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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



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


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.

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.


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).



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.

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