The Tasgall Group

Nassim Nicholas Taleb (author of Fooled by Randomness) was apparently linked to the Amaranth situation:

I did not directly hedge Amaranth?s books or exposure to blowups when I was in Greenwich ?I never worked directly with them though I shared offices with the group. I hedged a fund?s large exposure to Amaranth (or its predecessor) so long as it were exposed to their risks (before Amaranth got involved in commodities).

You can read more here (scroll down). I always find it interesting to see what people hire consultants for — in this case to help hedge a counterparty’s risk when dealing with exposure to Amaranth or Mother Rock.

I just read this interesting piece on how the Goldman Sachs Commodity Index (chart) was recently “tweaked” and could have caused a bit of a ruckus with some of the indexers who would have had to shuffle their investments. The short version: the recent selloff in oil and unleaded gas is a side-effect of indexers shifting to follow the new, lower weighting of unleaded gas in the index.

The author of the piece thinks that the timing was political, though I am not convinced.

This from a business article about Accenture (ACN):

Buyback: Accenture management is clearly troubled by the fall in valuation. It has announced a buyback price per share that is not greater than $24.75 nor less than $22.50. The Board of Directors of Accenture authorized the use of $650 million of existing cash from operations to fund the offer, as well the use of up to an additional $123 million should Accenture SCA choose to increase the size of the offer in response to shareholder demand. This aggregates to about 5% of current market cap. (more…)

When I read this?AP report, my head spun.? Why?? That’s what happens when the media spins every number coming out of the Fed until you can’t help but get some bodypart caught in the whirlpool.? This is a perfect example of what happens when monthly changes in economic releases are compared instead of looking at year-over-year.? Ahead Of The Curve spends several chapters discussing the flaws of comparing one month to the next instead of looking at annual rates of change.

If you believe this article, we are all doomed.? But a simple glance at y/y charts shows that income has been?accelerating like a shot and that this, in turn, has now caused consumption rates to turn upwards.? So the very numbers that spell doom to this writer, are actually reflective of an improving picture.? Same numbers, completely opposing views.? Here are the y/y charts of my two favorite economic indicators, real hourly income and real PCE (i.e. consumption):

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As we might have noticed, the Dow Jones Industrial Average (DJIA) just broke it’s all time high of 11,722.98 briefly in trading yesterday.? Woo-hoo.? With this new high, I noticed a post over at The Big Picture that looked at the actual change in the Dow components since the high was set on January 14, 2000.? (Take a look at his post for the data table.)
The interesting thing is that of the 30 Dow component companies, only 10 are above their prices back in 2000.? Fifteen of the 30 are down 20% or more!

Check out this commentary from Tom Graff:

I’ve argued that home prices are sticky on the downside, because people are very reluctant to put their home up for sale at a loss. In many cases, people just can’t put their home up for sale at a loss. Let’s say I buy a $200,000 house with 10% down. The house declines in value by 5%. Now I’ve invested $20,000 and have a $10,000 loss. I want to buy a bigger home for $300,000. I have to pay off a $180,000 loan with sale proceeds of $190,000. In order for me to put 10% down again, I’ve got to come up with $20,000 in cash. If I’m like most Americans, I haven’t saved very much, so coming up with the cash would be difficult.

So what do I do? I just stay in my current house. Ride out the housing downturn.

If people delay their decision to trade up in houses, the effect is to lower supply. I think this creates a floor to how far home prices can fall in general. Maybe not so much in a given area, particularly those where investor speculation was rampant, but nationwide. This is why I’m not terribly bearish on housing, and why I don’t think housing will compel the Fed to cut rates early in 2007.

That is an interesting perspective.? As someone who has gone through the process of selling a home, I know that is exactly how I felt.? A loss wasn’t acceptable and I certainly couldn’t afford to make up any shortfalls.? What makes something like +4% a year, normally a modest number, attractive is the leverage provided by house values.? But that’s not so good when it turns negative.? But the one thing that makes it different from a stock or other investment is that you can live in it.? As long as you can afford it, you don’t have to sell it.? But the one thing this thesis leaves out is the affordability factor.? What if you can’t afford it?? It becomes like a margin call.? Still, I like the common sense of this point of view.

I had the good fortune of spending some time in a waiting room this morning where today’s Wall Street Journal was available for reading… and since I don’t subscribe to the WSJ I will have to paraphrase what I read in one of the cover stories…

Stocks and bonds rallied yesterday on the comments from Federal Reserve Governor Richard Fisher who said the economy is strong despite a slowing housing market and right now inflation is the biggest risk. […] The comments led to expectations that the Fed is done raising rates.

Am I wrong, or am I the only person who read “the economy is strong” and “inflation is the biggest risk” as preparing the way for another rate hike? When the economy is strong, that means it should be able to handle the impact of more hikes without too much trouble. If inflation is a worry, then the Fed could/should raise rates to stop it from getting out of control.

Am I missing something here? It’s just like with the last 7 FOMC rate hikes, everyone was convinced that the Fed was going to pause despite all the messages to the contrary. The market cheerleaders kept singing the same song, almost verbatim despite being wrong 6 times in a row…

[Note that I’m not saying the Fed should raise rates, but rather the reaction to Fisher’s comments was unusual…]

Here’s another hedge fund manager who likes to play it loose in the energy markets… but this fund’s losses are much bigger than the MotherRock implosion back in August.

Amaranth Advisors, a hedge fund with $7.5bn under management, has warned investors that its main funds are down 35 per cent or more this year after big losing bets on natural gas prices.

“We are in discussions with our prime brokers and?.?.?.?are working to protect our investors while meeting the obligations of our creditors,” Nicholas Maounis, Amaranth’s founder, said in a letter to investors.

And their selling may also be the cause of much of the downward pressure in the Natural Gas market (some speculate the situation is affecting the gold markets too): (more…)

In case you guys hadn’t read the news, my old friends at ICE (Intercontinental Exchange) are buying the NYBOT (New York Board of Trade). The price of ICE was up 15% in Friday’s trading when the news was announced…

I remember back in the day, a question came up of why does ICE even exist? There are quite a few different answers… all with varying roots in reality. (more…)

I love coming across interesting charts that just make you go, “Hmm…”, like the one I posted about median income.? Here is another “Hmm…” chart that seemed to fit the vibe of recent posts:

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