Ray Dalio's 2009 Hedge Fund Award Speech On Bridgewater, Uncorrelated Alpha and Beta

I found a video of Ray Dalio, founder of the $125 billion hedge fund Bridgewater Associates, giving his acceptance speech after receiving the Lifetime Achievement Award at the 7th Annual Hedge Fund Industry Awards in 2009, which is run by Institutional Investor. He first talked about Bridgewater's culture and then the hedge fund industry. He said there needs to be more "uncorrelated alpha" and less beta replication. Watch the speech after the jump. Dalio's fund performed very well this year while other large funds collapsed (as of September). Related: Dalio Returns 25% With Diversified Bets as Markets Convulse (Bloomberg, 9/7/2011); Ray Dalio On Diversified Uncorrelated Bets and How The Machine Works (BloombergTV Interview, 9/15/2011).

Ray Dalio on Charlie Rose: We Have a Public and Private Sector Debt Issue, Deleveraging, Tapped Out Stimulus

Source: Charlie Rose
Ray Dalio, founder of Bridgewater Associates, the biggest hedge fund in the world with $125 billion under management (via pensions, endowments, foundations, foreign governments, central banks and other institutional clients), was interviewed on Charlie Rose on 10/20/2011 and said he's concerned about the overly indebted public and private sectors of the U.S. and Europe (debtor-developed economies) during this deleveraging period.

Dalio's main concerns are that fiscal and monetary policies are no longer affective and we're lacking the "quality dialogues" needed to deal with these issues, which ends up creating social tensions (ex. Occupy Wall Street). Watch the full interview at CharlieRose. I embedded a clip after the jump as well. Below are important quotes from the transcript (hat tip Zero Hedge). In an FT article recently, Dalio said: “Our character and our political and social systems are now being tested in ways that have typically been tested in past deleveragings.” It's getting serious people.

"I think it`s important to understand that we`re going through a deleveraging. So we have to understand the big picture is -- there`s a deleveraging. Three big themes: first there`s a deleveraging; secondly we have a problem with monetary and fiscal policies are running out of ammunition; and thirdly we have an issue in terms of people most importantly who are at each other`s throats politically and globally in terms of having a problem resolving those."

"I think it`s very important to understand that the government debt is the terrible challenging issue that we should talk about maybe but also more important is the private sector debt. So that resolving the public sector debt does not resolve the problem."

"We can`t solve the problem easily because we still have too much debt. But we can move forward in being able to make the best of it. We can spread it out, we can keep orderly we have a situation now in which we have a very severe situation, not only because we have a deleveraging going on, but we have a situation in which monetary policy cannot work the way it worked in the past, that fiscal policy will not be stimulative."

Fed's November Economic Projections, FOMC Statement and Bernanke's Press Conference (11/2/2011)

Nothing much has changed... The Fed is keeping rates at 0% and plans to "continue its program to extend the average maturity of its holdings of securities". Watch Bernanke's press conference after the jump (here is the transcript). If they announce QE3, which could be in the form of "large scale MBS purchases" (that was Fed Governor Daniel Tarullo's idea), then that could change the game. Here's a snapshot of the Fed's economic projections vs. June. They lowered their real GDP projections and raised unemployment rate projections.


Full PDF: http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20111102.pdf

Jefferies Discloses All Current Positions In Sovereign Debt Of Portugal, Italy, Ireland, Greece and Spain

Source: FreeStockCharts.com
Today, Jefferies released an update on its net exposure to PIIGS debt. The stock (JEF) is now up 1.75% on the news at $12.22 after trading down 6% earlier. After collateral calls related to european sovereign debt exposure forced MF Global to file for bankruptcy, you can see why Jefferies is disclosing this internal information to the public. They are even going to post on their website "day-end, CUSIP-level holdings in the securities of these countries" later today.

In other news, "MF Global Holdings Inc., the bankrupt futures brokerage, has located $658.8 million in missing customer funds in a custodial account at JPMorgan Chase & Co." (Bloomberg) and "Iowa farmers feel ripples of MF Global bankruptcy" (Reuters). Surreal times.


Source: Jefferies

JEFFERIES DISCLOSES ALL CURRENTPOSITIONS IN SOVEREIGN DEBT OF
PORTUGAL, ITALY, IRELAND, GREECE AND SPAIN

NEW YORK and LONDON, November 4, 2011 – In response to inquiries, Jefferies is disclosing its position as of a few minutes ago in the sovereign risk of the nations of Portugal, Italy, Ireland, Greece, and Spain. It should be noted that the interest-rate risk on such positions is insignificant, with DV01 equal to only $37,000.

