Trading Charges

From Bloomberg: Australian financial analyst Trent Martin was indicted in the U.S. on charges stemming from an alleged insider-trading scheme tied to International Business Machines Corp. (IBM)’s $1.2 billion acquisition of SPSS Inc. Martin was charged with conspiracy and securities fraud, federal prosecutors in Manhattan said yesterday in a statement. Martin also faces a civil suit over the alleged scheme filed by the U.S. Securities and Exchange Commission.

Prosecutors and the SEC didn’t identify where Martin worked when the alleged crimes occurred. According to the SEC’s complaint, Martin left a New York brokerage in September 2009 to join a “related” firm in Stamford, Connecticut, where he remained until November 2010….

Read all about it at http://www.bloomberg.com/news/2012-12-26/analyst-indicted-on-insider-trading-charges-tied-to-ibm.html

Seasons Greetings From Madoff, Says Insider Trading Has Gone on 'Forever '

The recent rash of insider trading cases may be a shock to some on Wall Street, but not to one long-time market player: Bernie Madoff.

In a Christmas Eve letter from the medium security federal prison in North Carolina where he is serving a 150-year sentence for running a massive Ponzi scheme, Madoff tells CNBC that insider trading has been around "forever."

He also rails against what he calls a lack of transparency in the financial markets, and says the growth of hedge funds is forcing market players to take outsized risks in order to earn decent returns.

Madoff has granted only a handful of interviews since he went to prison in 2009. More recently, he has declined to speak on the record about his case. But he was willing to share some views about the financial markets in the e-mail, which he sent to CNBC and a handful of attorneys and academics he has been communicating with....

Wait, wait...there's more at http://www.cnbc.com/id/100338795

Guess what time it is....Garbage Time!

Joshua M Brown at the reformed broker:  Garbage time, also known as "junk time", is a term used to refer to the period at the end of a timed sporting event that has become a blowout when the outcome of the game has already been decided, and the coaches of one or both teams will decide to replace their best players with substitutes.This serves to give those substitutes playing time experience in an actual game situation, as well as to protect the best players from the possibility of injury.  Garbage time owes its name to the fact that that period in a game is frequently marked by a significant drop in the quality of game play.

1. Anyone who's had a good-to-great year is playing light, their books are closed and the track record is not being put at risk. Profits and losses at these same desks have likely already been harvested as well. So, in general, outsized trades are only being put on for window-dressing, tape-painting or other non-traditional reasons. Basically, this means not to make too much of what you're seeing, stop chasing cars like a cartoon dog with its tongue hanging out...

2.  Garbage Time is a total "amateur hour." Buysiders like myself (especially those who've been on the sell side) know better than to come into this week with any real orders of consequence. The kid who's been left behind to execute trades while the Big Dogs are in Turquoise is probably not your best bet, lol….

Wait…wait…there’s more at http://www.thereformedbroker.com/2012/12/25/garbage-time/

Can Pension Funds Be the Soul of Private Equity?

  

From New York Magazine: There’s a key scene in Big where Tom Hanks wakes up, stumbles out of bed, looks in the mirror, and discovers that he’s been turned from a 12-year-old boy into a full-grown, powerful man.

Something like that happened in the financial world last week when the California State Teachers Retirement System, a public pension fund, found itself bossing around Cerberus Capital 

Management, the mighty New York private-equity firm. Cerberus, it emerged, owns the company that makes the Bushmaster semiautomatic rifle used in the Sandy Hook spree (along with other gun companies). CalSTRS, which has $750 million invested in Cerberus funds, made it known that it wasn’t happy about this news.

Hours later, Cerberus — whose CEO's father lives in Newtown — announced that it was putting its firearms holdings up for sale.

It was a rare turn of events in the private-equity business, which typically sees pensions bowing to buyout shops, not the other way around. And now….

