Tuesday, December 16, 2008

Today's Headlines

- U.S. stocks gained the most in a week, led by banks, after the Federal Reserve reduced its benchmark interest rate to a record low and said it will employ “all available tools” to revive economic growth. Citigroup Inc. jumped 7.6 percent and JPMorgan Chase & Co. climbed 9.2 percent after the central bank said it “stands ready to expand” purchases of mortgage-backed securities. Goldman Sachs Group Inc. rallied 13 percent after its first quarterly loss as a public company was smaller than some analyst estimates. Boeing Co. and Intel Corp. jumped more than 5 percent as all 10 industry groups in the Standard & Poor’s 500 Index rallied after the Fed’s announcement. “They’re trying to rekindle the confidence of consumers and businesses, and that ultimately drives profits in the stock market,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, Ohio, which manages $30 billion.

- The Federal Reserve cut the main U.S. interest rate to “a target range” of between zero and 0.25 percent and said it will do whatever is needed to end the longest recession in a quarter-century and revive credit. The Fed “will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the Federal Open Market Committee said today in a statement in Washington. “Weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.” Treasury notes rallied in anticipation the Fed will buy the securities to force borrowing costs for consumers and companies lower.

- Brazil gasoline sales fell 2.8% in November versus year-ago levels.

- Russian industrial production shrank the most since the economic collapse in 1998 as the global slowdown reduced demand in November for steel, pipes and fertilizers, pushing the nation to the brink of recession. Output contracted 8.7 percent after growing 0.6 percent in October, the Moscow-based Federal Statistics Service said today. The result was about 4 percentage points below the lowest forecast in a Bloomberg survey.

- R3 Capital Management LLC’s $1.5 billion hedge fund lost 31 percent in six months after its founding by Rick Rieder mainly because its assets were frozen by the bankruptcy of his former employer, Lehman Brothers Holdings Inc., according to three people familiar with the matter.

NY Times:
- In a clear signal of how much the fraud allegedly perpetrated by Bernard L. Madoff may have hurt the hedge fund industry, the Credit Suisse/Tremont Hedge Fund Index fell 4.15 percent in November, far more than the preliminary estimation of a 0.7 percent decline issued last week, as the index included funds exposed to Bernard L. Madoff in the finalized numbers.Last week, the equity-market neutral strategy was estimated to have a 0.85 percent gain, The Wall Street Journal noted. But according to the updated numbers, which included new figures from the Kingate Global and Fairfield Sentry funds, both investors in Bernard L. Madoff Investment Securities, the segment actually saw losses of 40 percent for the month, The Journal noted.

Washington Post:

- Most Americans continue to oppose a government-backed rescue plan for Detroit's Big Three automakers as majorities blame the industry for its own problems and are unconvinced failure would hurt the economy, according to a new Washington Post-ABC News poll. Overall, 55 percent of those polled oppose the latest plan that Chrysler, Ford and General Motors executives pitched to Congress last week, on par with public opposition to earlier, pricier efforts. Sixty percent said it would make no difference or would be good for the economy if one or more of the companies were forced to restructure under the protection of bankruptcy laws. Overall, independents continue to lean against the plan, with 57 percent opposing it and 41 percent supporting it. About six in 10 of those in the South and West are opposed to the bailout, while those in the Northeast and Midwest, home to much of the affected manufacturing base, are split evenly on the idea. Union households are no more apt than those without a union member to favor the plan, 44 percent compared with 42 percent.

NY Post:

- Walter M. Noel will likely be singing the blues this Christmas. Noel and his hedge fund Fairfield Greenwich Group are at the top of a growing list of highfliers expected to topple as a result of Bernie Madoff's alleged $50 billion web of deceit.


- What is the future of hedge funds in these times of economic meltdown and recession? A report from Fortis Metals Monthly says commodity-oriented funds will decline over the coming months, but those that weather the storm will emerge strengthened. The report says on Nov 10th, Rahm Emanuel, President-elect Obama's selection as his chief of staff, backed proposed legislation to prevent hedge fund managers from deferring taxes on offshore compensation. However, according to the Centre for Responsive Politics, Emanuel was the largest recipient of donations from hedge funds' employees during this election cycle, which suggests that he may be a moderating force on what is likely to be an impetus toward greater regulation of the industry.

Chicago Sun-Times:

- Americans aren't ready to give up their Christmas trees just because of the slumping economy. But it does seem that people are downsizing -- picking smaller trees -- to save money. That's according to growers, sellers, and industry analysts, who say Christmas tree sales are holding steady.

- Lockheed Martin’s(LMT) CEO expects the company to make a US acquisition next year.


- The Kremlin has hardened its stance against dissent in Russia by expanding the definition of treason to include critics of the state. A new Bill submitted to the Duma, the Russian parliament, on Friday will leave people vulnerable to prosecution for acts considered to threaten not only national security but also the country's constitutional order. Critics said that it was designed to intimidate opposition to the Kremlin at a time of rising economic discontent.


- There was grave embarrassment at London's biggest hedge-fund group as FTSE 100 Man Group insiders admitted the firm effectively breached its own standards to invest in and lose $360million in the Madoff scandal.


- Russian housing prices may decline as much as 20% next year, citing Viktor Zabelin, head of the Russian Union of Builders. A drop of more than 20% would be “critical” for construction companies, which would be at risk of not recouping their investments.

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Globe and Mail:

- Madoff debacle reveals stunning failure of due diligence. Bernie Madoff never, ever explained just how he was making money. There was vague talk of owning blue-chip stocks and writing covered calls. But most of this business was done on a trust-me basis, by a trader with five decades of experience, credentials such as a stint as Nasdaq's chairman, and a great story of getting started in markets with $4,000 earned as a lifeguard. Anyone who tried to replicate Mr. Madoff's results, based on the minimal disclosure from his funds, couldn't reverse-engineer his performance. Auditors to Madoff Investment were never made available. Now we're finding out that Madoff's auditors consisted of two guys working out of a New York City suburb, one of whom is in his 70s, and living in Florida. There seems to have been a massive failure of due diligence at Madoff Investments.

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