Too much debt, and risky hedge fundsBill Gross (Pimco) the world's largest bond manager in yesterday's FT: "Too
much debt, geopolitical risk and several bubbles have created a very
unstable environment which can turn any minute. More than any point in the
past 20 or 30 years, there's potential for a reversal. We have become a
levered global economy, specifically in Japan and the US. With all this
consumer debt, business debt, government debt, smaller movements in interest
rates have a magnified effect...a small movement can tip the boat.""
Pimco manages $400bn in bonds, about a third of which is outside the US, and
has outperformed the market over the past 30 years. Mr Gross is one of the
few bond managers whose views can move the market. He said there were
bubbles in commodities and the UK housing market, as well as the US
currency. "The US dollar is being supported by the kindness of strangers -
Japan and China.
"It should be 20 per cent lower than it is. Japan and China will change
their stance, we don't know when but we know they will. The dollar isn't
overvalued against the euro but it is against Asian currencies. The threat
of economic instability, he said, stemmed in part from "the advent of
financial alchemy" - in particular, the growing use of hedge funds."
"Even banks are employing the 'carry' trade - borrowing short and lending
long. They're doing things they haven't done before. There's lots of risk in
the economy now compared with even five years ago. Mr Gross supported calls
for hedge funds to be regulated, describing them as basically unregulated
banks".
"They are amazingly similar in the leverage they use and have the same
structure, borrowing at 1 per cent and lending or investing longer, and they
take it to an extreme because they go into stocks, commodities, real estate.
If banks are regulated, hedge funds should be. I think there's a lot of risk
there," he said, citing the 1998 collapse of Long Term Capital Management."
Pimco's plan was to "stay ahead of reflation" by keeping money out of the US
and in countries such as the UK and Germany that would not be as badly hit
by inflation. The highest level ever of Pimco's money was invested outside
the US, in part because of growth in the fund's non-US asset management
business.
The proportion would be even higher, he said, except that many US clients,
such as pension funds, had a ceiling on how much they could invest abroad.
"If the US is not bond-investor friendly, we take our money and move it
somewhere it is," he said.
Tapes show almost daily manipulation by Enron June 15, 2004
BY GENE JOHNSON
SEATTLE -- Enron Corp. manipulated the energy market practically every day
during the 2000-01 power crunch and gouged Western customers for at least
$1.1 billion, according to audiotapes and documents released Monday.
The records were uncovered by the same utility that last month released
details of profanity-laced conversations in which Enron traders gleefully
gloated about ripping off ''those poor grandmothers'' in California during
the power crisis.
The latest release by the Snohomish Public Utility District provides another
glimpse into how Enron allegedly rigged the market at the same time millions
of Californians were suffering blackouts and paying sky-high electricity
bills.
Manipulating the S&P" Only have a minute but, write more later but... The entire S&P price
action in the futures is being controlled by one counter party. All the guys
hate them: their CME clearing number is 990N and they clear through Gelbel
trading. That one account is solely responsible for the current level of the
S&P. They are the ones that are throwing the S&P up overnight.
Then they are the ones that are sitting on the bid all day long, supporting
the market action. The S&P pits have been decimated, absolutely ruined.
There is no volatility, so all the traders have left. Now the hot pit is the
Eurodollar pit. Go figure, that used to be like watching paint dry. All the
traders I have talked to view the market as being rigged.
They keep waiting for the price action to break loose, but it never does.
They are stunned by the lack of volatility. And furious. "Time after time
after time 990 just sits there on the bid. Don't they ever go away. They
just absorb the entire market and then push the price wherever they want it
to go.' Gee, I wonder who that counter party is. ' They are all terrified of
shorting, because every time they do, they get drilled. I thought it was
just my systems that weren't working that well, but they are far more
dispirited than I. " Intervention at it's finest, your tax dollars at work,
providing the ultimate tax to us all.
We have watched 2000 contract market orders on the Bid at key down levels of
- 50 and - 100 on those rare days when 990N decides the program trading will
revert to a well defined pattern of "allowable" retracements. The Mini's are
being rigged in order to provide "support" for swollen price levels. They
have to be for now, as without the daily rigging, "Price" would revert to
it's inherent "Value", a disturbing proposition to those benefiting from the
financial economy's adolescent denials.
Counterparties provide an important function in any exchange, liquidity.
Given the incessant "intervention" by 990N, there is very little liquidity
beneath these markets to provide real support.