bets

Goldman Sachs bets on carbon offsets

Jim Kim — Wed, 12 Nov 2008 13:40:39 -0500

Goldman Sachs has been actively investing in carbon offset companies, betting that offsets will become big business soon, reports the New York Times. The company has bought a majority of the carbon-offset assets from E+C0, which aims to supply clean power to developing countries. Last month, Goldman announced it took a minority stake in BlueSource, which is more focused on the domestic market. These investments complement its stake in APX, which registers carbon offsets. Goldman will likely market carbon offsets to its clients at some point in the future. Other banks are getting in on the act as well, including JPMorgan Chase and Morgan Stanley. What would be most helpful, though, would be federal incentives to trade such assets. Maybe that's the bet.

For more:
- here's the Times piece

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Top investment banks commit to green initiatives

Goldman Sachs: Winner or loser in credit crunch?

Jim Kim — Tue, 21 Oct 2008 16:29:38 -0400

Bloomberg offers the best analysis yet of how Goldman Sachs has fared in the credit crunch. In the end, not even the gilded firm that bet so astutely on the subprime debacle was spared. It was essentially forced to recreate itself as an investment bank. The article offers some nice color on the top executives sleeping in the office as they decided the fate of the company. The big question is how will it fare in the new era? It will need to build a deposit base, obviously. It may soon be in the market to buy up a few banks, though I have trouble seeing it as a retail presence. You have to wonder about its future once it can no longer make the proprietary bets--and a trading and principle basis--that it was so known for. There are a lot of question marks, but all agree an era has ended.

For more:
- here's the Bloomberg article

Is the U.S. a suspect credit risk now?

Jim Kim — Wed, 01 Oct 2008 15:02:57 -0400

One good thing about the maligned credit default swaps market is that it allows people to make targeted bets--or buy specific insurance--on just about any bond that trades. It thus offers a barometer of strength that now rivals the stock market in terms of influence. Lehman Brothers and Bear Stearns were done in by the CDS market, as well as the stock market. Which brings us to Treasury debt. No one really thinks the U.S. is going to default, but Fortune notes that prices of CDS on Treasuries really spiked this week, hitting a record 31.3 basis points--compared to as little as 7.5 basis points in January (CMA DataVision). So now we have a barometer of what Wall Street thinks about the on-going efforts to bailout troubled banks.

For more:
- here's the Fortune article

The greatest short bets of all time

Jim Kim — Mon, 11 Aug 2008 10:06:29 -0400

When John Paulson, of Paulson & Co., bet against mortgage-backed collateralized debt obligations, he didn't hold back. His funds shorted the ABX and longed various credit default swaps--and it paid off. His $15 billion profit in 2007 is the stuff of legends. According to Business Week Online, it ranks up there with the greatest short bets of all time. George Soros is mentioned for his now legendary bet against the British pound just before it dropped out of a fixed exchange rate system. His $1 billion gain in 1992 gave him the title of "The Man Who Broke the Bank of England." Then there's Jim Chanos, the famous short, who bet correctly that Enron would collapse. Bill Ackman is noted for his big winning bet that MBIA' stock would tank.

For more:
- here's the package

Bill Miller faces an uncertain future

Jim Kim — Mon, 04 Aug 2008 17:09:04 -0400

Bill Miller is not the only value manager that has been hit hard by some ill-timed bets on financial stocks. Does it call the whole value approach into question? Miller raises the issue in a letter to investors, noting a group of fund managers talking about "how valuation appeared not to matter and had not for the past couple of years, how it was all about momentum and trend, and how we were all losing clients and assets over and above our losses in the market." Well, these are extraordinary times. More than a few got suckered in as the likes of Bear Stearns fell below book value. I mean, who knew? But, as Fortune notes, Miller's letter offers no route back to prominence. Investors will likely continue to pull funds. We may be witnessing the end of an era. Is the Legg Mason Value Trust fund the new Magellan Fund?

For more:
- here's the letter via Fortune

Financed by UBS, BlackRock purchases UBS portfolio

Fri, 23 May 2008 06:59:55 -0400

Private equity firms and hedge funds are making some massive bets on distressed debts. The terms have been pretty good of late, though the leveraged loan market has rallied. The latest news, as noted by the Financial Times, is that UBS has closed on a deal to sell a portfolio of primarily Alt-A and subprime loans to a new fund managed by BlackRock. It sold securities with a nominal value of $22 billion for just $15 billion. But the real twist, the article notes, is that UBS provided the majority of financing for BlackRock via a collateralized term loan of approximately $11.25 billion. So as long as the securities don't absolutely crater, this looks to be a win-win.

For more:
- here's the article
- here's a AP article

Former Amaranth trader faring much better now

Wed, 21 May 2008 06:59:55 -0400

Remember Brian Hunter, who went from earning $80 million as an energy trader for Amaranth to the rogue's hall of shame when his massive bets on a big fall in natural gas prices didn't turn out well? Well, after some fits and starts, he's faring much better now. Hunter joined Peak Ridge Capital Group in September as an adviser to a new commodity hedge fund. The fund was up 17 percent in April, thanks to Hunter's natural gas bets, according to HedgeFund.net. The fund is up nearly 140 percent since he arrived on the scene. It's a feast-or-famine sort of industry.

For more:
- here's the HedgeFund.net article

Oaktree raises massive distressed debt fund

Tue, 20 May 2008 06:59:54 -0400

We've noted that valuations have improved for some on-the-brink debts as of late, notably leveraged loans and some credit default swaps. The trading psychology seems to be improving in part because of the massive bets that private equity firms and hedge funds seem to be making on distressed debts. Case in point: Buyout firm Oaktree Capital Management now has raised a whopping $10.6 billion fund--the OCM Opportunities Fund VIIb--the largest-ever distressed debt fund, according to Financial News Online. Despite the bump in prices, lots of LBO debt may come under pressure if portfolio companies stumble. I do not think that they are late to the game at all. They're not making short-term bets; they expect real carnage.

For more:
- here's the article

Double-edged sword: Rising commodities prices

Wed, 14 May 2008 06:59:54 -0400

We tend to think of big farm-type companies as hedgers, who take the other side of bets waged by hedge funds. But when you get down to this, there's a fine line between corporate hedgers and raw speculators. There are plenty of corporate treasury employees who have been burned by currency "hedges" that went bad and cost the company a lot in earnings. Same goes for airlines hedging against energy prices. Fortune notes that ag firms are as dependent on the capital markets as ever. It takes a look at Bunge, which is borrowing more than ever and suffering big losses on hedges for soybeans and other crops. This story may not have a happy ending.

For more:
- here's the Fortune article

Is Thain setting himself up?

Mon, 12 May 2008 06:59:54 -0400

John Thain has not been shy about telling the world that Merrill Lynch is well-capitalized and will not be raising funds anytime soon. At least one money manager, via Seeking Alpha, thinks this is a mistake. It would be better to hedge your bets, especially when your level 3 assets are creeping higher, when you just posted a big loss and when everyone thinks the next few quarters will be tough. I have argued that Thain has generally been good for Merrill Lynch, and he's received some decent press. But it's fair to say that the firm is not out of the woods yet. We'll see how it plays out. If Merrill Lynch does end up raising capital, there will be some I-told-you-so's passed around.

For more:
- here's the Seeking Alpha article