PrefBlog

Goldman’s Global Alpha fund lost 22% in August:

The fund, managed by Mark Carhart and Raymond Iwanowski, has dropped by a third in 2007 and 44 percent from its peak in March 2006. Investors notified New York-based Goldman last month that they plan to withdraw $1.6 billion from the fund, or almost a fifth of the assets as of July 31.

Global Alpha’s biggest loss in the month stemmed from the managers’ decision to sell Japanese yen and buy Australian dollars. The so-called carry trade unraveled when the Australian dollar fell 6 percent against the yen in August. Equities holdings, including stocks in the U.S., Norway and Finland, declined 4.7 percent.

Red Kite, a $1-billion metals fund, lost about 20%.

In the junk world, financing is being arranged for KKR Boots, while negotiations continue on the $26-billion First Data deal (there is a late report that talks have been suspended for a week). Tom Graff has some historical commentary, focussing on the perils of market timing.

American ABCP outstanding continued to decline according to the regular Federal Reserve release. Yield spreads to government paper are still extremely high, however.

The news is good; it looks like things are starting to get moving again – creakily – but we’re by no means out of the woods yet. There will be lots of firms hanging on by their fingernails (Xceed Mortgage Corp., for instance, has just eliminated its dividend) and confidence is always slow to recover. However, it is nice to see that the hedgies have fulfilled their function by losing a lot of money and helping to stabilize things.

After the markets closed there were reports that Northern Rock, a UK mortgage lender, has received emergency funding from the BoE. This news had an immediate effect on New Zealand and Australian currencies.

Menzie Chinn has criticized Bernanke’s Savings Glut hypothesis:

To sum up, the Bernanke explanation for the US current account deficit relies upon a particularly small effect of budget deficits on current account deficits, and treats the US housing boom and associated mortage equity withdrawal as largely exogenous, or primarily a function of foreign excess saving. If you believe these points, then the saving glut story is the story for you.

And Brad Setser poked holes in the argument that China is forced to finance the US current account deficit:

The standard argument that China would shoot itself in the foot, financially speaking, if it stopped lending to the US is wrong.   China would certainly shoot its export sector in the foot if it stopped lending to the US.   And it is true that if China stopped lending to the US, the value of the RMB would rise relative to the dollar would increase and the value of China’s existing US assets would fall.  But China would still be better off, in the purely financial sense, if it took its lumps now.

That’s enough to make you feel good, isn’t it? The US economy is a Ponzi scheme. Maybe they should cut taxes, or something.

US Equities were euphoric over some indications that the credit crunch is less crunchy, while Canadian equities experienced similar dizziness over the prospect of oil at $80+. An ill wind will always blow some good somewhere!

Treasuries fell in a slight reversal of the flight to quality, as did Canadas.

It was a quiet day for prefs with not much volume.

There were five other $25-equivalent index-included issues trading over 10,000 shares today.

This entry was posted on Thursday, September 13th, 2007 at 9:22 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.