Just, let him finish.

I’m going to one-up Mark Twain in the quantity department and spin two yarns about jumping frogs, one which has been frequently told, the other not so much. Neither of them have anything to do with Samuel Clemens’ heralded short story, but both, metaphorically at least, describe our current investment markets and how to think about the future. My first story is the one you’ve all heard about. Put a frog in a kettle of boiling water and he’ll jump out faster and further than any of those blue ribbon winners at the Calaveras County jumping frog contest. Put him in a pot at room temperature, however, slowly turn up the temperature to boiling, and you’ll have frog legs for dinner. This latter, more unfortunate toad temporarily adapted to his external environment, which seemed like a practical thing to do, until – well, until he reached 212° at which point he was cooked. Today’s bond investors are experiencing a similar fate with nary a “ribbet” of complaint.

[...]

All right fellow frogs, so we’re being repressed and shortchanged in order to allow Uncle Sam to balance its books. Whatta we gonna do about it? “Frogs of the world unite,” as Lenin might have said, and so here’s where I harken back to Mark Twain and my second lesser-told frog story. There was this other frog who instead of being tossed into a pot of hot water was left to cool its heels in a pitcher of cold milk. Unable to jump out, he churned and churned those frog legs until eventually the milk turned into butter and the hardened butter allowed him the platform to leap to froggy freedom! Well, let’s get churnin’, fellow frogs. If the U.S. or the U.K. or any other government is going to attempt to boil us alive, let’s make butter! Butter in this instance is what PIMCO characterizes as “cheap bonds.” Potentially confusing, “cheap bonds” is really a simple concept – sort of like the teeter-totter. Any bond, even a Treasury bond, is composed of several pieces – sort of like an atom with its neutrons, electrons, protons, positrons, neutrinos (whoops, don’t wanna go too far here). There’s an interest rate or yield piece, commonly measured by “duration.” There’s a credit piece, typically referred to as a “spread” when you buy a corporate bond. And there’s a volatility piece, a liquidity piece and other little bits and particles that will go unexplained for now. The important point, though, is that if the government is going to artificially repress yield, then an intelligent frog should focus on the parts of a bond that are less repressed! You can, for instance, produce a 1% expected return in today’s market in a number of ways. Buy a repressed 3-year Treasury note at just under 1%, or purchase an A-rated corporate floating rate note (FRN) with little to no durational risk at a 3-month LIBOR +75 basis points spread, currently returning 1%. Which is the better deal? Well, they both appear to lead you to the same place but our cheap bonds argument would maintain that the FRN gets you there with a lot less risk. The credit piece, in other words, is a safer spread than the duration piece.

Journalists, financial advisors, and perhaps even some clients marvel at how PIMCO can be doing so well in 2011 while being underweight the Treasury/durational component of the bond market. Folks – we’re making butter. If you’re being repressed, our strategy is to churn those legs, get out of the pitcher, and above all stay away from boiling pots of water.

Buy Cheap Bonds With Safe Spread [PIMCO]

Article courtesy of Dealbreaker

Performance update.

Article courtesy of Dealbreaker

S.E.C. Case Stands Out Because It Stands Alone (NYT)
But [Fabrice] Tourre’s world would soon be turned upside down. In fall 2009, the S.E.C. issued him a Wells notice, a formal warning that he was likely to be named in a civil fraud suit for his role in the mortgage deals. Mr. Egol also received such a notice in 2010. In their Oct. 10 response to the S.E.C., Mr. Tourre’s lawyers, including Pamela Chepiga of Allen & Overy, made an argument that they have not emphasized publicly. They contended that “singling Mr. Tourre out for criticism regarding the content of this clearly collaborative effort is unreasonable.” These legal replies, which are not public, were provided to The New York Times by Nancy Cohen, an artist and filmmaker in New York also known as Nancy Koan, who says she found the materials in a laptop she had been given by a friend in 2006.  The friend told her he had happened upon the laptop discarded in a garbage area in a downtown apartment building. E-mail messages for Mr. Tourre continued streaming into the device, but Ms. Cohen said she had ignored them until she heard Mr. Tourre’s name in news reports about the S.E.C. case.  She then provided the material to The Times. Mr. Tourre’s lawyer did not respond to an inquiry for comment.

