A Carpet Of Dollars Can't Sop Up All The Red Ink

Leap Year Day of Doom

Elaine Meinel Supkis

Today is a very magical day: it is the missing day to make up for the light glitch in the solar calendar. A mysterious day which is turning into a fall through the floor day for investors. The dollar continues to fall, stock markets around the world are falling and leverage money making is falling and all is going down the Leap Year rabbit hole together. This reminds me that a year ago, when everyone was boasting about how strong the world's economies were, we had this sudden plunge right about now! And I said, this was a harbinger for things to come when it all would begin to unravel.

One of our readers, Tony, sent me this bit of numbers business:

Speaking of burning $1b dollars - I wanted to let you know that after trying to wrap my mind around his 3 trillion dollar budget I calculated the following:

3 trillion one dollar bills would carpet the entire continental United States...23 dollars deep!!

Why not simply be honest and just put a sideways number eight on the f*king budget and be done with it!

I own 22.8 acres of land. So at 9.6 $ per sq ft, 43,560 sq ft per acre, we would get from the Bernanke helicopter drop, $2,377,942.14. Or rather, since this is spending, I would owe this amount. I don't know that these calculations are correct but it does go well with the Reagan comment that the US debt could, if the dollars were laid end to end, reach the moon---back when it was only a trillion dollars. Now, the deficit is nearing $10 trillion as it heads towards Mars. Actually, we are still merrily spending as if there is no tomorrow. I intend to talk about that and gold later today since all this brings up the Bretton Woods II mess and wage/price controls. A long article that would make this one too long. First, today's bitter news:

Clinton and Obama Focus on Economy; Bush Finds Fault

Hillary Clinton and Barack Obama pressed their economic messages today, drawing in President George W. Bush, who scolded the Democratic presidential candidates for their tough talk on trade.

Touring Ohio, Clinton put out a $5 billion, 12-year plan to cut in half the 13 million U.S. children living in poverty. The plan also would seek to end child hunger by 2012.

Obama reiterated his proposals for strengthening the middle class and ensuring fair trade agreements, saying he would roll back some of Bush's tax cuts to the level they were during the administration of former President Bill Clinton.

``Most rich people were doing pretty good in the '90s,'' the Illinois senator said in Austin, Texas. ``They were rich then and they will be rich when I am president.''

In depressions, the rich who are not in debt remain 'rich'. Wealth is all about relativity. If a man with a dollar in inflationary times is poor, a man with a dollar in depressionary times is rich. The person with money when no one has money, is rich. In the Middle Ages, wealth was depressed so badly since the fall of the Roman Empire, signs of wealth were reduced to its simplest level by 1000 AD. The ONLY persons allowed to sit in chairs were high church officials, kings and emperors. They called these things, 'thrones' and down the scale it went: stools went to the barons, benches to the chivalry and sitting on the floor or standing to the lower levels. When Parliament met back in the times of the Tudors, for example, this being in the 1400s-1600s, the Burgess demanded to sit on bags of wool as a reminder to the kings and queens of England, their tax money came from wool. Before that, they stood while the sovereign sat on the aforementioned 'throne'.

Every election since Nixon, our candidates, one and all, promise to make trade deals that aren't double deals. Yet every one of them does the double deals. Why is this? We just have to look at who is paying for our elections. The main top individual donors pouring millions into elections as well as the media that mediates these things are one and all, united in their desire for open borders and bad trade deals for the US workers. True, our candidates often raise millions from millions of small donors. But this money can be discounted due to the simple fact, these moneys have no strings attached. If NO ONE contributes, the handful of rich donors seeking to open our doors to exploitation will still be powerful since they don't need the small donors. Only if all small donors gave to an upstart party such as under Ross Perot, can we see a serious push away from open borders.

Note Perot here: he took a good hunk of the vote thanks to his personal fortune united with many small donors to talk about the 'giant sucking sound'. He was trashed pretty thoroughly by the ruling elites and note that NO ONE dares appear in public like he did armed with graphs, pie charts and numbers to debate reality! I loved Perot just for that one thing. I itch to see this happen again. But it will not. We have probably one of the most desultory debates about finances possible considering that we are deep into a total banking/finance meltdown of historic proportions. Yet our candidates who remain standing as well as the Fed and others are sleepwalking.

