News That Moves: More Hedge Fund Woes, Muni Bond No Bids, Begging For Gov't Handouts & PHM CEO Prepares For More Housing Trouble

RCM Comment: I continue to print these stories in the blog because these are the facts that are truly responsible for the markets' movement. Major media outlets will have you believe that the auto companies appearance on capital hill today will determine market direction; wrong.

Think of it in terms of the ocean: the stories we print here determine the current and tide action of the market; stories about auto companies and recession worries are like a light wind that ripples the surface. Until the hedge fund implosion has run its course we can expect continued violent swings in the market and possibly new lows.
JPM JP Morgan Chase seizes fund's collateral - WSJ (30.25 )
WSJ reports the co seized tens of millions of dollars of collateral from a commercial-property debt fund run by Guggenheim Partners and started to auction it off this week following the fund's failure to come up with additional capital to meet margin calls, according to people familiar with the matter.

Buyout Titan weighs hedge-fund revamp - WSJ
WSJ reports leveraged-buyout legend Thomas H. Lee, who barreled into hedge funds when the market was booming, is considering shrinking or even shutting down two funds that had $1.5 billion in assets after suffering losses of about 40% this year, people familiar with the situation said. Mr. Lee's battered hedge funds farmed out investor money to about 110 other funds, including SAC Capital Advisors and D.E. Shaw Group. While he designed the so-called funds-of-funds to have low volatility with steady, consistent returns, Mr. Lee borrowed heavily to multiply the size of his bets, piling up debt of as much as $3.2 billion, these people said. That strategy has backfired, with the leverage causing losses equal to about 14% of total assets in the two funds to roughly triple in size. As a result, the net asset value of the hedge funds has tumbled to slightly below its level when the funds were launched in 2005, according to one investor.

GS Goldman Sachs: Another Goldman unit hit by decline - FT (68.95 ) -Update-
FT reports the co's plans to expand its wealth management operations have been dealt a potential setback by a dramatic decline in the value of another of its funds. Goldman Sachs Liquidity Partners 2007, which received $1.8 bln in initial funding during the summer of 2007 to invest in the credit markets, is down 55.3% this year through the end of October, according to investors. Fund management has become a key area of opportunity for Goldman since it responded to the credit crisis by becoming a bank holding company. As part of the move, it has been seeking to reduce its dependence on high-risk proprietary trading and increase revenues from fee-earning businesses such as wealth management. However, this strategy has arguably been endangered by continuing difficulties of funds under Goldman Sachs Asset Management. Last year, for example, its flagship Global Alpha Fund lost 40% of its value.

RCM Comment: Those of you who are holders of Muni bonds please read this story closely. We have entered a new era in the financial markets and old beliefs about what is safe and secure may be detrimental to the preservation of capital.
Buyers shun Port Authority note sale - WSJ
WSJ reports the Port Authority of New York and New Jersey received no bids for $300 million of taxable notes it put up for sale. The bistate agency, which manages bridges, tunnels, airports and transit in New York City and northern New Jersey, said the lack of buyers Wednesday will have "no impact" on current Port Authority capital projects because the sale was held well in advance of the need for funds. The lack of bids for the three-year securities, which boast the highest short-term ratings from leading rating firms, reflects how few buyers are left in the $2.7 trillion municipal-bond market. Traditional large buyers have all but vanished, as some dealers already have closed their books for the year, and as remaining buyers seek only the cream of the crop in highly rated bonds.

RCM Comment: Beggars are coming out of the woodwork. The more the government hands out, the more hands will be held out and the steeper the impending decline in the value of the US$. The printing presses can't continue to print unabated without consequences. Gold is the only true currency of value in this bankrupt world.
Nonbank cos like Avis seek to broaden U.S. relief on credit - WSJ
WSJ reports commercial and industrial companies are clamoring for more federal action to unlock credit markets, saying that moves to prop up the banking sector haven't done enough to jump-start lending to businesses. Among the latest seeking relief is car-rental chain Avis (CAR), which wants to turn the Troubled Asset Relief Program, or TARP, into a bigger tent. The Treasury's TARP and Federal Reserve programs to ease the financial crunch have focused on banks and, more recently, consumer-based lending. Nonbank companies now are vying for relief, taking the lead of the Big Three auto makers, which are seeking a combined $34 billion federal bailout. "It's great that [TARP is] helping the banks...but it's doing nothing for industry in general because of the freeze in the capital markets," said Arnold Klann, chief executive of ethanol producer BlueFire Ethanol Fuels. Avis, a subsidiary of Avis Budget Group, is floating a plan to have the Treasury and Fed purchase the debt issued by fleet purchasers. The plan also calls for Congress to authorize direct loans to such companies for the purpose of buying cars and trucks. Because of the credit freeze, trucking companies and car- and limousine-rental companies haven't been able to raise enough cash to finance their fleets. Such companies are "critical to the overall stability and long term sustainability" of the U.S. auto industry, reads a legislative proposal that Avis has circulated on Capitol Hill.

