August 21, 2012 archive

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Career Risk Panic: Only 11% Of Hedge Funds Are Outperforming The S&P In 2012

Tyler Durden, Zero Hedge

08/20/2012 19:10

The S&P500 may be soaring to new 2012 highs, and has its all time highs within short squeeze distance, yet paradoxically this is arguably the worst possible news to the cadre of US hedge fund managers used to beating the market year after year, thus justifying their (increasingly more unsustainable) 2 and 20 fees. The reason: according to just a released report quantifying hedge fund performance so far in 2012, with an average return of 4.6% as of August 3 compared to a 12% return for the S&P, a pathetic 11% of all hedge funds are beating S&P year to date. This is the worst yearly aggregate S&P 500 underperformance by the hedge fund industry in history, and also explains why the smooth sailing in the S&P500 belies the fact that nearly every single hedge fund manager (and at least 89% of all) is currently panicking like never before knowing very well there are only 4 more months left to beat the S&P or face terminal redemption requests. And with $1.2 trillion in gross equity positions, the day of redemption reckoning at the end of the year (and just after September 30 for that matter as well) could be the most painful yet.

More Evidence Wall Street is Overpaid

Matt Taibbi, Rolling Stone

August 21, 9:11 AM ET

(O)ne of the most frequently-overlooked problems of the financialization age is that a lot of our brilliant financial engineers are actually pretty damned average, when it comes to playing the market.

There’s a great little piece at Zero Hedge about how hedge funds are having a terrible year (for the second straight year), with only 11% of all funds outperforming the Standard and Poor’s 500, the basic stock index.



Translating that into English, all those super-rich people who turned to hedge funds with their millions in the hopes that bunches of Whiz-Kids from Wharton and Harvard and Yale would find unseen and wildly creative investment ideas to fatten their fortunes — all those rich clients are actually finding out now that those same Whiz Kids are buying Apple just like the rest of us. Hey, it has to be a good stock, right? Everyone has an iPhone now.



As is apparently also the case with Mitt Romney’s PE business, which analysts have found often don’t do much better than average if at all, the data shows more and more that we’d all be better off, and there’d be a lot less mischief, if the world’s biggest and more powerful investment specialists just dumped money into humdrum baskets of stocks instead of racking their enormous brains to come up with exotic new trades.

Someday we’ll get back to the time when the really smart guys from the best schools went to work for companies that built actual products, engineered more efficient cars, cured diseases, etc. Because it seems like our best minds kind of suck at investing.

Uncle Sam Needs YOU for a Bailout: 6 Reasons Another Big Banking Crisis Is Coming Our Way

By Alexander Arapoglou and Jerri-Lynn Scofield, Alternet

August 17, 2012

(R)egulators decided that sophisticated investors, including the wealthy, pension funds and charities, had enough financial savvy to be allowed to invest in shadow banks that were either lightly regulated, or not at all. Such alternative investment vehicles, including hedge funds and private equity funds, were exempt from investment restrictions.

In the last two decades, there’s been an explosive growth in shadow banks. The size of this unregulated system has increased fivefold and today is larger than the regulated financial system.

The rationale? Sophisticated investors, it’s claimed, can look after themselves, and therefore the largely unregulated funds that cater to them don’t pose any risks to the rest of us. But that’s not proven to be the case.



(A) decade before this bailout, U.S. financial regulators were involved in a rescue of a shadow bank, which helped set the stage for TARP.  In 1998, the Long-Term Capital Management (LTCM) hedge fund got into trouble by placing heavily-leveraged derivatives bets during the Asian financial crisis. Hedge funds are allowed to operate with scant regulatory supervision on the rationale that they cater only to sophisticated investors who could bear the risk.

The Federal Reserve changed its mind when it realized that LTCM’s failure was a threat to the global economy. So the Fed corralled major banks in a room, and told them to fix the problem. They dismembered LTCM and took its underperforming assets onto their books.

The Fed’s role in this rescue sent the wrong message: that the government would be there to fix problems, and that banks and shadow banks alike didn’t have to work too hard to manage risk and to protect themselves from contagion.



