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Excerpt on leverage from Measuring the crowding of hedges fund trades
Information on hedge fund leverage is difficult to obtain, but information available in one hedge fund database confirms that credit oriented strategies tend to be associated with higher degrees of leverage ( and therefore have greater potential to disrupt the stability of credit markets.
All things being equal, higher leverage proportionally amplifies the impact of asset price changes and increases the vulnerability of investment positions to sharp and unfavourable price movements. L…
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12 December, 2007| Economy | Comments (0) @ 23:22

Prediction Market : Citi Dividend To Be Cut

Based on implied forward prices derived from options markets, a 40% dividend cut is priced in,that would be 32 cents per share down from 54 cents.
From Reuters:
…
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12 December, 2007| Economy | Comments (0) @ 22:28

Pundit of the Day

Given the worsening of the global liquidity and credit crunch – with a variety of short term interbank Libor spreads relative to policy rates and relative to government bonds of same maturity being even higher recently than at the peak of the crisis in August – it is no surprise that central banks were really desperate to do something.
E…
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12 December, 2007| Economy | Comments (0) @ 18:21

Well, Killinger, did WaMu survive?

Apparently Washington Mutual is not as well capitalized as we were lead to believe. As recently as November 7, Washington Mutual management was intimating that they thought their capital was adequate. Now they are saying they need to raise $2.5 billion in new capital through a convertible preferred and will cut their dividend by 75%. The combination of dividend cut and preferred offering will increase capital by $3.9 billion. L…
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12 December, 2007| Economy | Comments (0) @ 15:18

Nice Job, Ben

What they said :
Today, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank are announcing measures designed to address elevated pressures in short-term funding markets….
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12 December, 2007| Economy | Comments (0) @ 14:37

FDIC’s Sheila Bair on Basel II and Models

The first lesson of the crisis in terms of the Basel II capital adequacy rules is “beware models!”
Current financial market turmoil has shown up the weaknesses of the models used in the advanced approaches to assessing credit risk under the international Basel II bank safety rules, top US banking supervisor Sheila Bair s…
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12 December, 2007| Economy | Comments (0) @ 8:52

There’s a network who’s sure…all that glitters is gold

What does Led Zeppelin have to say about long/short funds? Thankfully, you don’t have to play Stairway to Heaven backwards to find out….
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12 December, 2007| Economy | Comments (0) @ 2:29

You don’t have to do this to impress me!

I’m a believer in two things when it comes to monetary policy. First, it is in the best interests of everyone that long-term inflation remains contained. Therefore the Fed should be primarily focused on inflation most of the time. Second, debt deflation is extremely dangerous for modern economies. I believe (and Ben Bernanke believes) this is what caused the Great Depression, and if we were to experience another Depression, debt deflation is the likely culprit. T…
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12 December, 2007| Economy | Comments (0) @ 1:04

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