This is where we miss people like Ron Paul. If nothing else, he is a refreshing slosh of water in the face! The need to talk about bottom lines, gold and war financing is at the top of the agenda but in this election, is at the bottom. We have, instead of a decent argument about all our treaties and accords, nothing but Santa Claus promises. All my life, I have watched the public run off to whoever was promising them the most goodies. This disgusting activity has driven our nation down into a very deep hole. Since the people at the top don't care if we go bankrupt, the people in the middle and bottom don't care. The people at the top, instead of running to tax havens while using offshore accounts to flood our finances with debts, if they were serious about protecting America, they would change their own course. But they won't.

The wealth they get this way is too tempting. They don't want to sacrifice one bit of their pleasures and fun in order to build a nation. Instead, they enjoy tearing apart our nation because this gets them richer. So what if we go bankrupt? They plan to decamp to other shores! And this is treason. Our candidates must secretly deal with these traitors while pretending to be patriots. This is why we had a flash in the pan yell-a-thon about Obama not wearing a US flag lapel pin! Talk about stupid. The biggest traitors wave the biggest flags. And just like we have news about the cost of hair dressers or the photos of our leaders wearing funny clothes dominating our media, we have no mention about the cost of government, cost of war, cost of the US life style.

Financial Services Authority turns to insurers as it looks for the next crisis

The Financial Services Authority has turned the spotlight on the insurance industry as it tries to seek out the next problem waiting to explode in the financial industry following the sub-prime mortgage crisis.

The City regulator has written to insurance companies asking for details of their illiquid assets and credit derivatives as it tries to uncover where the risks lie in the financial system.

Insurers are being asked for details of their exposure to credit derivatives - complex financial instruments that have been at the heart of the current financial turmoil. They are also being told to outline how they are valuing these assets at a time when financial markets have frozen up, making it difficult to be confident about their precise value.

I put this in to show that the financial mess isn't made just in America. It is epidemic within the G7 framework. Even countries like Germany that once boasted, it wasn't part of this mess, is part of this mess. The entire get up of the financial accords hammered out over the last 35 years is rapidly imploding and we have only just begun to see the emergence of the Derivative Beast from his dark, deadly cave! Much of the M1 and M2 money growth in the world is in the G7 nation framework. This money flow system is based on 'free trade' which means 'flood the US with imports and pocket the profits and then laugh all the way to the bank.' Only this dynamic is now hammering all the G7 partners of the US. They are now becoming the destination of a flood of imports! The Japanese are fending this off by simply not leaving any excess income to spend on much of anything within their own working class. The US vacillates on this matter. The people funding our candidates want to starve the working class but they want the working class to spend. Thus, the desire to expand working class debt. Only we just hit the ceiling: debts can't rise much more. Time to raise wages. Only this will cut into profits. The ruthless severing of the unions continues as all the major manufacturers with unions continue their buy-outs so they can hire cheap labor. This means, the new workers can't buy much of anything. Classic depressionary systems!

AIG Posts Biggest Loss, Misses Analysts' Estimates

American International Group Inc., the world's largest insurer by assets, posted its biggest quarterly loss as a publicly traded company after an $11.1 billion writedown of guarantees sold to fixed-income investors.

The fourth-quarter net loss of $5.29 billion, or $2.08 a share, compared with profit of $3.44 billion, or $1.31, a year earlier, New York-based AIG said today in a statement. AIG said it doesn't expect to repurchase shares for the ``foreseeable future'' beyond commitments made last year. The company declined in extended trading.

Another sign of the ongoing financial collapse. AIG made a profit last year because many deals were made requiring 'insurance' and so they got the fees. But when the fees vanished as the insurer had to pay out again, now they discover a 10% or less reserve ratio is no good in a hurricane. Just as the major damage from Hurricane Katrina came not from the winds of the storm but from the levees collapsing, so it is here. The levees that separated the dry funds from a flood of red ink have collapsed and now everything is drowning in a sudden and 'unexpected' overflow of red ink.