Michigan Blue Cross makes bid for aid - WSJ
WSJ reports as Detroit's auto makers seek aid in Washington, Michigan's biggest health insurer is arguing that it needs a rescue of sorts too. Blue Cross Blue Shield of Michigan has asked state lawmakers to give it more flexibility over the premiums it charges, reduce regulators' power to intervene and toughen regulations for its rivals. If the not-for-profit insurer's controversial plan succeeds, the Michigan insurance market for individuals -- one of the most affordable in the country -- will be revamped. Blue Cross says the changes, which could be voted on as early as this week, are necessary to curb the mounting losses that result from its status as the state's insurer of last resort. But the company's push has sparked a political showdown with the state attorney general, for-profit insurers and consumer groups. They argue that Blue Cross is exaggerating its financial problems and that the proposals would lead to higher premiums for sicker customers and permit Blue Cross to skirt its social mission.

RCM Comment: Typically at market bottoms CEOs buy their own company stock. The do not set up hedges to protect against further downside. This story should be viewed as a major vote of no confidence in the housing markets.
PHM Pulte Homes' founder and Chairman filed a Form 144 with SEC covering 5 mln shares of company stock and intending to sell up to that amount through a prepaid variable forward contract (11.14 +1.32)
William J. Pulte, founder and Chairman of Pulte Homes filed a Form 144 with the Securities and Exchange Commission covering 5 mln shares of company stock, or ~12% of the shares controlled by Mr. Pulte, intending to sell up to that amount of shares through a prepaid variable forward contract. The prepaid variable forward contract allows Mr. Pulte to receive cash now while also giving him the right to retain ownership of these shares at the end of the two-year term of the forward by settling the forward with cash. The transaction also allows Mr. Pulte to retain an interest in a possible increase in the shares' value over that two-year period and provides protection against a potential decline in value of Pulte shares during that same timeframe.

News&Notes: Hedge Funds Ramius & Whitehall, UBS Says, & Paulson Debates

RCM Comment: More examples of the best and most well-known hedge funds suffering large losses. Important to note that all aspects of the hedge fund business are being affected, whether its multi-strategy at Ramius or real estate at Whitehall. The retooling and/or closing down of these funds is directly responsible for both the pressure on the markets and the violent volatility.
Hedge fund Ramius is retooling - WSJ
WSJ reports Ramius Capital is telling investors that the co will close four funds with a combined $550 million in assets concentrated in convertible bonds, distressed credit and securities of merging companies. Meanwhile, Ramius's biggest fund, the $2.1 billion multi-strategy Ramius Fund, could shrink by about $500 million or more if investors stick with plans to pull money, according to people familiar with the fund. "Going forward, these strategies will continue to be important allocations in our multi-strategy funds and will continue to be managed by the same portfolio teams," a spokesman for Ramius said. He said Ramius is streamlining its business in an effort to run the co more efficiently. Some of the money in Ramius's smaller, soon-to-be-closed funds could migrate to the multi-strategy fund. Still, it's unclear how much will stay, since the bigger fund has lost about 23% this year on investment declines. A portion of that loss is attributed to assets that got tied up in Lehman Brothers when that securities firm sought bankruptcy protection in September.

Goldman Sachs: Whitehall funds lose their luster - WSJ (65.00 ) -Update : WSJ reports the co's Whitehall family of real-estate funds is struggling with weak performance and potentially big losses on some investments made at the top of the real-estate market. Whitehall is best known for deals such as buying Rockefeller Center in 1996, but has slashed the value of the equity in one of its funds in half and likely will struggle to make a profit on deals such as its purchase of the Stratosphere, a Las Vegas casino, in 2008 and a string of hotel deals in the past two years. There also has been some turnover at the top of Whitehall. The group's chief, Stuart Rothenberg, 45 years old, announced recently that he is retiring at the end of the year. The real-estate unit will be run by three people -- Brahm Cramer, Edward Siskind and Todd Williams -- and report to Rich Friedman, the head of Goldman's merchant-banking unit.