Don’t stop now.  Find out the rest at http://nymag.com/daily/intelligencer/2012/12/pensions-the-soul-of-private-equity.html

Faster traders take all

In a new study, Andrei Kirilenko, the chief economist at the Commodity Futures Trading Commission, along with researchers at Princeton University and the University of Washington, examined high-frequency trading in a futures contract called the e-mini S&P 500, between August 2010 and August 2012.

The researchers did something they’d never been able to do before: Used actual trading data from individual firms, though none were identified.  What that data does is help explain the frenzy in today’s markets: The most aggressive firms tend to earn the biggest profits, hence the incentive to trade as quickly and as often as possible.  Furthermore, these traders make their money at the expense of everyone else, including less-aggressive high- frequency traders…..

More?  Check out http://www.nypost.com/p/news/business/faster_traders_take_all_hzsV8i8QXmalJFQPIjeYlI

That’s it for us today. We’ll be on a light schedule next week, and will see you back here full time on January 2nd. Happy holidays and to All A Good Night. Here’s hoping Santa leaves you something super!

Funds for a Falling Apple

From Barrons: In a note yesterday, Cumberland Advisor’s David Kotok explains that the S&P 500-stock index (SPY) has gained just 0.6% from election day through Dec. 21–a fact that has many pundits blaming the fiscal cliff. Not Kotok–he blames Apple (AAPL).

Why Apple? Kotok looked at a bunch of exchange-traded funds that track different versions of the S&P 500–with much less exposure than the market-cap-weighted version’s 3.8% share of the portfolio–and finds that nearly all of them have outperformed.

Apple’s nearly 28% decline since mid-September hasn’t been kind to investors who bought  mutual funds with big stakes in the stock, reports Reuter’s David Randall….

More?  Check out http://blogs.barrons.com/focusonfunds/2012/12/24/funds-for-a-falling-apple/?mod=BOLBlog

Hedge funds going nowhere fast

From The Economist: WHEN it comes to brainboxes, the name “Nobel” has a certain ring. But news that the Nobel Foundation plans to increase its investment in hedge funds, because years of low returns forced it to cut cash prizes in 2012, is one to leave laureates scratching their eggheads. The past year has been another mediocre one for hedge funds. The HFRX, a widely used measure of industry returns, is up by just 3%, compared with an 18% rise in the S&P 500 share index. Although it might be possible to shrug off one year’s underperformance, the hedgies’ problems run much deeper.

The S&P 500 has now outperformed its hedge-fund rival for ten straight years, with the exception of 2008 when both fell sharply. A simple-minded investment portfolio—60% of it in shares and the rest in sovereign bonds—has delivered returns of more than 90% over the past decade, compared with a meagre 17% after fees for hedge funds.  As a group, the supposed sorcerers of the financial world have returned less than inflation. ….

Sobering?  Read all about it at http://www.economist.com/news/finance-and-economics/21568741-hedge-funds-have-had-another-lousy-year-cap-disappointing-decade-going

Hedgefinger’s Deep Thoughts (Monday Revelation Edition): Will 2012 Mark the Beginning of American Decline?

Bloomberg's Simon Jonson writes:  “A modest man,” Winston Churchill supposedly quipped about Clement Attlee, his successor as prime minister, “but then he has so much to be modest about.” We should say the same about economists, particularly their ability to forecast anything in a useful and timely manner. Those predicting an imminent American economic decline have usually been no exception. This time, though, they may be on to something.

Prevailing arguments about when the era of U.S. dominance would end, and which country would supplant it, have been wildly and consistently wrong for half a century. In the 1950s, Soviet leader Nikita Khrushchev was taken seriously when he told Western ambassadors “We will bury you.” Today, his country no longer exists. In the 1980s, Japan was supposedly going to be No. 1; now the question is whether the precipitous decline in its working-age population will generate a fiscal crisis.