Since this is a dam collapse and not mere overflow, the money will gush continuously until the river runs dry. Meanwhile, all the central banks in the G7 are frantic to increase liquidity. If my metaphor is correct and I think it is, this means they are worsening this mess. We can't fix the overload of debt by adding more debts. Bankruptcy exists in order to deal with this sort of ceiling: no system is infinite. And infinite debt is impossible. So instead of trying to discover this truth the hard way like Weimar inflation did with their own debts back in the 1920's, so it is here. We must bite this bullet. It is not going to be easy or fun. But we can't let a total banking meltdown get worse and worse forever. The intricate web of treaties, organizations, deals, situations and reciprocal accords and arrangements cannot be battered like this forever. And fixing things means fixing fundamental things.

In this case, the fundamental at stake is the US: our multiple deficits. Trade, finance and military are all one and the same problem. We can't continue as the world's biggest empire and biggest debtor nation all at the same time. The time to give this up is rapidly approaching. We best deal with it directly, now, rather than wait for the Chinese to deliver it to us on a silver platter with our head lying in a pool of blood.

Private equity head hits back after attack by buyout pioneer Moulton

The barbs, made in a speech on the last day of the industry's showpiece conference in Munich, were interpreted as a thinly veiled attack on Mr Moulton, the founder of Alchemy Partners.

Mr Moulton had delivered the opening address for the Super Return International conference on Tuesday. The industry grandee trained both barrels on what he called the "enemies" of private equity – from the media and trade unions to politicians and hedge funds – before launching a surprising attack on the BVCA.

He criticised the trade body for using "dodgy" statistics to paint private equity in a misleadingly positive light. "We shouldn't use flaky statistics to show an over-optimistic image," he said.

Mr Walker, a former press secretary to the Queen, said the BVCA stood by its research but did admit the numbers were not perfect. "We need a lot more data, and it's my job to see that it happens.

'Data! Data! My Offshore tax haven for more data!' cries the secretary of the Queen as he stumbles around Bosworth Field. The numbers aren't perfect? HAHAHA. I will note here that Her Majesty's servant slithered off to the offshore haven heaven for royal barking dogs to make some loot! Isn't that ever so funny? Meanwhile, Prince Harry is shooting turbans in Afghanistan in the present movie, 'Harry of Afghanistan.' Into the breechcloths! O, band of brothers! Meanwhile, back in the financial trenches, the men with the tranches are trembling. Boo hoo! The media is mean to them. Perhaps they will try again to sue me to make me stop talking about the Queen, her pirates and their covens.

Speaking of covens, note the name of the group here: Alchemy Partners. LLP. HAHAHA. The sorcerer's apprentice guild incarnate! One reader here sighed with relief when I didn't mention Her Majesty's pirates or wizards yesterday. Well, I am NOT the one who keeps bringing this up! It is all in the news! Should I ignore this? HAHAHA. No. I won't. The Alchemists are attacking the Queen's pirates and yo-ho-ouch. I hope they turn them into newts.

Under the normal rules of capitalism, any industry that can produce double-digit annual growth should soon be swamped by eager competitors until returns are driven down. But in fund management that does not seem to be happening. The average profit margin of the fund managers that took part in a survey by Boston Consulting Group was a staggering 42%. In part, this is because most fund managers do not compete on price. Instead, they persuade their clients to select their funds on the basis of past performance, even though there is little evidence to show that this is a good predictor of future success. Nor can investors be sure that the intermediaries who sell the funds—brokers, advisers and bankers—will steer them in the right direction. These middlemen often get a cut of the fund managers' fees, so they have little interest in recommending low-cost alternatives.

Can we all say it in a chorus? HAHAHA. Pass the bottles of beer on the wall, me darlings! Talk about collecting loot. And these pirates wonder where the investors went. Until these creeps running these funds are punished with a whack from a cat of nine tails, they will continue to loot. And they will NOT figure out why this is bad. Not for a while. Only after most of them are in prison, out in the streets, begging or fleeing enraged mobs, will we see an end to the present financial crisis.

Leveraged funds rush to sell debt

Troubled leveraged funds are likely to sell almost $100bn worth of asset-backed bonds and financial company debt by the end of the year as they struggle to avoid defaulting on their own debt, according to analysts at Citigroup (NYSE:C) .

Sales of asset-backed securities, such as mortgage-backed bonds and collateralised debt obligations, have gathered pace in recent weeks, pushing prices down further and keeping the market shut for new issues.