RCM Comment: You don't see stories like this at a market bottom. There is a serious amount of investor complacency with redemptions from U.S. equity mutual funds totaling "only 3.5% of assets so far in 2008, against 4.3% of assets during the 2001-2003 bear market."
Stocks to rise in ’09, UBS says; S&P 500 may gain 53%- Bloomberg.com
Bloomberg.com reports global stocks will withstand a "full-blown" recession and surge in 2009 as cheap valuations and efforts by governments to restore confidence in the financial system lure investors back to equities, UBS said. The Standard & Poor's 500 Index may rally 53% to 1,300 by the end of 2009, David Bianco wrote in a note dated yesterday. The New York-based strategist, who a year ago predicted a 2008 advance of 16% for the S&P 500, is now forecasting a gain that would exceed the index's best annual performance on record. "The consensus outlook for 2009 is a full year of gloom," Bianco wrote in his 2009 market outlook. "We believe 2009 will bring signs of a dawn in confidence with the first faint light appearing earlier than most investors expect."

RCM Comment: And these are our leaders? Why does this feel like a scene from a bad Woody Allen movie? Paulson as the lead character, shuffling back and forth with his hands up in the air without a clue what to do.
Paulson debates second infusion - WSJ
WSJ reports U.S. Treasury Secretary Henry Paulson is debating whether to ask Congress for the second installment of the $700 billion bailout package, concerned about competing demands for the funds and a potentially hostile reaction from lawmakers. Mr. Paulson's dilemma was thrown into relief Tuesday by a report from the Government Accountability Office, the investigative arm of Congress, which criticized the Treasury Department's handling of the Troubled Asset Relief Program, or TARP. Besides lawmakers threatening to deny a request for the additional money, Mr. Paulson is also grappling with confusion stemming from the transition to a new administration. If Mr. Paulson decides to request the next $350 billion, he is expected to do so next week. His hand may ultimately be forced if market conditions continue to deteriorate. Political and practical concerns also color the debate. While Mr. Paulson wants to steer more funds to financial institutions, Congress has its own ideas, including aid for the auto industry and troubled homeowners -- two ideas Mr. Paulson has resisted.

News&Notes: Japan Calls for 'Obama Bonds'

Japan economists call for ‘Obama bonds’ By Kosuke Takahashi
TOKYO - Japanese economists, increasingly concerned that the United States might seek to pay its enormous and growing debt obligations in a weakened US dollar, are looking to the possibility of US Treasuries being issued in yen.
The US government needs to borrow at least US$1 trillion in the coming year, excluding the US Treasury’s $700 billion plan to bail out the financial and other industries, said Kazuo Mizuno, chief economist in Tokyo at Mitsubishi UFJ Securities Co, a unit of Japan’s largest publicly traded lender by assets. That amount is likely to grow as the US government continues to rescue failed parts of the economy and has to raise more debt - that is, issue government bonds, or Treasuries - to fund such rescues.
Since 2004, when the amount of the government bond issuance reached an annual average of $400 billion, 94% of new buyers of US government bonds have been foreigners, Mizuno told Asia Times Online. Read the rest of this story by clicking the link below:
http://www.atimes.com/atimes/Japan/JK19Dh01.html
RCM Comment: This is a significant story. The ramifications of this thought process by Japan, a country that is considered a major ally to the U.S., shakes the very foundation of the belief that the U.S.$ is the undisputed world reserve currency. Even a slight shift in the reserve currency perception will have a profound impact on the value of the U.S.$. When we couple this development with the end of the redemption/repatriation cycle we can expect a serious move lower in the value of the U.S.$ and a subsequent rally in Gold. In fact, this type of action will be exactly what the Fed wants to see. Reread Bernanke's 2002 speech to further understand why the Fed wants a weak U.S.$ even if they publicly say otherwise. Simply explained, the Fed is fighting deflation at all costs and will welcome signs of inflation, such as rising Gold prices.