Banks need to be seized, or at minimum assessed by a neutral observer, and their balance sheets cleaned up. Investors, too, must pay a price for making foolish investment choices. Typically, existing shareholders are wiped out, while bondholders see their promises of guaranteed debt payments converted to more speculative shares of stock.



(T)he lack of a streamlined regulatory system means banks play regulatory arbitrage. Recently we saw this dynamic unfold-unsuccessfully in this case- as Standard Chartered Bank used its press cronies to pressure Benjamin Lawsky, New York’s Superintendent of Financial Services, to go easy on the bank for laundering money for Iranian clients and cooperate with other regulators – the Fed, Justice and Treasury- that favored a softer stance. Lawsky threatened to cancel the bank’s license to operate in New York-a death sentence for any international bank. When he didn’t back down, the bank agreed to a $340 million settlement. Lawsky’s firm stance improves the prospects for the pending federal probes.



And so we come back to where we started-the decision not to go after Goldman Sachs. Normally, the Justice Department doesn’t  comment on its pending investigations. But for Goldman, the rules are different. Justice issued an unusual statement saying the firm wouldn’t be criminally charged, as prosecutors didn’t believe they could meet the burden of proof necessary to win a trial. Earlier last week, Goldman disclosed that the SEC wouldn’t be pursuing criminal charges against the firm, despite having issued Goldman a “Wells notice” of its investigation. Dropping an investigation after issuing such a notice is not altogether unprecedented– but is also rare.



The current failure to prosecute means that banks will continue to pursue risky policies. Bankers continue to get paid based on results, and there’s so much to gain from a successful risky bet, and so little to lose from a bet gone bad, particularly if the taxpayer is there to pick up the tab.

In America, if you misuse food stamps, and you get caught, there’s a good chance you’ll lose your benefits, and you might even go to jail.  If you rip off the Medicare system, commit tax fraud or perpetrate identity theft, federal prosecutors will throw the book at you. But if you’re part of a multi-billion dollar enterprise that misleads investors and lies to Congress, you’re like the trophy fish that’s caught and released.  You’re off the hook.

(h/t Naked Capitalism)

I see in fight club the strongest and smartest men who’ve ever lived. I see all this potential, and I see squandering. God damn it, an entire generation pumping gas, waiting tables; slaves with white collars. Advertising has us chasing cars and clothes, working jobs we hate so we can buy shit we don’t need. We’re the middle children of history, man. No purpose or place. We have no Great War. No Great Depression. Our Great War’s a spiritual war… our Great Depression is our lives. We’ve all been raised on television to believe that one day we’d all be millionaires, and movie gods, and rock stars. But we won’t. And we’re slowly learning that fact. And we’re very, very pissed off.

Cartnoon

“You Were Right, Sylvester.”  This was originally posted here April 29, 2011 and was the 26,000th essay on DocuDharma.

Scaredy Cat

Muse in the Morning

Photo Sharing and Video Hosting at Photobucket
Muse in the Morning


Catcher 2

Late Night Karaoke

The Tangled Web That Nations Weave: Part 1

Cross posted from The Stars Hollow Gazette

Oh what a tangled web we weave,

When first we practise to deceive!

   Sir Walter Scott, Marmion, Canto vi. Stanza 17.

   Scottish author & novelist (1771 – 1832)

Assange calls on US to end “witchhunt”

Speaking on Sunday from a balcony off a room in the embassy, Assange thanked Ecuadorean President Rafael Correa for the “courage he has shown” in granting him asylum.

Assange has said his extradition to Sweden is the first step in a process that will see him sent to the United States, where he believes he will be prosecuted for espionage in connection with the volumes of US government documents which WikiLeaks has released.

Julian Assange asylum: Ecuador is right to stand up to the US

by Mark Weisbrot

The United States would paint itself as a promoter of human rights, but any right to make that claim is long gone

..] Ecuador’s [decision to grant political asylum to Assange was both predictable and reasonable. But it is also a ground-breaking case that has considerable historic significance.