And as more fake money vanishes, let us wave a hanky in bye-bye. These ships aren't vanishing over the horizon, they are pulling a Titanic. Glub. Down they go as they squabble on the deck. Note that these funds are all LEVERAGED. These clowns created a huge sea of red ink. They borrowed money to play money games. The more they played, the more money they borrowed and the more debt was created. This went on and on as it was laughably easy with loans running below the rate of inflation. They still do! Inflation rages, thanks to all this. And loans are even cheaper than ever! But the downward spiral has begun. Like any dynamic movement, it must go all the way until the end. People up to their eyeballs in debt can't get out of debt via more debt. This is logic.

I say, it was OUTLAWED, this use of debt to play speculative games! Then this was thrown away and the doors to a flood of debts were opened wide as it is much more profitable to bet with someone else's savings than one's own! Note that again, in the news, is this story of a trader, this time in wheat, pulling an Evil Keviel. 10% of the wheat futures were fictional trades! Based on no funds. Ergo: illegal. But then, the speculations based on loans should be illegal, too! They are boosting all the commodity markets right now. This flood of lending continues to seek bubbles. And is succeeding.

Peloton Blames Wall Street Lending Crackdown for Fund Collapse

Peloton Partners LLP, the London- based hedge fund manager being forced to liquidate a $1.8 billion asset-backed fund, said it's a victim of Wall Street's reduced lending.

``Credit providers have been severely tightening terms without regard to the creditworthiness or track record of individual firms, which has compounded our difficulties and made it impossible to meet margin calls,'' Peloton co-founders Ron Beller and Geoff Grant said in a letter yesterday to clients.

Peloton joins Thornburg Mortgage Inc. and Sailfish Capital Partners LLC on the growing list of funds and companies that have had to sell securities or shut down after banks restricted how much they could borrow, or demanded more collateral as values of securities backed by mortgages slumped. The world's biggest financial institutions are cutting off lines of credit to hedge funds after at least $163 billion of asset writedowns and market losses.

``More hedge funds will blow up this year than ever before,'' said Michael Hennessy, who helps oversee $10 billion of hedge fund investments at Morgan Creek Capital Management in Chapel Hill, North Carolina. ``Financing is much harder to get. The bubble has burst.''

All these ships were made of paper. Like paper hats set afloat, they are now all soggy and sinking. Note how these hell hound hedge funds were making their deals with debts! I complained about this for years! And as usual, when this happens, it causes a total melt down when deals unravel. After the Great Depression, Congress figured this out and passed laws forbidding this sort of stupid thing. Unlike someone who has savings in a bad deal, one can hang on for dear life for several years. BUT if the money is BORROWED and the equities it is borrowed against, whether real estate, stocks, etc, if these fall, then the bill comes due if it is more than the assessed value of the equities which have debts parked on top of them.

So in bad times, forced sales shoot up! To prevent this, our government tried to disallow this sort of goofy finances. This was tossed out by people eager to make themselves rich without real work. Now we get the downwards multiplier effect: each fall forces more falls. Each equity, as it loses value, forces more sales. This is true in real estate as well as in the hedge funds. Both echo each other, too! Creating a 'perfect Katrina levee collapse' moment.

VRDOs Spell More Trouble For Banks

Yes, we've heard all about the problems in the mortgage derivatives markets, with the bond insurers, and in an arcane and little understood corner of the debt markets: auction rate securities. But a form of municipal money market security called the variable rate demand obligation (VRDO) and related tender option bonds and Dutch auction structure securities are also wrecking havoc.

Like the auction rates securities recently grabbing headlines, VRDOs are another one of those long-term debt masquerading as short-term securities deals. The banks that invented them converted long-term tax-exempt bonds into investment eligible money market funds by agreeing to let investors sell their holdings in periodic Dutch auctions or by backing them with funding commitments, and getting a rating from a monoline bond insurer to enhance the credit.

There is about $250 billion of VRDOs outstanding and another $350 billion of Dutch auction structure securities.