Positions stated in USD MM’s
LongShortNet CashFuturesNet Total
Italy2,086(2,011)75(100)(25)
Spain191(209)(18)-(18)
Ireland110(80)30-30
Portugal20(16)4-4
Greece-----
Total2,407(2,316)91(100)(9)


“These are fragile times in the financial market and we decided the only way to conclusively dispel rumors, misinformation and misplaced concerns is with unprecedented transparency about internal information that is rarely, if ever, publicly disclosed,“ said Richard Handler, Chairman and CEO of Jefferies. “Later today, after the markets are closed in Europe and we have completed our inventory control accounting, we will post on our web-site our day-end, CUSIP-level holdings in the securities of these countries. We care for our clients, shareholders, bondholders and employees and want to allay any concern that may have arisen. As was the case yesterday, the facts about our sovereign debt exposure and other matters are straightforward and easily understood. We encourage all market participants and interested parties to review our public filings that contain extensive disclosure of the nature, extent and financing of our assets. Our firm stands on a solid foundation of over $8.5 billion of long-term capital and we look forward to continued success.”

“As is clear from this information, Jefferies has no meaningful credit risk in respect of the sovereign debt of these nations, and an insignificant risk related to interest rate movements,” said Brian Friedman, Chairman of the Executive Committee of Jefferies. “Jefferies is a leading market maker in the securities of these and other European nations, as well as a primary dealer in U.S. Government securities, and will continue to make an active two-sided market for our clients. These positions are held as inventory in the context of our market making activities and turn over frequently. Furthermore, nearly 95% of our financing of these positions is through central clearing houses.”

For further information, please contact:

Peregrine C. Broadbent
Chief Financial Officer
Jefferies Group, Inc.
(212) 284-2338

Jim Rogers: Next Economic Slowdown Will Be Worse Than 2008

Jim Rogers was on Fox Business on 11/2/2011 and said the next U.S. economic slowdown will be worse than 2008.
Source: Wikipedia
"Every four-to-six years throughout history we've had an economic slowdown in the United States for many many different reasons. So we're overdue, we're overdue in 2012-2013. When the next slowdown comes, what's America going to do? We cannot quadruple our debt again. We cannot print staggering amounts of money again. So the next slowdown is going to be worse than 2008, which was worse than 2002. So things just keep getting worse because the debt keeps getting higher and higher."

Unemployment Rate Is At 9.0%, Needs To Keep Trending Down (Charts)

During the month of October, 80,000 jobs were added and the unemployment rate ticked down 0.1% to 9.0%. The U6 unemployment rate, or underemployment rate, is still high at 16.2%, but down from 16.5% in September. The market wasn't pleased about this data, or maybe it was combined with the Greek confidence vote and rise in Italian government bond yields. $SPY is down 1.61% at 124.23, pulling back at ceiling resistance; EUR/USD is down 0.58% at 1.37220; and I'm watching Jeffries Group (JEF), which is down 4.08% at 11.52 (down over 6% at one point). The one positive thing I see on the unemployment rate chart is it's been trending down since the 2009 peak. What we don't want to see is the rate spike towards 10% again during a new recession. Track the unemployment rate at bls.gov.


Chart of Unemployment Rate (BLS.gov)

Chart of Non-Farm Payrolls (BLS.gov)
"THE EMPLOYMENT SITUATION -- OCTOBER 2011

Nonfarm payroll employment continued to trend up in October (+80,000), and the unemployment rate was little changed at 9.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment in the private sector rose, with modest job growth continuing in professional and businesses services, leisure and hospitality, health care, and mining. Government employment continued to trend down.

Household Survey Data

Both the number of unemployed persons (13.9 million) and the unemployment rate (9.0 percent) changed little over the month. The unemployment rate has remained in a narrow range from 9.0 to 9.2 percent since April. (See table A-1.)" (source)

ECB Cuts Rate to 1.25%, Papandreou Calls Off Referendum, SPY Testing Ceiling Resistance Again

Source: Freestockcharts.com
The market is rallying on stimulative news out of Europe today. First, the ECB lowered rates by 25 basis points, which was kind of expected given the recession fears and austerity measures. In other big news, Greek Prime Minister George Papandreou called off the referendum vote on the EU bailout plan, so that uncertainty is off the table now (right?). From the New York Times:
"After a tumultuous day of political gamesmanship, Prime Minister George Papandreou called off his plan to hold a referendum on Greece’s new loan deal with the European Union, withdrew his previous offers to resign and opened talks on a unity government with his conservative opponents."

EUR/USD is up 0.92% at 1.38233 on the news and SPY (S&P ETF) is up 1.49% at 125.83. SPY is testing ceiling resistance again and is trading in a range between the 50 and 200 day moving average (red and blue lines). It is also fighting a downtrend (lower highs) as you can see, so SPY is at critical resistance levels to watch. EUR/USD ceiling resistance is around 1.40. Jefferies Group (JEF) was down 20% at one point today on European sovereign debt fears, but now it's up 1%!. All good there? All eyes are on the employment report tomorrow. ADP reported that private-sector payrolls in the U.S. rose by 110,000 in October.