First, the merits of the case: Assange clearly has a well-founded fear of persecution if he were to be extradited to Sweden. It is pretty much acknowledged that he would be immediately thrown in jail. Since he is not charged with any crime, and the Swedish government has no legitimate reason to bring him to Sweden, this by itself is a form of persecution.

We can infer that the Swedes have no legitimate reason for the extradition, since they were repeatedly offered the opportunity to question him in the UK, but rejected it, and have also refused to even put forth a reason for this refusal. A few weeks ago the Ecuadorian government offered to allow Assange to be questioned in its London embassy, where Assange has been residing since 19 June, but the Swedish government refused – again without offering a reason. This was an act of bad faith in the negotiating process that has taken place between governments to resolve the situation.

Former Stockholm chief district prosecutor Sven-Erik Alhem also made it clear that the Swedish government had no legitimate reason to seek Assange’s extradition when he testified that the decision of the Swedish government to extradite Assange is “unreasonable and unprofessional, as well as unfair and disproportionate“, because he could be easily questioned in the UK.

But, most importantly, the government of Ecuador agreed with Assange that he had a reasonable fear of a second extradition to the United States, and persecution here for his activities as a journalist. The evidence for this was strong. Some examples: an ongoing investigation of Assange and WikiLeaks in the US; evidence that an indictment had already been prepared; statements by important public officials such as Democratic senator Diane Feinstein that he should be prosecuted for espionage, which carries a potential death penalty or life imprisonment.

There is much more to this affair than the embarrassing release of documents revealing breaches of diplomatic protocol and targeted assassinations. It involves the questionable charges of sexual assault by two two women in Sweden involves consensual sex, who are good friends, deleted tweets, face books pages and changed their stories; the mishandled investigation by Sweden as well as, the CIA and a private security agency STRATFOR. Even more missed by the MSM is the underlying reason why Ecuador granted Assange asylum. It’s not as altruistic as it seems. Stayed tuned as we try to unravel this web of lies and international deception that was woven to hide the truth that Wikileaks would like you to know.  

More Democrats

Worried?  You should be.

digby

I don’t have a clue how to stop this train. Having the zombie eyed granny starver on the ticket hasn’t changed their view that the Grand Bargain to slash 4 trillion in government programs in the middle of an epic slump is still great policy and even better politics.

But don’t worry. They’ll ask millionaires to “pay a little more” so it’s all good. I’m feeling more “confident” already.

Basically we have a choice between the Republican dystopian hellscape or the Democrats’ long slow jobless recovery with even more insecurity for the poor and middle class.

Balanced?  How many billionaires can you fit on the backs of the workers?

dday (note: he used to write with digby)-

The best expression of the austerity that has been implemented at the federal level for the last two years can be found in this chart from Goldman Sachs. It shows pretty clearly that fiscal policy at the federal level turned negative in mid-2010. This doesn’t just mean that fiscal policy, after the stimulus began to run out, was relatively speaking less powerful. It means that federal fiscal policy, not combined with state and local but just confined to the federal level, dragged on growth starting in mid-2010, before the 2010 midterm elections. It really never recovered, save for a couple quarters of near-zero growth from fiscal policy in the middle of 2011.

And there are policies that correspond to this. The White House froze federal employee pay; it was one of the first items touted from their budget in 2010. They cut food stamps twice to pay for other priorities. They cut unemployment benefits in the most recent extension, so that the 99-week benefit has been reduced to 73. They cut $39 billion from the 2012 budget and imposed a spending cap for the next ten years. The Administration will tell you proudly that they have inaugurated the lowest rate of discretionary spending (.pdf) since the Eisenhower era.

Obama Reiterates Desire for Grand Bargain on Taxes and Spending

By: David Dayen, Firedog Lake

Monday August 20, 2012 2:23 pm

(T)he pro-austerity rhetoric emanating from the Obama Administration has been corrosive. And despite signs that, after the unpopular debt limit deal, the President put such rhetoric in his hip pocket, sadly that’s not at all true. Witness him today in his impromptu press conference.