Since all our governments are in the red, we need bond markets to function. Since we allowed all the Great Depression laws and rules to be suspended or eliminated, we get to see gravity do its worse. As everything collapses, we have to recall that 9/11 was just like this: the very weight, the poor design of the World Trade System is collapsing from its own weight as well as significant damage from war! And the fires of misspending on war are destroying the guts of our WTC nation. Just as on that day, the whole thing is imploding at a very fast speed. The ditherings of our leaders is comic in comparison. They are reading 'The Pet Goat' in unison even as we are all running around, screaming. All forms of investment are seizing up because the underlying basis is 'leverage' which is 'red ink' which is 'the carry trade' which is the Bank of Japan. Now, the US is becoming the 'carry trade'. And these powerful shifts in relative power and value are hammering us internationally as well as in domestic markets! All these banking panics in history have ALWAYS led to depressions.

No matter how we try to evade this fact, this is the truth. The belief that we can spend our way out of this is foolish since we are deep in debt. Japan is deep in debt. England is deep in debt. Yet all three act as if they can generate infinite loans! Japan does have a huge trade surplus with the other two but this is now changing direction. The joy the Japanese had at the news that the US was going to misspend more money has now evaporated. The yen is up. They read that most Americans intend to save their bonuses, not spend them on Japanese imports. So the Nikkei, which rose 1,000 pts on the news of easy loans, more debt and more funny money, has now fallen by nearly this much and will continue to fall.

Regulators are girding for dozens of bank failures. There were just four last year and an unprecedented none in the 18 months before that. Ben Bernanke, chairman of the Federal Reserve Board, said Thursday that banks will have to raise capital so they can continue to lend, which is his way out of the credit market crisis.

In 2006, no banks failed due to the flood of easy money pouring across our land! Even bankrupt individuals couldn't go bankrupt! We saw TV shows of people filing for bankruptcy and getting credit offers THE SAME MONTH! All the banks were desperate to make these deals! Who could lose? But now, this is over. Now, it is hard to get loans. Bankruptcies are soaring due to the very same easy money given out like candy in 2006. This will end only after all the bankrupts are bankrupt.

Putin Makes Medvedev Suffer Russian Inflation Jolt

Russia's prosperity is built on nine successive years of expansion, a sixfold increase in average incomes and almost $500 billion of currency reserves. They contribute to Putin's inability to contain consumer-price growth, which overshot its target in every one of his eight years as president except 2003.

Medvedev, 42, the likely winner of the March 2 election, must find ways of containing inflation that accelerated to 11.9 percent in 2007. Failure to do so may trigger unsustainable wage demands, squeeze consumer spending and dent company profits.

Cash dominates transactions, with almost 90 percent of cards used only to withdraw rubles from bank accounts, according to Anatoly Aksakov, a member of the lower house of parliament.

Just included this to prove, inflation is global, not local. Oil selling nations have it. Manufacturing nations have it. And the evolving depression will finally kill inflation the hard way.

Dollar Falls to 2 1/2-Year Low Against Yen Before Spending Data

The dollar fell to a 2 1/2-year low against the yen on speculation a U.S. government report will show consumer spending stayed at the weakest in six months.

The currency headed for its biggest monthly loss against the euro since September as a cooling economy prompted traders to bet the Federal Reserve will cut interest rates at least twice more this year. The dollar is the second-worst performer this month among 16 major currencies against the euro after Fed Chairman Ben S. Bernanke said the dollar's depreciation is ``a positive factor'' for reducing the U.S. trade deficit.

``This is the Bernanke shock, causing much faster dollar depreciation than expected,'' said Michiyoshi Kato, a senior vice president of currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest publicly traded lender by assets. ``We are entering into another world of dollar weakness. The Fed is not unhappy about that.''

The U.S. currency declined to 104.67 yen, the weakest since May 2005, before trading at 104.88 yen as of 9:24 a.m. in Tokyo, from 105.37 yen in New York late yesterday. It traded at $1.5188 per euro, from $1.5193 in New York late yesterday, when it touched $1.5229, the weakest since the euro began trading at about $1.17 in January 1999.

The dollar may fall to $1.5230 per euro today, Kato forecast.

