Posted on 10/14/2005 11:30:39 PM PDT by Travis McGee
World's hedge funds face crisis as Refco suspends trading
· Leading global broker admits 'liquidity problem'
· Billions of pounds could be tied up in frozen deals
Jill Treanor
Friday October 14, 2005
A crisis in the world's hedge fund industry was in prospect last night after one of the world's largest derivatives brokers was forced to freeze trades potentially worth billions of pounds.
The move by Refco, which acts for many leading speculative investors both on Wall Street and in the City, followed the discovery of accounts irregularities at the firm earlier this week and the issue of fraud charges against its former chief executive Phillip Bennett.
Mr Bennett has been charged with defrauding investors by using a hedge fund to hide $430m (£250m) of debts owed to the firm. A British banker who has lived in the US since 1978, Mr Bennett has been released on bail of $50m secured on a house in New Jersey, a Park Avenue penthouse apartment, $5m in cash and funds raised by six co-signers of the bail bond.
The implications of the 15-day trading moratorium on the company's Refco Capital Markets subsidiary may be felt across the world financial system, depending upon the size of the funds caught up inside Refco and the types of institutions which are unable to remove their money from the operation. By locking the clients in, Refco, which has debts of $642m, is preventing a possible mass exodus of funds which could further jeopardise its trading position. While the company gave no details of the size of the funds it had tied up in its capital markets arm, it described the operation as representing a "material portion" of its business.
The rest of the article linked HERE.
Risky 'Exotic' Loans Fostering a Refi Cycle
Many borrowers are trading in interest-only mortgages to forestall higher payments.
By Annette Haddad, LA Times Staff Writer
http://www.latimes.com/business/la-fi-refi10oct10,1,4295433.story?coll=la-headlines-business
Craig Wolynez is the kind of homeowner stoking fears about a housing bubble.
Even though he had no steady income, the 33-year-old computer consultant and his wife were able to purchase a $416,000 house in the San Fernando Valley two years ago using an "interest-only" mortgage that guarantees low monthly payments for the first five years. After that, Wolynez's payments could rise sharply — making him a prime candidate for default or, even worse, foreclosure.
But like many financially stretched home buyers, Wolynez has a way out: He plans to refinance before his payments balloon. He's now shopping for a new interest-only mortgage that will keep his payments manageable longer.
"There's an urgency," he said. "We know we have to refinance."
Countless home buyers like the Wolynezes sign up for risky mortgages knowing full well they plan to refinance them — or sell their homes — before the payments go up.
The mortgage industry not only grasps this refinancing game, it aggressively markets new loans to these borrowers, raking in additional profits from fees and other charges. And lenders continue to devise more creative loans that reduce payments further and extend purchasing power in pricey markets such as California.
"Lenders are putting people into loans where they are almost guaranteed to be refinanced," said George Yacik, vice president of SMR Research Corp., a Hackettstown, N.J.-based financial research firm.
For many recent home buyers, it's become a nerve-racking fact of life knowing that their term for paying a reasonable monthly payment will be short-lived — unless they change loans.
Brian Kite of West Los Angeles suffers from what he calls "interest-only angst." The 36-year-old local theater director figures if he doesn't sell his house in the next few years, he will have to refinance his mortgage, which exceeds $360,000, regardless of going interest rates. If he doesn't, the mandated principal and interest payments could become too onerous.
"Hopefully, rates won't move that fast," he said.
Refco is the tip of the derivatives iceberg.
You can choke to death on a fishbone, if it sticks in the right place.
The article you quote from the Financial Times about GM's pension woes doesn't make much sense. It says they have a problem with declining long-term interest rates. But long-term interest rates have been rising steadily for the last 30 days. I've noticed that FT's articles have a definite anti-American slant and they usually take a negative or critical perspective about anything related to America. Half the time they're exagerrated or just plain factually incorrect.
Pure balderdash. Give us some facts.
Read 16. Call it balderdash if you want.
Captain Smith called the iceberg reports balderdash, and ordered full speed ahead.
Do a little reading, please.
Focus on Autos
http://www.321gold.com/editorials/shedlock/shedlock101405.html
Delphi, GM & Rogue Events
http://www.321gold.com/editorials/willie/willie101405.html
This really isn't a big deal, in respect to influencing the overall market.