Welcome back, confidence fairy!

“The $1 trillion in spending cuts we’ve already made,” also typically ignored by those who want to say that Obama out-foxed Boehner in the debt limit deal, refers to the spending cap, which will starve federal investment for the next ten years. But the clear point made here is that $1 trillion is not enough for this President. He still seeks that grand bargain where token revenue increases are exchanged for “tough spending cuts.” This is still part of the agenda even in an election year.



(O)ftentimes, budget cuts and grand bargains like this don’t happen because a very vocal minority makes it toxic for them to happen. Then they get told “see, there was never anything to worry about, you didn’t have to shout,” when the shouting helped stop the plan from taking effect. It’s a thankless job, alas, but someone has to do it.

On This Day In History August 21

Cross posted from The Stars Hollow Gazette

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

August 21 is the 233rd day of the year (234th in leap years) in the Gregorian calendar. There are 132 days remaining until the end of the year.

On this day in 1959, Hawaii became our 50th state. Hawaii is the only U.S. state made up entirely of islands. It occupies most of an archipelago in the central Pacific Ocean, southwest of the continental United States, southeast of Japan, and northeast of Australia. Hawaii’s natural beauty, warm tropical climate, inviting waters and waves, and active volcanoes  make it a popular destination for tourists, surfers, biologists, and volcanologists alike. Due to its mid-Pacific location, Hawaii has many North American and Asian influences along with its own vibrant native culture. Hawaii has over a million permanent residents along with many visitors and U.S. military personnel. Its capital is Honolulu on the island of Oahu.

The state encompasses nearly the entire volcanic Hawaiian Island chain, which comprises hundreds of islands spread over 1,500 miles (2,400 km). At the southeastern end of the archipelago, the eight “main islands” are (from the northwest to southeast) Niihau, Kauai, Oahu, Molokai, Lanai, Kahoolawe, Maui, and Hawaii. The last is by far the largest and is often called “The Big Island” to avoid confusion with the state as a whole. The archipelago is physiographically and ethnologically part of the Polynesian subregion of Oceania.

The first known settlers of the Hawaiian Islands were Polynesian voyagers who arrived sometime in the eighth century. In the early 18th century, American traders came to Hawaii to exploit the islands’ sandalwood, which was much valued in China at the time. In the 1830s, the sugar industry was introduced to Hawaii and by the mid 19th century had become well established. American missionaries and planters brought about great changes in Hawaiian political, cultural, economic, and religious life. In 1840, a constitutional monarchy was established, stripping the Hawaiian monarch of much of his authority.

In 1893, a group of American expatriates and sugar planters supported by a division of U.S. Marines deposed Queen Liliuokalani, the last reigning monarch of Hawaii. One year later, the Republic of Hawaii was established as a U.S. protectorate with Hawaiian-born Sanford B. Dole as president. Many in Congress opposed the formal annexation of Hawaii, and it was not until 1898, following the use of the naval base at Pearl Harbor during the Spanish-American War, that Hawaii’s strategic importance became evident and formal annexation was approved. Two years later, Hawaii was organized into a formal U.S. territory. During World War II, Hawaii became firmly ensconced in the American national identity following the surprise Japanese attack on Pearl Harbor in December 1941.

Admission, or Statehood, Day is an official state holiday. It is the home state of President Barack Obama, the only President from that state and one of the most beautiful places I have ever visited. The pictures were the very hard to select. The second picture (above) is an aerial view of Diamond Head.

Diamond Head is a dormant volcanic cone on the island of Oahu. It is called Le’ahi by Hawaiians, most likely from lae ‘browridge, promontory’ plus ‘ahi ‘tuna’ because the shape of the ridgeline resembles the shape of a tuna’s dorsal fin. Its English name was given by British sailors in the 19th century, who mistook calcite crystals embedded in the rock for diamonds.

Then of course there are volcanoes at Hawaii Volcanoes National Park. The first picture on the left is the more famous of the volcanoes, Mauna Loa which is the largest volcano on Earth by volume and area and one of the five volcanoes in that form the islands.