ECB Statement:
"3 November 2011 - Monetary policy decisions

At today’s meeting the Governing Council of the ECB took the following monetary policy decisions:

The interest rate on the main refinancing operations of the Eurosystem will be decreased by 25 basis points to 1.25%, starting from the operation to be settled on 9 November 2011.

Jefferies Statement on European Sovereign Debt Exposure (JEF -7%, LUK -5%)

Jefferies Group (JEF) is down 7% (was down 20% at one point!) on fears of its european sovereign debt exposure after MF Global went bankrupt. According to Jefferies' press release, they have "long inventory of $2.684 billion" and "offsetting short positions of $2.545 billion as well as offsetting positions in futures instruments" in European sovereign debt. They said its net exposure to Portuguese, Greek, Spanish, Irish and Italian debt was $178 million. See the statement below.

They were downgraded by Egan-Jones yesterday according to Zero Hedge: "Egan Jones Downgrades Jefferies On Concerns About Sovereign Exposure Amounting To 77% Of Equity". If gross exposure doesn't matter in this case, Jefferies went on to say its "combined net short exposure of approximately $38 million equals approximately 1% of Jefferies’ shareholders’ equity, which as previously reported is not meaningful to Jefferies’ shareholder equity." Leucadia (LUK), which owns 27.9% of Jefferies, is down 6%.

China Completes First Biofuel Jet Test Flight (Derived From Jatropha) - Guest Post

Air China - Boeing 747-400
Air China Boeing 747 (source: rob-the-org on Flickr)
Guest post by John C.K. Daly of OilPrice.com

China Completes First Biofuel Jet Test Flight

On 28 October Air China conducted its first trial flight of a passenger jet powered by a mix of biofuel and traditional aviation fuel.

The Jet A-1 biofuel kerosene used in the flight was derived from the seeds of tung trees, more commonly known as jatropha.

Air China's Boeing 747-400 landed safely at Beijing Capital International Airport at 9:30 a.m. after burning more than 10 tons of the biofuel, a 50-50 mixture of traditional Jet A-1 derived from oil and Jet A-1 processed from the jatropha seeds. The jatropha Jet A-1 is what's known as a drop-in, simply being admixed in a 50-50 ratio with conventional Jet A-1, and requires no engine modifications.

Air China Vice President He Li said the composition and the burning efficiency of the biofuel admixture had been tested along with its impact on the Boeing 747's four Pratt and Whitney JT9D high-bypass turbofan engines.

The Hydro-treated Renewable Jet Fuel (HRJ) used Honeywell/ Universal Oil Products' process to produce the biofuel. According to Jennifer Holmgren, UOP's former director for renewable energy and chemicals, UOP licenses the process "nonexclusively." UOP said in a statement, "The flight is a result of a broader effort kicked-off in 2010 by China's National Energy Administration and the U.S. Trade and Development Agency to address the technical, economic and institutional factors required for the development of a new biofuels industry in China."

Apocalypse Redux? U.S. Natural Gas Find off Vietnam Could Raise Tensions with China - Guest Post

Offshore Oil Rig In Vung Tau, Vietnam (Wikimedia)
Guest post by John C.K. Daly of OilPrice.com

Apocalypse Redux? U.S. Natural Gas Find off Vietnam Could Raise Tensions with China

First, the good news...

U.S. oil company ExxonMobil is reporting a "potentially significant" gas discovery off the coast of Vietnam, stating in a press release, "We can confirm ExxonMobil Exploration and Production Vietnam Limited drilled its second exploration well offshore Danang in August 2011 and encountered hydrocarbons."

ExxonMobil is the world's largest publicly traded oil company by market value. While Vietnam, an oil exporter and the third-largest oil producer in South Asia, began offshore exploration of its reserves in the 1970s, Hanoi only started in 2004 awarding offshore exploration concessions to a plethora of foreign companies, including those from the U.S., Canada and India with ExxonMobil receiving concessions from the Vietnamese government allowing it to explore blocks 117, 118 and 119 off Danang, an area that Vietnam insists is well within its 200-mile exclusive economic zone under international maritime law.

The bad news?

The South China Sea's offshore resources are currently claimed by six countries - China, Vietnam, Taiwan, Malaysia, Brunei and the Philippines, with competing claims overlapping in a crazy quilt pattern. Given the billions of dollars at stake for exploiting the undersea energy resources, it is unlikely that the contradictory claims will be resolved anytime soon, making Southeast Asian waters a potential flash point for conflict.

