The (oil)DOWN side of ETFs

Claymore Securities, the creator of arguably the most exotic ETFs, includes "MacroShares" as one of their offerings. Take a look at the Discount/Premium to NAV that the "Oil Down" fund (designed to go UP in price when oil goes DOWN) is trading...


No, that is NOT a mistake...

Thanks to NakedShorts for pointing this out...

Why I Work For Bloomberg LP

Our biggest competitor:



Impressive.

Puerto Rico

Munis are a great place to invest right now. Imagine yielding more than 10 percent on AAA rated securities backed by the government. The first of these bonds that Bloomberg mentions are the Puerto Rico Tax Free AAA rated GOs. When I was working in Puerto Rico in 2006 they were in the midst of creating these securities. I was completely against the issuance of these bonds as the interest payments come from a sales tax that the government imposed. I am not a fan of taxes, much less a fan of taxes that will likely be in place until 2024 which is when the last of the bonds expire. The PR government has many problems and I won't go into much detail but for investors, these bonds are GREAT . There is an upcoming election in the island. If the candiate I want to win does (which will most likely will) it will mean even better things for Puerto Rico's economy.


Bloomberg

With the collapse of the $330 billion auction-rate debt market, a disaster for issuers and stranded bondholders, has made it possible for investors to earn 10 percent or more on top-rated securities.

Puerto Rico's tax-free AAA 2024 general obligation bonds are paying 12 percent, equivalent to an 18.5 percent yield on taxable issues. That compares with rates of 4.3 percent for 10-year U.S. Treasuries and 10.5 percent for corporate high- yield, high-risk debt, according to indexes compiled by Merrill Lynch & Co.

Federal Reserve Balance Sheet & How This All Ends.

In a stroke of ingenuity, banks are packaging anything they can find to get cash from the Fed. Admittedly this is a broad statement, but Lehman for one recently pooled $2.8B of its unsold buyout debt into the Freedom CLO, which it in turn punted to the Fed for loans (though it was required to keep 25% on its own balance sheet). This raises questions as to whether there is any hope of preserving the Fed’s balance sheet. As it takes on more collateral of questionable worth, some are starting to worry that the Fed will run out of T-bills. What options does the Fed have in the unlikely even that it does run out? Yves Smith has a good compilation of options from various sources. All of them are quite unconventional, but the Fed has shown itself to be fairly comfortable with innovative policy. Some of the more interesting options (of questionable legality) include the Fed issuing short-term paper, paying interest on bank reserves, or reversing the TSLF by providing Fed guaranteed MBS to banks.

Federal Reserve options aside, I’ve been wondering, how does this all end? Housing prices show no sign of slowing their decline, MBS and similarly backed junk seems destined to keep declining in value (though such “sure bets” are admittedly a dangerous assertion). It seems that this credit crisis will proceed well through 2008 and possibly into 2009. That is unless drastic action is taken in the form of outright purchases of MBS by a branch of the federal government or some incredibly creative stop on housing prices, though I am not advocating either.

I’m interested in hearing people’s thoughts on both the issue of Fed options in the event it runs out of T-Bills (if it even can) as well as the notion of “how this all ends”.

(Graphic from Alea).

How They Stack Up

Interested in Private Equity? See how some of the top firms in the World have been performing.

CalSTRS PE Returns

World Housing Bubble!

Arguably, the root cause of all the troubles the US and now the world financial markets are having is the US housing bubble and its subsequent bursting, which has yet to end. In last weeks Economist there was a short article with the accompanying graphic seen on the right. The chart shows housing prices as percentage gaps over what can be justified by their respective market fundamentals. Though the US has already suffered a 20-30% decline in housing prices, there appears to be more room to go. More frighteningly, virtually all of Europe is only beginning to feel the impact of housing price declines and is still sitting a top a glaring bubble. The slight caveat to this is that some areas may not be quite as quick to deflate. Europe’s greater population mobility and lesser landmass in relation to the US played a role in helping prop up this housing froth and will likely play a hand in its decline. Besides the obvious economic impact on wealth that this decline has, it appears as though other financial markets may be spared the slaughter that New York felt. After all, with the exception of The City, I doubt many European financial centers have the arcane structured finance vehicles that NYC did.

The inherent next question is: how does one profit from this bubble? The UK housing decline has witnessed a declining pound, however currency speculation is quite an ineffective as well as indirect way of profiting from the bubble. Anyone have any ideas on possible equity plays or creative fixed-income outlooks on the European housing bubble?

Yahoo-Microsoft Deal Just Got Much More Complicated

In some ways the proposed Microsoft/Yahoo deal has not left the news since it was announced in February, but now there are some new players in the saga. Yahoo and AOL are in talks on a deal that will be worth more than the Microsoft offer, but the question Yahoo shareholders have to ask is what deal is better for us. In my opinion I see this move from Yahoo as a slap in the face to Microsoft, but they are just returning the favor when Microsoft low balled their price/share offer. But don't count Microsoft out yet because they are talking to News Corp concerning a joint deal for Yahoo. This will obviously increase the offer because News Corp will add some equity to deal. If this doesn't work for Microsoft than they might take it to the shareholders because in all actuality this is probably the best deal for them. You can't tell me that the combined power and services of those three is comparable to AOL and Yahoo.

Commodities For The Rest of Us

For those of us who are not able to take advantage of opportunities in commodities via the futures markets, VBAM has unveiled yet another product enabling us to access these markets.

Commodities Funds

Who's Next?

We've been seeing listed funds associated with hedge funds and PE firms get decimated, some more than others. Why has Ares held up so much?

The following is a list of funds associated with PE or hedge fund firms who have seen their value decline:

Carlyle Capital (CCC) - The Carlyle Group
Axon Financial - TPG-Axon Capital Management (affiliated with TPG Capital)
Ares Capital Corp. (ARCC) - Apollo Management
KKR Financial Corp. (KFN) - KKR & Co. LP

Any more to add?

Apollo Follow-UP

VERY IMPORTANT:

Something many people HAVE NOT picked up on:

"This prospectus relates solely to the resale of up to an aggregate of 29,824,540 Class A shares, representing Class A limited liability company interests of Apollo Global Management, LLC, by the selling shareholders identified in this prospectus (which term as used in this prospectus includes pledgees, donees, transferees or other successors-in-interest). The selling shareholders acquired the Class A shares in an exempt offering, which closed on August 8, 2007 and which we refer to as the “Rule 144A Offering.” We are registering the offer and sale of the Class A shares to satisfy registration rights we have granted to the selling shareholders. "*

The people selling shares on the NYSE are the ones who have gotten killed on the private Goldman Sachs market, and are looking to offload their shares to the public. This brings up a VERY important point:

If the brilliant people running CalPERS, the Abu Dahbi Investment Authority, and Apollo are selling, do you really want to be buying?

*via the SEC