The Germans -- or Europeans more broadly -- were thought to be on the brink of elbowing aside the U.S. several times, including in the run-up to the global financial crisis in 2008, when the euro seemed to threaten the dollar’s role as the pre- eminent reserve currency. Remember when Brazilian model Gisele Bundchen was quoted as saying she preferred to be paid in euros? Now the euro-area economy looks very sick indeed, and Ms. Bundchen is apparently long American icons……

Read all about it at http://www.bloomberg.com/news/2012-12-23/will-2013-mark-the-beginning-of-american-decline-.html

Look Who Paid Partners $436 Million Last Year (No, It's NOT Goldman)

Brevan Howard Asset Management LLP paid its partners as much as 269.8 million pounds ($436 million) in the 12 months ended in March, more than double the amount it paid them a year earlier, after the hedge fund’s investment performance beat rivals...

The highest-paid partner, who wasn’t identified, got 78.9 million pounds, up from 64.8 million pounds in the year earlier, according to a filing by the London-based fund posted Dec. 22 on the U.K. Companies House website. Brevan Howard had 49 designated members during the period, meaning each partner received an average pay of as much as 5.5 million pounds, the filing showed,…

Read all about it at http://www.bloomberg.com/news/2012-12-23/brevan-howard-paid-partners-270-million-pounds-last-year.html

A Firm That's Been Investing With SAC Capital Since The 90s Just Pulled Out Of The Fund

Titan Advisors, a wealth management firm that's been investing with SAC Capital is ending their relationship with the hedge fund, The Wall Street Journal reports.

Clients told the Journal that the firm, which invests $3 billion in hedge funds, was severing ties with SAC because of ongoing investigations into its activities by securities regulators….

Read more: http://www.businessinsider.com/titan-advisors-leaves-sac-capital-2012-12

HuffPo Blog: For Hedge Funds, It's All in the Game

"There are few greater examples of the irrationality of investors than the world of hedge funds. Hedge fund managers are paid enormous sums, usually 2 percent of the investment amount and 20 percent of profits above a fixed level. As money has poured into these funds over time, hedge fund managers and others working in the industry have become fabulously wealthy. But, now, here's the rub, the investors haven't benefited. In fact, hedge fund investments have consistently performed substantially worse than basic investments in low-fee equity index funds, exchange traded funds or a simple mix of equity and bond funds.

"I am an outsider to the world of hedge funds in that I neither work nor invest in hedge funds. Without an ounce of insincerity, I can state that I don't understand how this industry survives, let alone has thrived for so long. Hedge funds are not generally open to average investors, but rather receive their funding from institutional investors (the source of roughly two-thirds of hedge funds' assets) and people categorized as sophisticated investors (presumably wealthy individuals with investing knowledge/experience).

"Those investing in hedge funds are generally not naïve to the fact that these funds, on average, provide much lower returns than equity indexes. Moreover, investors generally are aware that the lower returns are due to the high fees that the hedge fund managers extract from investors. Yet, in spite of the historically poor return on investment, money continues pouring into hedge funds -- they currently manage $2.2 trillion in assets or roughly four times more than in 2000….

More?  Go read http://www.huffingtonpost.com/howard-steven-friedman/for-hedge-funds-its-all-i_b_2353416.html

Wall St. nixes Alpha traders and hires Beta baby sitters

Wall Street has had its fill with the Type-A risk takers who can cost a firm billions after they have made their millions and moved on.  The hiring focus now is on the back-office compliance staff to rein in the risk takers.  But the Street also can’t find enough rock-star talent to advise America’s wealthiest individuals.

These financial advisers and private bankers belong to an exclusive club — one of the few bright and rewarding exceptions in a generally dismal Wall Street jobs scene.

“It’s a solid business, more the tortoise than the fast-moving hare,” said adviser Gerry Klingman of Klingman & Associates on Avenue of the Americas. “Before the financial crisis, sales and trading, derivatives and hedge funds were strong,” he added. “Not anymore. Now the baby boomers are aging and need financial advice….”

Read all about it at http://www.nypost.com/p/news/business/wealth_of_bank_jobs_qsBJJ49ulkfdw7jkGyiEcJ

Martoma indicted by grand jury

According to a report in the NY Post Federal prosecutors yesterday lost one opportunity to build a case against hedge fund manager Steven A. Cohen when a grand jury indicted one of Cohen’s former employees on charges related to an insider trading scheme, severely reducing the possibility he would cooperate as a witness against Cohen.

