New&Notes: Bernanke's 2002 speach, Fund Flows, Hedge Fund Fresh Wave of Withdrawls & The Pennsylvania Pension Problem

RCM Comment: If you need further confirmation of our Fed chairman's beliefs that rapid money creation is the panacea to deflationary worries, then read the following excerpt. Make no mistake, this is the road map Bernanke is following. In fact, if you click on the following link you will be able to access the whole speech. http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm

Notice how Ben has methodically tried each remedy that he laid out in this speech. Now we have reached the quantitative easing step to economic redemption. 2009 should be a momentous year for the price of Gold.

Ben Bernanke - During an address to the National Economists Club, Washington D.C. November 21st, 2002:

Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it’s worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt’s 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.17 The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt’s devaluation.


TrimTabs estimates all equity mutual funds post inflow of $10.4 billion in week ended Wednesday, November 28th
TrimTabs Investment Research estimates that all equity mutual funds posted an inflow of $10.4 billion in the week ended Wednesday, November 26, versus an outflow of $19.5 billion in the previous week. Equity funds that invest primarily in U.S. stocks posted an inflow of $6.8 billion, versus an outflow of $12.2 billion in the previous week. Equity funds that invest primarily in non-U.S. stocks had an inflow of $3.6 billion, versus an outflow of $7.2 billion in the previous week. In addition, bond funds had an outflow of $7.4 billion, versus an outflow of $13.0 billion in the previous week, and hybrid funds had an outflow of $2.4 billion, versus an outflow of $4.6 billion in the previous week. Separately, TrimTabs reports that exchange-traded funds that invest in U.S. stocks posted an inflow of $4.3 billion, versus inflow of $6.7 billion in the previous week. ETFs that invest in non-U.S. stocks had an inflow $1.5 billion, versus an inflow $1.1 billion in the previous week. RCM Comment: No surprise the market was up last week. I post this story simply to remind us that money flows move markets not news stories or economic announcements.


Hedge funds hit by fresh wave of withdrawals - FT
FT reports hedge funds have been hit by a fresh wave of withdrawals as investors search for cash, prompting more funds to impose emergency measures to block repayments. London Diversified Fund Management, one of Britain's best-known fixed- income managers, on Friday suspended both its hedge funds as trading conditions in the derivatives markets created valuation difficulties ahead of redemptions. LDFM, founded by former JPMorgan bankers David Gorton and Rob Standing, manages close to $3 bln, down from a peak of $8 bln after its main fund fell 23% this year and investors pulled out. LDFM is joining a roster of hundreds of hedge funds in restricting withdrawals, with investors and prime brokers estimating as many as a fifth have suspended or limited what investors can get back as they have their worst year on record. This week CQS, a London convertible bond specialist run by former Credit Suisse banker Michael Hintze, began canvassing investors on whether it should change the terms of its main fund to allow it to restrict withdrawals if markets worsen next year.RCM Comment: I hear on the financial news stations today that the markets are down because various economic data released today was not to the liking of Wall St.. This type of reporting is useless. The main reason the markets are weak is explained in the above story and the stories to follow: redemptions and repatriation.

Pennsylvania pension faces billions in losses - WSJ
WSJ reports the stock-market downturn could force the Pennsylvania state employees' pension fund to make cash payments of $2.5 billion or more to trading partners on Wall Street. The potential hit to the $27 billion pension fund is the result of an exotic strategy used to help finance $9.2 billion in hedge-fund investments. Those bets helped the pension fund beat the market when stocks were rising, but backfired when the market sank. Use of the aggressive strategy, called "portable alpha," has been cut in half, with officials of the Pennsylvania State Employees Retirement System acknowledging that the pension fund's exposure was "too large." Since stocks began falling, the fund has had to pay out $1.5 billion. Based on current market values of derivatives still outstanding, Pennsylvania could owe another $1 billion, a fund spokesman says. With the pension fund down about 14% in the first nine months of 2008, it is possible that the state will have to quadruple its annual contribution to roughly $1 billion in 2012, according to people familiar with the situation.


Tudor Jones suspends withdrawals from flagship fund - FT
FT reports Paul Tudor Jones, who shot to fame and made a fortune when he predicted the 1987 stock market crash, has suspended withdrawals from his $10 bln flagship hedge fund and plans to split out toxic assets into a new fund with lower fees. Mr Jones, in a letter sent to clients on Friday, said investors wanted back 14% of their money at the end of the year. This would have left the remaining investors holding too large a proportion of illiquid assets, particularly corporate credit in emerging markets, the letter said. The suspension is further evidence that even successful hedge funds are being hurt by the rush for cash among investors, as the Tudor BVI fund is down only 5% to the end of November, far ahead of the industry. Some in the industry fear the suspension could lead to further withdrawals from successful funds as investors search for cash elsewhere, prompting more trouble for hedge funds.


Satellite halts hedge fund withdrawals, fires 30 after losses - Bloomberg.com
Bloomberg.com reports Satellite Asset Management, founded by former employees of billionaire George Soros, stopped client withdrawals from its three largest hedge funds and eliminated more than 30 jobs after losses reduced the co's assets to about $4 billion this year. Satellite Overseas Fund, Satellite Fund II and Satellite Credit Opportunities have declined as much as 35% in 2008, said a person with knowledge of the funds' performance... The company has received withdrawal notices, which are effective through June, for 21% of the $2 billion Satellite Overseas Fund, its largest fund, the person said. Satellite has cash to meet current redemptions and will continue to run the funds and sell securities over a period of years to avoid unloading them quickly in slumping markets, the person said.


EU blocks French move to shore up capital for retail banks - FT
FT reports the French government's plan to shore up the capital position of France's six main retail banks is being blocked by the European Commission, which insists they must reduce their lending in return for state support. Christine Lagarde, French finance minister, yesterday spoke to Neelie Kroes, European Union competition commissioner, to persuade her to lift her veto on France's €10.5 bln support package, but Ms Kroes is sticking to her view that banks cannot use state aid to increase their lending books. "We have to apply the same criteria to everyone . . . support should be sufficient to offset the negative impact of the current financial crisis and no more," said one official. The French government reacted furiously to the Commission's argument. One senior official described it as "ridiculous" and "stupid" because it would exacerbate the credit crunch - the very thing Paris said it was trying to avert when it decided last month to inject capital into all its large high street banks.