The only ones who are really effected are the ones who owned REFCO stock.
If hedge funds are having problems the past couple months, its most likely that they were caught betting against the summer rally that happened.
Plus, investing too much money on the energy run up, while things have started cooling off the past couple weeks. Those heavily into energy got their clocks cleaned the past two weeks. Natural gas, oil, and energy related companies where majorly down.
Big october pullbacks are extremely common. Hedge funds got caught with their pants down.
This could leave a very big mark.
Seriously, unless handled correctly several markets could gollapse world wide. It's to late (for me) to examine in depth.
If there's a hedge fund crisis keep your eye on gold
Enemies foreign and .....
DOMESTIC such as these hedge fund bastards with their derivatives and shorting for rich people. The idea being for hedgers to make great bets, keep pulling profits out of the game & placing it in safe untouchable places, until the game collapses due to their shenanigans
This, coupled with the lack of transparency of the derivatives market and the sheer size of such a market, does create a real risk of cascading problems. We're experiencing greater market volatility, and that means that the folks who run hedge funds had best be right or they will lose a lot of money very quickly.
Also, from Bloomberg:
``It's a market liquidity issue,'' Brown-Hruska said. ``Firms are somewhat linked together.''
Refco is the largest provider of customer-transaction volume to the Chicago Mercantile Exchange, itself the biggest U.S. derivatives exchange. The New York-based company processed 654 million derivative contracts for the fiscal year ended February 28, 2005, more than the numbers traded on the Chicago Board of Trade, the Chicago Board Options Exchange, or the New York Mercantile Exchange during the same period.
Trading in at global futures markets rose 31 percent in 2004 to $1,144 trillion, according to the Bank for International Settlements.
`Cascade Effect'
The nature of Refco's business puts other brokers and investors at risk of getting hurt should the company become insolvent. As counterparty, Refco is either on the buying or selling side of a trade. If Refco runs out of cash to honor its side of the bargain, the other party doesn't get paid.
Refco also maintains accounts for trading clients and lends them money to make leveraged bets. If Refco runs short of cash as its business deteriorates, it may not be able to make requests to withdraw from those accounts.
Market regulators are getting involved ``to stop some fears of a cascade effect a bankruptcy will trigger,'' Michael Greenberger, a former director of trading and markets for the CFTC who's now a law professor at the University of Maryland. ``There is every sign here that this is a systemic problem and Refco is one of the dots that needs to be connected.''
The producers could give the oil away gratis, and it is worthless unless it can be refined. No new refineries built in the USA since Gerald Ford's time.
Now you know why gold gone up 25$ in the last two weeks. Others had advance knowledge of this Refco crisis that could infect all hedge funds and derivative gamblers.
Ping for after coffee.
LOL.
Yeah, that must be why everything has collapsed, huh?
Refco shareholders are screwed, but hedge funds are moving on to their next broker. Refco Capital and Refco Securities were but two of many. Refco, LLC, the futures division, is intact and operating normally. Probably will be acquired by some other broker next week to alleviate the nervousness out there. No big deal.
Now you know why gold gone up 25$ in the last two weeks
Really? You don't say. How do you explain this:
Dec gold futures (Comex) close 9/30/05: $472.30
Dec gold futures (Comex) close 10/14/05: $471.80
What's that? Down 30 cents in the last two weeks, not up $25?
Now that you've demonstrated your keen understanding of simple things like prices, perhaps you have some substantiation for the proposition that "Others had advance knowledge of this Refco crisis," but I doubt it.
Bad gamblers. Bad. Bad. Bad. Infected. Bad. Bad. Bad. Is the sky falling yet?
Gold has gone up over the last few months.
Ping
Yup.
Too bad that doesn't explain your claim that it had gone up $25 in the last two weeks, when, in fact, it's down 50 cents.
I guess you're also not gonna bother with substantiation for your claim that "Others had advance knowledge of this Refco crisis."
Got any more claims to make?
Oh, wait, here's one you already made:
hedge fund bastards
Are they illigitimate in some respect or are you just jealous of $1,000,000 liquid net worth investors?
I'm sure your elaboration will be absolutely spellbinding.
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