The grand jury returned an indictment against Mathew Martoma, a former portfolio manager at CR Intrinsic Investors, one of SAC Capital Management’s funds, in what prosecutors have called the “most lucrative” insider trading scheme ever…..

http://www.nypost.com/p/news/business/martoma_indicted_by_grand_jury_Ko2d7GtHFe2P5wKG9Q2y1L

December Looking Up For Hedge Funds

The year 2012 has been something of a dud for the hedge fund industry, but there's hope on the precipice of the fiscal cliff (or on the precipice of a deal to avert it).

Hedge funds are rallying modestly this month, according to figures from Hedge Fund Research. The average fund added 0.75% in the first half of December, meaning that the first two weeks of the month contributed a substantial portion of the HFRX Global Hedge Fund Index's 3.35% return for the year….

More?  Check out http://www.finalternatives.com/node/22459

Citi Hedge Fund Spinoff A Management Give-Away

Citigroup will literally give away most of its hedge fund unit, as it seeks to come into compliance with the Volcker rule.

The bank is giving a 75% stake in Citi Capital Advisors to the division's employees under a plan negotiated by former CEO Vikram Pandit in his final days at Citi. Those employees will not have to pay for it. Pandit, a former hedge fund manager, spent much of his tenure building Citi's alternative investments business, and CCA includes many of his former colleagues from Morgan Stanley and Old Lane Partners.

Citi will retain a 25% stake in CCA, which will manage up to $2.5 billion of the bank's capital, Bloomberg News reports. Citi will also pay CCA's executives to manage its money while it redeems much of it to comply with the Volcker rule, which strictly limits banks' hedge fund investments and bans banks from proprietary trading…..

Read all about it at http://www.finalternatives.com/node/22461

PIMCO's El-Erian: Ugh, Recession is Now More Likely

Fasten your seatbelts, Dudes and Dudettes, according to El-ERian: Here is a simple way to think about the political calculus of Washington's latest twists and turns. And — unfortunately — it suggests that economic and market dislocations may be needed to get our politicians to cooperate and govern properly.

A major issue from day one was the extent to which the lack of trust between our political parties undermined Washington's ability to govern.   Hoping to resolve this problem and thus deliver consensus, party leaders opted in the summer of 2011 for a very big stick: threaten the country with a major economic setback as a way to get the rank and file of both parties to cooperate.

The stick succeeded in catalyzing serious negotiations between President Obama and House Speaker Boehner. But the stick was not big enough….

Wait…wait…there’s more at http://www.cnbc.com/id/100334741

Hedge Fund Redemptions Spike

Hedge fund investors are voting with their feet in a big way this month.

Redemption requests hit a three-year high in December, according to SS&C GlobeOp's Forward Redemption Indicator. The withdrawal yardstick ticked up to 6.19% of assets under administration this month; it was 4.58% last December.

And while hedge funds' middling performance this year undoubtedly played a role, fears of a fiscal cliff and big tax hike on Jan. 1 may also be motivating redeemers…..

Read more at http://www.finalternatives.com/node/22460

Kweku Adoboli’s Colleague Couldn’t Help But Admire The Cojones It Took To Lose UBS $2 Billion

Dealbreaker's own Bess Levin writes: Not everyone would have the balls, but Adobli did and for that he deserved props.

In confronting the daily turmoil of the markets, [Adoboli and John Hughes, Adoboli’s colleague] had become brothers in arms. They dubbed Bertrand, an intense Frenchman with movie star looks, “Bateman,” after the serial killer investment banker in the 2000 movie American Psycho. Hughes admired Adoboli’s appetite for high-risk trades and called him a “legend” in the countless online chats they shared. “I’m glad there’s someone behind me with the balls of Jericho,” Hughes wrote to Adoboli in early 2011. “I love your testicles.”

