Hedge Funds Win With Gold, Bonds; Paulson Struggles (WSJ)
Ray Dalio's Bridgewater Associates LP has scored gains of more than $3.5 billion, or about 5%, in its flagship hedge fund just in the past week, according to investors. The $71 billion fund now is up more than 20% this year, investors said, making it among the best performers in the hedge-fund business. The gains are partly due to a spike in safe-haven investments, such as gold, Treasury bonds and the Swiss franc, in which Bridgewater has sizable positions. Other large hedge funds that try to anticipate global markets and economic trends, such as Bruce Kovner's Caxton Associates LLC and Alan Howard's Brevan Howard Asset Management LLP, also are making money, even as the Dow Jones Industrial Average has shed nearly 12% so far in August. But John Paulson, the investor who made billions during the mortgage meltdown of 2007 and 2008, has been on the wrong side of the market.
For Street Veterans, Past 3 Days Rank With '87 Crash, '08 Crisis (WSJ)
"I've been lucky enough to be in this business over 50 years and have seen lots of things, from the Cuban Missile Crisis and the Kennedy assassination to the Crash of '87 and the 2008 meltdown," Art Cashin, director of floor operations at UBS Financial Services, wrote in his morning note Wednesday. "Still, [Tuesday] was rather special. … One of the most frenetic and bizarre trading sessions that I can recall."
Sarkozy Gives Ministers One Week Debt Deadline (FT)
On Wednesday Mr Sarkozy summoned members of his government back from holiday for an emergency meeting on the current financial turmoil. In a statement after the two hour meeting in the Elysee Palace in Paris, Mr Sarkozy said France's pledge to reduce the budget deficit from last year's 7.1 percent to 3 percent by 2013 "will be kept whatever the evolution of the economic situation".
Penny Pinching Hurting Recovery (WSJ)
The past week's market meltdown is confirming what many business leaders and consumers were already thinking—that the economy is close to tilting back into recession and therefore they need to cling to every penny. For an economy already on the brink, such precaution may well be the difference between growth and recession. Gross domestic product—the sum total of goods and services produced in the U.S. and the broadest measure of economic growth—grew at an annual rate of less than 1% in the first six months of 2011. Just a few delayed decisions could push the rate back into negative territory. "Consumers will decide whether we have a better second half or not," said Dean Maki, chief U.S. economist at Barclays Capital in New York.
In U.S. Stress Tests, a Tool to Gauge Contagion in Europe (NYT)
According to a note from the research firm CLSA on July 13, Citigroup had $12.7 billion in Italian holdings, much of it government-related, while JPMorgan Chase had $12.2 billion. According to a note from Bernstein Research, JPMorgan had “less than $20 billion” in exposure to Portugal, Ireland, Italy, Greece and Spain combined. But that was going in the wrong direction, up from “less than $15 billion” at the end of 2010, when one might expect the banks to be paring exposure. These aren’t large numbers, less than 1 percent of these gigantic banks’ balance sheets. And banks wouldn’t take 100 percent losses on their investments in the event of a default. Unfortunately, we simply don’t know whether the analysts are right. Neither the Fed nor the Securities and Exchange Commission has forced United States banks to make as detailed disclosures as the European stress tests did of its banks. So it’s a matter of having to trust the banks and the regulators.
Central Bankers Race To Protect Growth In 72 Hours Of Crisis (Bloomberg)
“Central bankers have so far been the tower of strength,” said Stefan Schneider, chief international economist at Deutsche Bank AG in Frankfurt. “Lawmakers have done everything to destroy belief in their ability to solve the problems they’re facing.”
Dissents Pose New Test For Bernanke (WSJ)
For the first time in Mr. Bernanke's tenure, three colleagues formally dissented from the Fed's move, a new sign of deep internal opposition that contrasts with the chairman's oft-stated desire for consensus.
Blankfein's $52 Million Loss Leads Wall Street (Bloomberg)
Lloyd Blankfein lost about $52 million of his personal wealth this month -- more than the combined losses of four other Wall Street CEOs. The heads of Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co, Morgan Stanley and Goldman Sachs saw the value of their combined shareholdings fall by $94 million on paper since July 29, based on regulatory filings. That includes a $40 million plunge yesterday.