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Hussman update, what to think?
Old 03-30-2008, 07:52 PM   #1
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Hussman update, what to think?

Hussman Funds - Weekly Market Comment: What Congress and Investors Should Understand About the Bear Stearns Deal - March 31, 2008

I generally find his weekly commentary to be compelling, what does the Forum generally think of his analysis?

He, more or less, operates hedge funds and engages in market timing, I'm not looking for comments on that.
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Old 03-30-2008, 09:50 PM   #2
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More analysis here:

Interfluidity :: Counterparty of last resort?
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Old 03-30-2008, 09:56 PM   #3
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He does bring out some good points:
Why should investment losses be bailed out at public expense?
A melt-down of the financial market may not occur should BS became bankrupt.
Assets of customers will be protected and transferred quickly despite the fallout.
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Old 03-30-2008, 09:59 PM   #4
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Do we have enough info to call it a bailout yet? I believe the fed bought the bonds at a discount to par. They may actually make money on the deal.
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Old 03-30-2008, 10:02 PM   #5
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Do we have enough info to call it a bailout yet? I believe the fed bought the bonds at a discount to par. They may actually make money on the deal.
Yes

Maybe I hope so.

I really doubt that.
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Old 03-30-2008, 10:15 PM   #6
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According to this article, the assets were valued at $30B as of March 14. I don't know exactly how they were valued, but it does seem safe to assume they weren't valued at par.

Bloomberg.com: Worldwide
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Old 03-31-2008, 05:51 PM   #7
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According to this article, the assets were valued at $30B as of March 14. I don't know exactly how they were valued, but it does seem safe to assume they weren't valued at par.

Bloomberg.com: Worldwide
I wouldn't necessarily assume that is a safe bet, I do not see how the media could know. There are reports with many different conclusions out there. I hope you are correct and they were reasonably market priced. Maybe 85-90 cents on the dollar if they were decent assets non-MBS, or 20-50 cents on the dollar if they were MBS AA or AAA, something like that. Hopefully we will find out, I doubt they were priced like that, we will see.
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Old 03-31-2008, 07:10 PM   #8
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Hussman suggest, but does not so clearly state, that the Fed acted outside of its authority in this situation; however, the authority seems clear under the Federal Reserve Act, section 13(3): "In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this Act, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal Reserve bank"
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Old 03-31-2008, 08:08 PM   #9
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Hussman suggest, but does not so clearly state, that the Fed acted outside of its authority in this situation; however, the authority seems clear under the Federal Reserve Act, section 13(3): "In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this Act, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal Reserve bank"
I think in one of his last commetaries he did clearly state that he thought they acted illegaly. I'm not sure exactly what he thought was illegal. I'm not really defending him. You may be entirely correct that this gives them the authority for the deal.
My fear is not the legalities, IMO it created Moral Hazard and we might all pay for that. A large mortgage bailout seems to be next on the plate. I wonder if the FED will be in support of that?
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Old 03-31-2008, 08:19 PM   #10
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the moral hazard is a very real risk, and i'm sure not one which was lightly dismissed. continued and worsening (spiriling) conditions in the financial markets was the immediate alternative. the Fed made its call, and likely has/had better information and perspective than all of us put together.
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Old 04-02-2008, 08:52 PM   #11
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Hussman suggest, but does not so clearly state, that the Fed acted outside of its authority in this situation; however, the authority seems clear under the Federal Reserve Act, section 13(3): "In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this Act, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal Reserve bank"
d, here may be your answer, found it on Seeking Alpha today:

Fed: Law breaker? When the Fed took control of Bear Stearns' $30B portfolio of "less liquid assets," it told the public it was "taking control" of the portfolio, not purchasing it. The Fed assumed the portfolio's risk and stands to gain if it appreciates in value, causing some to call its denial of ownership purely semantic. "They get the residual -- that almost always defines ownership," one expert said. If so, the Fed may be in violation of its charter, which allows it to buy U.S. Treasury and agency securities, foreign government securities, bankers acceptances, bills of exchange, certain municipal debt, foreign currency and gold -- but not CDOs, private mortgage-backed securities and other derivatives.
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Old 04-03-2008, 09:56 AM   #12
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I had heard, also, that there were FOUR members voting, not five as referenced in d's post.

Quote:
The Fed approved the deal between JPMorgan and Bear Stearns under Depression-era laws allowing it to do so under “unusual and exigent circumstances.” This provision, however, requires an affirmative vote of not less than 5 members of the board.

At present, there are only five members on the board with two vacancies, but only four approved the measure because governor Frederic Mishkin was not present, according to the Federal Reserve.

But current law mandates that no less than five members can vote on the matter and states that members can be contacted through any electronic means, including by telephone and e-mail.

“There has been no showing that, given technology in 2008 (as opposed to the 1930s when this language was enacted), the required attempts to contact Gov. Mishkin were made,” Lee wrote in the complaint.
Housing Group Challenges Fed’s Bear Stearns Deal - CommonDreams.org


This also, to me, would raise the question of WHY there are 2 vacancies out of seven.
It seems many, many gov. agencies are hamstrung due to willful chronic vacancies.. I attribute this to the R/Norquist "drown it in a bathtub" mentality. Ideologically, I can see where less/smaller gov. might be better.. but that is substantially different from intentionally bad/AWOL gov. If I KNOW I have to take care of something on my own.. that is different from charging someone with it and then finding out too late that no one's in the driver's seat, or that the driver is unlicensed a la "Brownie". Heck of a job!
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Old 04-03-2008, 10:25 AM   #13
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The fed published some details of the Bear portfolio today. Not as bad as most people thought. Looks like they stand a good chance of making money on this deal.

Annex II - Portfolio Overview - Federal Reserve Bank of New York
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Old 04-03-2008, 10:41 AM   #14
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More importantly, does recent events now make Bear Stearns bonds as safe as government agencies? May be a heck of an opportunity. Just a thought.
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