More?  Of course you want more.  Go to http://www.bloomberg.com/news/2012-12-21/adoboli-fraud-in-ubs-recklessness-deflates-thatcher-deregulation.html

The're Here...They're ReaL...Introducing…The Hedge Fund Hunger Games

From Businessweek: ....The first idea that Tim Harrington, Brian Tomeo, and Spencer Deering had for a business was to gather up brand-new hedge funds and nurture them. They’d invite them to make use of their office in Miami Beach, where they could get advice, legal help, expensive software, and eventually an introduction to investors, with the three benefactors collecting a fee. The second idea, the one the trio went with, was the exact opposite. They would assemble the hedge funds and make them fight.

....A trial tournament in July proved that the mechanics of the concept worked. It also demonstrated how difficult it was to win: Tomeo entered and finished fifth out of six. For the next tournament, which they considered their real debut, the three men secured $10 million in money to manage from a capital provider in New York named Liquid Holdings Group. Winners would be chosen in three divisions. The “elite” category was for managers who were already running other people’s money. The winner here would run $5 million of the prize capital. The “professional” division was for entrants risking any amount of their own money. The winner would run $3 million. And the “launch” division was for contestants trading only on paper. There would be two winners in this division, each to be allocated $1 million....

Read all about it at http://www.businessweek.com/articles/2012-12-20/the-hedge-fund-hunger-games

Wall Street Tense After 'Fiscal Cliff' Setback

From CNBC: Friday could be a tense day for markets, as a resolution to the "fiscal cliff" appears less likely in the final trading days of the year.

Stock futures fell sharply Thursday evening after House Speaker John Boehner said he failed to mount support for his "Plan B" version of a bill that would raise taxes only on families earning more than $1 million, a plan already opposed by the White House. GOP leaders said the House would not take up any other votes until after Christmas, meaning the fiscal cliff talks could now count down to the new year's deadline or later.

Dow futures saw triple digit losses Thursday evening, while Asian markets gave up early gains….

Read all about it at http://www.cnbc.com/id/100332842

From out Last But Not Least Dept.: More On The Planet 'Nibiru' That's Supposed To Smash Into Earth Tomorrow...

From the folks at NPR: It is Dec. 20, 2012 — and citizens of Earth are panicking, consumed by the idea that the world will end Friday, something they say was predicted by Mayan astronomers. Of course, most people are not panicking, and Maya expert David Stuart says no one should. The calendar, he says, has plenty of room to go.

In an interview airing on Thursday's Morning Edition, David Greene asks archaeologist Stuart, who helped translate influential ancient Mayan hieroglyphs in 1996, if he thinks the world will end on Dec. 21.

"Absolutely not," is Stuart's answer, dashing the hopes of students hoping for a three-day weekend, and any consumers who tried to cash in their double-wides or maxed out their credit cards in the belief that all history — not just their credit history — would come to an end….

http://www.huffingtonpost.com/2012/12/20/maya-expert-the-end-of-ti_n_2337638.html

Pershing Square's Ackman shorts Herbalife; stock dives

According to Reuters’ Svea Herbst-Bayliss activist investor William Ackman confirmed on Wednesday that he is betting against the stock of Herbalife Ltd in a move that sent shares of the weight management product company reeling and sparked a caustic rebuke from its CEO.

Ackman, who oversees $11 billion in assets at Pershing Square Capital Management, told Reuters that he was shorting Herbalife when asked about the matter on Wednesday. The company's share price tumbled more than 12 percent, becoming, at one point, the day's biggest percentage loser on the New York Stock Exchange.

Ackman is one of the world's most closely watched hedge fund managers and invests in a handful of companies, where he often pushes for change from the inside. Earlier this year, he won a proxy contest at Canadian Pacific Railway, which helped him unseat top management.His latest move in Herbalife could spur other short-sellers to follow suit, industry analysts said…

Read all about it at http://www.reuters.com/article/2012/12/19/ackman-herbalife-idUSL1E8NJFEA20121219

Detained Argentine naval ship leaves Ghana

An Argentine naval vessel detained in Ghana at the request of a hedge fund seeking payment on defaulted government bonds left the West African country on Wednesday, a port official told Reuters.