Did the NYT hack Fabrice Tourre’s email? (Reuters)
Felix Salmon: “Louise Story and Gretchen Morgenson have a long and rambling story about the court case against Goldman’s Fabrice Tourre, which is mainly interesting for how it was sourced…I’m sure this was extremely carefully formulated, but it does raise a lot of questions without answering them. Tourre’s name was splashed over the newspapers in April 2010, so it stands to reason that the NYT has had some kind of access to Tourre’s private, password-protected email account — not to mention archives going back at least to 2006 — for a good year at this point. I’d also guess that the NYT is going public with its source now because Tourre finally got around to changing his password, and the stream of emails then dried up.”

SAC Faces Probe of Biotech Trading (WSJ)
MedImmune shares jumped 18% on April 23, 2007, the day its takeover was announced. Trading was heavy before the announcement, driving shares up more than 50% over six weeks, suggesting that rumors of a deal may have reached traders ahead of the announcement. SAC significantly increased its holdings of MedImmune during the quarter prior to the one in which the deal was announced, according to public filings. SAC increased its holdings from 151,000 shares in the fourth quarter of 2006 to 796,000 shares in first quarter of 2007. It cut its holdings to 30,000 shares at the end of 2007′s second quarter, then reported that it sold the position completely, according to filings.

Greece nears IMF/EU deal, dismisses drachma talk (Reuters)
Greece should complete talks by the end of the week with inspectors from the EU and IMF on a medium-term budget plan plus a vital next slice of international aid, sources close to the negotiations said on Wednesday.

EU warns US to speed up bank reform (FT)
In a letter sent last week to US Treasury secretary Tim Geithner, Michel Barnier, the European commissioner in charge of financial markets, argued that Brussels was ahead of the US in several areas – including capital requirements for banks and limits on bonuses for financial executives. Mr Barnier urged the US to match European efforts. “The level playing field must be a reality, not an empty slogan,” he wrote in the May 27 letter, which was obtained by the Financial Times.

Irish lenders outline loss plans for bondholders (FT)
Three of Ireland’s lenders revealed plans to impose losses of up to 90 per cent on bondholders in attempts to make them shoulder some of the cost of recapitalising the country’s banks. Bank of Ireland said it would shortly announce a cash offer for €2.6bn ($3.7bn) of its subordinated debt, with discounts of either 80 per cent or 90 per cent depending on the type of bond. Two smaller lenders, Irish Life & Permanent and EBS, planned to impose similar losses on holders of about €1bn of debt.

UBS May Move Stamford Investment Bank to World Trade Center (Businessweek)
UBS AG, Switzerland’s biggest lender, may move the staff of its U.S. investment bank from Stamford, Connecticut, to the World Trade Center in Manhattan by 2015, a person with direct knowledge of the plan said.

Attorney General orders more episodes of the “The Wire”, or a movie (Reuters)
“I want to speak directly to Mr. Burns and Mr. Simon: Do another season of ‘The Wire’,” Holder said, drawing laughter and applause from the audience. “That’s actually at a minimum. … If you don’t do a season, do a movie.  We’ve done HBO movies, this is a series that deserves a movie. I want another season or I want a movie. I have a lot of power Mr. Burns and Mr. Simon.”

‘Expert Networker’ Jiau Faces Trial in U.S. Insider-Trading Investigation (Bloomberg)
Winifred Jiau, a former consultant with so-called expert networking firm Primary Global Research LLC, faces jury selection as her insider trading trial begins today, the third tied to a nationwide probe of illegal stock- tipping.

Citigroup Close to China Securities Partnership Deal (WSJ)
Citigroup Inc. is close to an agreement with a partner in China to set up a joint-venture securities business that would give the New York bank a long-sought foothold in China’s domestic capital markets, according to people familiar with the situation. Citigroup is expected to sign a memorandum of understanding with Shanghai-based Orient Securities Company Ltd. as soon as Thursday morning China time.

EIB halts Glencore lending on governance concerns (Reuters)
The EIB, the European Union’s lending institution, provided in 2005 a $50 million loan to Mopani Copper Mines, a Zambian subsidiary of Swiss-based Glencore, to help pay for the modernisation of a copper smelter. But Mopani has since been accused by some non-governmental organisations — most recently by campaign groups in an open letter signed by a group of European parliamentarians — of tax evasion and of causing widespread pollution.

Morgan Stanley Invests in Short-Sale Target Yongye International of China (Bloomberg)
Morgan Stanley agreed to invest $50 million in Yongye International Inc. (YONG), the U.S.-traded producer of plant nutrients in China that is the target of a short seller who says the company has misrepresented its business.