The Japanese complain about a weak dollar while they flooded us with goods and debts. The wave of inflation this has caused has now sloshed back into Japan as we see in the Nikkei news:

Jan Core CPI Rises 0.8% On Year

TOKYO (Kyodo)--Japan's key consumer price index rose 0.8 percent in January from a year earlier, the government said Friday.
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Stocks: Open 2% Lower On Stronger Yen, Fresh Credit Turmoil

TOKYO (Kyodo)--Tokyo stocks opened about 2 percent lower Friday on the U.S. dollar's fall into the upper 104 yen range and fresh credit turmoil sparked by grim comments from U.S. Federal Reserve Chairman Ben Bernanke.

We all must remember this harsh truth: inflation can't be stopped by easy credit or more government spending. Energy and food price hikes are the nastiest and most important forms of inflation because no one can escape them in inflationary times. And all inflationary periods are balanced by deflationary periods. And there is no infinite debt. And pirates are EVIL. Someone better inform the Queen about this. And finally: I am going to find out tonight if I will be on national radio. Will give the details later. The wall of isolation is breaking down! I hope. It has been a long time coming. Also, my new Adobe Photoshop is coming today! I can cartoon again! Hooray! Thanks to generous readers. Thank you, all. You are so wonderful!

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Comments

[stevo]

As an aside to the above, the 22 Feb. 08 Value Line states that AIG's "balance sheet remains solid," and "This issue's 3- to 5-year capital gains potential may appeal to investors willing to look past current problems."

Importantly, AIG's free cash flow to assets (FCF/A) is a disappointing -0.2% and its debt to equity (D/E) is somewhat hefty. Compared to other Dow stocks with FCF/A ratios all above +7% and low D/Es, such as MSFT, XOM, JNJ, INTC, and PFE, AIG seems to me like a real stinker.

[Elaine Supkis]

correct.

[milo]

sorry, i may have to stop reading your wonderful site as it raises my blood pressure to dangerous levels.....

[Chris]

Hmm, not sure how or why Peloton Partners LLP chose that name - but Peloton means 'fearless' in Finnish heh. Fearless Pirates indeed.

[mad mike]

guess who was mixed up in the Peloton Partners LLP fiasco?
gold man sacks.
these guys will sell all our grain and fuel to SWF nations like china. and let us starve and freeze to death. it will be known as the great uh-merikan famine of 2008-?.
get ready to die.

Mortgage mess socks ex-Goldman Sachs stars
A smart bet on the collapse of the subprime housing market comes back to bite Geoff Grant and Ron Beller.
By Roddy Boyd, writer

NEW YORK (Fortune) -- Not long ago, Goldman Sachs alums Geoff Grant and Ron Beller looked like superstars. A prescient wager on the collapse of the subprime mortgage bond market generated last year a whopping 87 percent return for one of their hedge funds.

The twosome, who run London-based Peloton Partners, aren't looking so shrewd these days. They've been forced to liquidate their once high-flying ABS fund after gambling big on a mortgage bond rebound that didn't materialize. The $1.8 billion fund's collapse comes after a series of recent trades dropped sharply in value, leading to margin calls from creditors that the firm was unable to meet.

The ABS fund's implosion, coming just three years after Peloton Partners was formed, highlights the steep challenges that hedge funds face amid the credit crisis gripping Wall Street. Last week D.B. Zwirn & Co shut down its two biggest hedge funds amid investor defections. Citigroup halted earlier this month withdrawals from one of its hedge funds.

Also on Thursday, Grant and Beller told investors that they were suspending redemptions in a second Peloton portfolio, a $1.6 billion multi-strategy fund that finished 2007 up 27 percent. According to a letter sent to clients this week, the multi-strategy fund had a very large position in the ABS fund, whose bust has had a "serious negative impact" on the multi-strategy fund.

Grant and Beller said in the letter that they were assessing their options. But depending on the assets left in the ABS fund, the multi-strategy fund's investment could be almost worthless.

A spokesman for Grant and Beller did not respond to a request for comment.

The story of the ABS fund's demise began last year when Peloton took short positions on investments backed by pools of subprime mortgages, meaning it bet that their values would fall. While other hedge funds like Paulson & Co. also bet short on mortgage bonds, Peloton did something more complicated: It wagered that slices of the same bond portfolio with different ratings would diverge sharply in price - a strategy known as capital structure arbitrage.

For instance, the fund was long on AAA-rated mortgage bonds and gambled that BBB-rated subprime bonds would fall in value. That calculation paid off big when, according to ABS investors who spoke to Fortune.com on the condition of anonymity, the fund's short position fell 75 percent, from an average of nearly $100 to $25. Meanwhile, the price of the fund's AAA-rated long position declined much less.