The ARA Libertad, a tall sailing ship used for training, was detained on a court order obtained by NML Capital Ltd, which claims it is owed $300 million resulting Argentina's debt default in 2002….

More?  Check out http://www.reuters.com/article/2012/12/19/ghana-argentina-ship-idUSL5E8NJF6W20121219

Traders Hedge Bets as Budget Talks Turn to Bluster

U.S. markets in the last few weeks have conveyed a strong sense of optimism over Washington's budget battle - perhaps a bit too much, at least acccording to CNBC.

The benchmark S&P 500 indexrecently capped off its best two-day run in a month and the euro reached an 8-1/2-month peak against the dollar, largely on expectations that an agreement to avoid the "fiscal cliff" - $600 billion in automatic spending cuts and tax hikes set for early next year - is nearly at hand.

But at the risk of sounding like Ebenezer Scrooge, some investors fear a sudden run of bad news could snuff out the pre-holiday cheer and send stocks down. As a result, they are wading into the options market to hedge their bets and protect their profits….

Find out more at http://www.cnbc.com/id/100329494

U.S. Charges Star Trader

Tom Alexander William Hayes was a star trader at UBS generating almost $260 million in revenue for the Swiss bank in just over three years and helping to shape an entire trading market with his aggressive, high-value bets on yen interest rates, regulators told  the WSJ.

The bank "highly valued" the 33-year-old Briton for his ability to generate huge profit, regulators said.  But that value proved illusory, as UBS on Wednesday agreed to pay a $1.5 billion settlement to U.S., U.K. and Swiss regulators for a rate-rigging conspiracy he allegedly orchestrated.

Mr. Hayes, who wasn't named in the UBS settlement documents, was the person identified as "Trader A" or "senior yen derivatives trader," said people close to the deal. U.S. prosecutors on Wednesday charged Mr. Hayes with conspiracy, wire fraud and price fixing…

Read all about it at http://online.wsj.com/article/SB10001424127887324731304578189752666144398.html?mod=WSJ_hp_LEFTWhatsNewsCollection

The Stock Market Looks Like A Gigantic Powder Keg, Ready To Blow

BI’s Sam Ro writes: Stocks have held up remarkably well lately considering all of this talk about the fiscal cliff and how going over the cliff could hack multiple percentage points off of GDP growth.

However, the apparent dismissal of this impending, high-risk event with a non-zero probability may have turned the stock market into a giant powder keg.  The S&P 500 closed at 1,435 today, which is near a three-month high and just 40 points from a post-crisis high.

Meanwhile, complacency is arguably high as reflected by the low levels in the volatility index...

Read more: http://www.businessinsider.com/stock-market-fiscal-cliff-downside-risk-2012-12#ixzz2FZdjuyFW

Morgan Stanley Suggests Paulson And Co ‘Advantage’ Investors Pull Their Money And Run

They were willing to give ‘em a chance, but no more.:

From CNBC: Morgan Stanley Wealth Management has become the second major brokerage to drop hedge fund manager John Paulson’s Advantage and Advantage Plus Funds from their retail offerings, CNBC has learned. The move was not expected. Back in May, put the funds on “watch” because of their poor performance. In an email sent to the unit’s financial advisers on Tuesday, it changed the status of the funds to “redeem” from “watch,” telling clients they should redeem their holdings in the funds. Morgan Stanley cited the poor performance of the funds as the reason behind its decision… The source said other Paulson funds continue to be offered by Morgan Stanley Wealth Management…

Read all about it at http://m.cnbc.com/us_news/100328859?refresh=true

Dr. Doom: U.S. will go over the fiscal cliff and markets will force a deal

Keeping to his nickname of “Dr. Doom” after he foretold of the 2008 financial crisis, economist Nouriel Roubini told marketwatch  he expects the U.S. to fall off the fiscal cliff.  Referring to the combination of tax hikes and spending cuts facing the U.S. on Jan. 1 under current federal law, Roubini said “I think there’s a highly likely chance we’re going to go over the cliff.”