Greek Bond Yield Update: 1-year GGB Yield At 224% (11/2/2011)

1-year GGB yield intraday via Bloomberg
Wow, Greece's 1-year government bond yield hit a high of 233% today and closed at 224%. How high will this thing go? Track government bond yields at Bloomberg.com.

Greek 1-year government bond yield GGGB1Y:IND 224.74%
Greek 2-year government bond yield GGGB2Y:IND 96.68%
Greek 5-year government bond yield GGGB5Y:IND 34.58%
Greek 10-year government bond yield GGGB10Y:IND 25.46%
Greek 30-year government bond yield GGGB30Y:IND 17.20%

News for today:

Euro Declines as European Leaders Withhold Aid Before Greece’s Referendum (Bloomberg)

Nicolas Sarkozy tells Greece: If you don't stick to the rules, leave the eurozone (Telegraph)

IMF to consider Greek aid after referendum-Lagarde (Reuters)

Greek cabinet backs PM's referendum decision (Al Jazeera Video)

Jeffrey Sachs vs. Niall Ferguson on Occupy Wall Street Movement (CNN Video)

Source: CNN
Economist Jeff Sachs of Columbia vs. Historian Niall Ferguson of Harvard on the Occupy Wall Street movement. Enjoy. Niall Ferguson was also on Yahoo's Daily Ticker today: Poor Public School Education Not Wall St. to Blame for American Inequality, Is the West Doomed to Fail? Yes, If We Don’t Start Working Harder, Says Author Niall Ferguson.

SPY, EUR/USD Make Lower Highs, Greek Referendum Analysis

SPY (the S&P ETF) and EUR/USD made lower highs recently after the S&P posted the biggest monthly gain since 1974 (was cut short on Halloween). They both peaked out in April and have been making lower highs ever since. On 10/31/2011, exhausted SPY and EUR/USD failed at 200-day moving average resistance, broke through the steep uptrend, and re-crashed through the March and June 2011 floor (now resistance again). EUR/USD even sold through its 50 day moving average, but regained that level today on oversold conditions. SPY is still above its 50dma, but it looks testable on this down move. We'll see. The surprise plan for a Greek vote on the EU bailout was the catalyst for the sell-off.


SPY at FreeStockCharts.com 

10-year Italian-German Bond Spread Hits 4.52, New High; EUR/USD, Banks Are All Red

10-year Italian-German Bond Yield Spread (Bloomberg)
The 10-year Italian-German Bond Yield Spread is at 4.52, +11%, and the 5-year Italian-German bond yield spread is at 5.27, +11.53%. Since German bonds are considered the safest government bonds in the euro zone, spreads widen when sovereign debt fears rise. I wrote about the 10-year Italian-German spread back in June when it initially broke out to new highs. The 10-year Spanish-German spread broke out in July. Watch the charts on Bloomberg.com to monitor sovereign risk in Europe. It is too bad Bloomberg.com took down down sovereign CDS quotes and charts. For a whole list of spreads to German bunds go to my post with links.

At the end of October, the market was very optimistic that the EU Summit deal reached to save Europe would go as planned. Read the full EU Summit Statement on the plan (the leveraged EFSF aka European Financial Stability Facility, 50% Greek debt haircut and austerity measures). However, now Greek Prime Minister George Papandreou is calling for a referendum (1, 2, 3, 4) that could put the EU plan at risk since 58% of Greeks (1, 2) are against the plan. This puts contagion risk back on the table again if government bond yields continue to rise, Greece defaults, and/or credit default swaps, toxic sovereign debt holdings and sovereign collateralized swaps (repurchase agreements) force collateral calls on banks and then bankruptcy filings. If the plan fails, will the ECB print euros?

List of Events Leading Up to MF Global's Bankruptcy (PDF)

MF's last days in October
Hat tip to Distressed Debt Investing for linking to info on MF Global's bankruptcy case. Visit his site for more info on MF Global's debt and what Jon Corzine, MF Global's CEO, said during the most recent earnings call. In MF Global's bankruptcy declaration by COO Bradley Abelow, he explained the events leading up to the bankruptcy filing. Read the full document here (mfglobalcaseinfo.com) or it is embedded below. See my previous blog post on MF Global's $6.3 billion short-term European sovereign portfolio that ended up killing the company. It shows how equity can get wiped out at these financial institutions in the matter of days from regulators increasing net capital requirements, credit rating downgrades and collateral calls.
"E. Events Leading To Chapter 11 Filing

33. As a global financial services firm, MF Global is materially affected by conditions in the global financial markets and worldwide economic conditions. On September 1, 2011, MF Holdings announced that FINRA informed it that its regulated U.S. operating subsidiary, MFGI, was required to modify its capital treatment of certain repurchase transactions to maturity collateralized with European sovereign debt and thus increase its required net capital pursuant to SEC Rule 15c3-1. MFGI increased its required net capital to comply with FINRA’s requirement.