The price differential between the short and long positions led to the 87 percent return. Trade publication EuroHedge Magazine subsequently named the Peloton ABS fund as 2007's best fixed-income fund.

Everything changed this year. The fund had about $16 billion in long positions versus $3.2 billion in shorts, according to a hedge fund manager who has seen Peloton's portfolio. The short positions - which were so profitable in 2007 - declined modestly in value, while the credit crisis drove the value of the massive long positions down an average of between $15 and $25 per bond in about a month. The fund suffered massive losses as a result.

What's worse, the fund's investment bank creditors - whose balance sheets have been brutalized in the credit crisis - did not have the resources to absorb the hit on behalf of the fund and demanded additional collateral. Peloton was unable to meet those demands.

In turn, a consortium of Peloton's lenders - its prime broker Goldman Sachs, Citadel Group and Och-Ziff Capital Management - declined to buy the portfolio. Grant and Beller are now trying to sell pieces of Peloton's portfolio, according to U.S.-based mortgage hedge fund managers who have been approached.

Founded in 2005, Peloton's collapse has caught the hedge fund community off-guard. Unlike Amaranth Advisors, which teetered on the brink of collapse for several weeks before finally selling its assets and winding down operations in 2006, Peloton's hedge fund rivals and prospective investors told Fortune.com they had little inkling of serious trouble.

The trade publication Hedge Fund Alert recently noted that Peloton's multi-strategy fund was hiring. Earlier this month, the Financial Times published a fawning profile of Grant and Beller, noting that Peloton had an unusually large risk-management staff.
http://money.cnn.com/2008/02/29/news/international/boyd_peloton.fortune/index.htm

[Elaine Meinel Supkis]

They went down due to being 'leveraged'. I harp on this all the time: no one can make a margin call if one is holding things based on profits and savings of some sort. The minute an organization decides to make money betting with LOANS they are not able to hold when prices drop. They have to fold. As each one folds, all others are forced to fold, one by one, rapidly. This is why it was outlawed after the Great Crash of 1929. Why it was revived baffles me.

[Michael]

That dollar carpet filling the United states really kept me thinking - it just did not feel right. Being an engineer I couldn't resist but to sit down and crunch the numbers (in metric of course since it's a lot more accurate than the English system). Turns out Tony needs to work on his math skills - he's quite a bit off regarding the size of a 1 Trillion Dollar Carpet. It's actually quite simple - consider this:

The U.S. Dollar is 6.6294 cm wide, by 15.5956 cm long (and so is a Jackson, a Jefferson, a Washington, etc.)

If you multiply that number you arrive at 103.38947064 cm2 (square cm), which in turn equals 0.010338947064 m2 (square meters).

The United States measures precisely 9,629,091 km2 (square kilometers), which in turn equals 9,629,091,000,000 m2.

So if we multiply 3,000,000,000,000 (3 trillion) by the size of the dollar in m2, we get 3,101,684,119.2 m2. now that is quite large, but not even close to the size of the United States - and we're only talking one layer here.

Here are both numbers in comparison:

9,629,091,000,000.00 (size of U.S in m2)
3,101,684,119.20 (carpet of 1 dollar bills in m2)

If you really wanted to cover the United States with 1 dollar bills, you would actually need 931,341,551,552,023.693 dollar bills, which is over 931 Trillion dollar bills, which in turn is nearly 1 Qua-Trillion. That's a lot of dough, and even Bush, Bernanke, and all those cronies are not even close to inflating our deficit to those levels. Although I concede - if Bush had 4 more years, they might just pull it off ;-)

So I think it's time to retract that statement, especially in the spirit of being credible. I didn't want you to go on national TV and throw out this number, which would surely generate a lot of hype - only having to retract it as math nerds like me whip out the calculator.

Keep up the good work (and word).

Cheers,

Michael

[Elaine Meinel Supkis]

You are correct. Remember, I wasn't the one to make the calculations. I did state clearly that REAGAN claimed a tillion dollar deficit could reach the moon. So a ten trillion one is huge.

And of course, spending $3 trillion a year is monstrous. Any way we look at it.