But it won’t be all bad, said Roubini, a professor of economics at New York University and chairman of Roubini Global Economics.  “If we do so, the market reaction is going to force the two sides to reach an agreement,” he said in an interview on Bloomberg TV.

Switching back to his gloomy ways, Roubini added that even with an agreement on Capitol Hill, the U.S. will face a roughly 1.4% headwind on gross domestic product related to fiscal and tax policy surrounding the fiscal cliff.  But even with that hardship, Roubini admitted  the U.S. is faring better than other nations….

Read all about it at http://blogs.marketwatch.com/thetell/2012/12/14/u-s-will-go-over-the-fiscal-cliff-and-markets-will-force-a-deal-nouriel-dr-doom-roubini/

Doing Something Right! Vanguard has record customer inflow of $130 billion

Money manager Vanguard Group told Reuters customers had invested $130.4 billion in its mutual and exchange-traded funds during the first 11 months of 2012, beating the fund industry's previous annual inflow record.

The firm's 2012 inflow, mostly into equities, so far exceeded the previous annual record of $129.6 billion set by JPMorgan Chase & Co in 2008, according to fund research firm Strategic Insight. Vanguard's previous high was $104 billion, set in 2007, the company said Wednesday.

Investors and financial advisers have favored low-cost and index funds in 2012, playing to Vanguard's historic strengths. The trend has also benefited BlackRock Inc's iShares ETF unit, while hurting more traditional managers like American Funds, Dodge & Cox and Janus Capital Group Inc.  Vanguard's success is also due to the firm's efforts to offer more products catering to self-directed retail investors, particularly ETFs, said Avi Nachmany, research director of Strategic Insight in New York….

Find out more at http://www.reuters.com/article/2012/12/19/us-vanguard-flows-idUSBRE8BI0Z920121219

Grim News: Wealth Manager Dies After Falling Onto Glass Coffee Table

This is terrible...

Brian C. Baker, the founder of Chicago-based wealth-management and investment firm Vestor Capital, died after falling onto a glass coffee table in his home, Bloomberg News reports.  He was 58.

"We are deeply saddened to announce the passing of our founding partner, business associate and dear friend Brian C. Baker," Vestor Capital said on its site.

The Chicago Trib reported that he died in the early morning on December 16 after accidentally falling on a glass coffee table at his Wilmette home sustaining multiple sharp force wounds to the back….

Read more: http://www.businessinsider.com/brian-baker-dies-after-falling-onto-glass-coffee-table-2012-12

Introducing...A .Kill switch’ for stocks

Fasten your seatbelts people.  It could be a bumpy ride.  From Reuters: regulators and exchanges are getting closer to a framework for a “kill switch” that could be used to shut down trading before software glitches get out of control and wreak havoc on markets, a top exchange official said yesterday.

“We have all engaged in a much more detailed assessment of how a kill switch could work,” Joe Mecane, an executive vice president at the New York Stock Exchange, told a Senate Banking panel. “I think we are hopeful to have something to report in the first quarter of next year….

Read more at http://www.nypost.com/p/news/business/kill_switch_for_stocks_fwVSCrY57W0GfLNC4iDi4O

David Einhorn Nails It Again!

Hedge fund hot-shot David Einhorn, the founder of Greenlight Capital, has nailed it again.

This time it's with General Motors. Shares of GM were last trading up more than 7% following news that the car manufacturer said it would buy back 200 million shares from the Treasury for $27.50 each, or $5.5 billion, according to the Associated Press.

The government also plans to sell its 300 million shares starting in January, the AP reports.

As of the third quarter ended 9/30/2012, Greenlight held 21,528,063 shares, or a 1.38% stake, in GM, according to 13F data compiled by Bloomberg.  What's more is Greenlight had added 4,155,200 shares in Q3, the data shows….

Read more: http://www.businessinsider.com/david-einhorn-nails-it-on-general-motors-2012-12