South Korea Probes Foreign Banks (WSJ)
Financial Supervisory Service Deputy Gov. Kim Yung-dae said at a briefing Tuesday that some foreign-bank branches in South Korea were handing over day-to-day trading operations involving money held in local accounts to a larger foreign branch or regional headquarters in places like Hong Kong and Singapore. Such outsourcing is illegal in South Korea…Mr. Kim said HSBC Holdings PLC and Crédit Agricole SA have already been sanctioned for improper outsourcing of operations involving derivatives…A person familiar with the situation said Royal Bank of Scotland Group PLC may also be sanctioned for engaging in similar activity, with the FSS likely to decide on the matter in June or July.

Sovereign ratings still relevant – but mostly when they go negative (FT Alphaville)
Bond markets still react to sovereign ratings announcements, though they tend to react more when the rating agencies say something negative. That’s the conclusion of a new working paper from the European Central Bank, which looked at changes in yields and CDS spreads after rating actions from Standard & Poor’s, Moody’s and Fitch on two dozen European Union countries from 1995 on.

Lehman Veteran Is Back in Game (WSJ)
Mark Walsh is best known for the gigantic real-estate deals that backfired on Lehman Brothers Holdings Inc. before it collapsed in 2008. As the financial crisis recedes, the 52-year-old Mr. Walsh is mounting a low-key comeback at a new real-estate firm by leaning on connections made before the real-estate bubble burst. “Unfortunately, Mark has to live with the talk of having done a couple of bad deals, rather than people focusing on the overwhelming amount of good ones,” says New York real-estate developer Steven Witkoff.

Accuser was maid to wait (NYP)
A female manager at the ritzy Pierre hotel was suspended yesterday for shrugging off a room attendant who reported that an Egyptian business big shot had just sexually assaulted her in his room, the hotel revealed yesterday. The manager, whose name was not released, merely noted the maid’s shocking claims in a logbook — and never reported them to Pierre security, her own bosses or police, officials said.

Sarah Palin, Donald Trump split a pepperoni pizza at Famous Famiglia in Times Square (NYDN)
“She didn’t ask me (to run with her) but I’ll tell you, she’s a terrific woman,” Trump said as he ushered Palin into a branch of Famous Famiglia pizza on Broadway at 50th St.

ACLU wants porn to be allowed for South Carolina inmates (ABC)
The American Civil Liberties Union is pushing for porn at a detention center in Moncks Corner, South Carolina. The move came after reports surfaced that the facility only allowed inmates to read the Bible. But prison officials said that isn’t true and inmates have a wide variety of reading material at their disposal.

Article courtesy of Dealbreaker

Planning on getting out of town most weekends the next few months but not going points further than a 300 mile radius? Perhaps out East, on Shelter Island or Martha’s Vineyard? If you answered yes, please be sure transport doesn’t involve helicopter or, god help you, a car, because roads as a means of transport have been declared “over.”

Andre Balazs has a new toy. He is part owner of a seaplane, an eight-passenger Cessna 208 Caravan Amphibian aircraft that has been refurbished and painted bright red, the color that has become synonymous with his hotel chain. StndAir looks like an adorable figment of Snoopy’s imagination. It operates off the pier at 23rd Street and the East River. The plane can travel within a 300-mile area of New York, and it can be chartered to go to places like Martha’s Vineyard ($4,875), Provincetown ($5,575) or Montauk ($3,275). Through the summer, it will make regularly scheduled stops in East Hampton for $495, and Shelter Island for $595. There is also something slightly confusing called an online Flight Board where individuals can book tickets for off-peak flights for as low as $30 a seat. Small pets are welcome on the plane, luggage allowance is 20 pounds and no golf clubs are permitted.

[...]

On Friday, twenty minutes before takeoff, an employee of Mr. Balazs was waiting on the dock welcoming passengers. “Would you like some water?” she said, grabbing a miniature bottle branded with StndAir’s red logo on it from a basket. “While you wait, we also have suntan lotion and spray if you need to put some on.” Inside was plenty of room, and the niceties were especially, well, nice. Before take off, gummi Swedish fish—the color of the plane—were distributed through the cabin. So was a red thermos that read “Rosé.”

And in a blink, StndAir was in the water, pulling up to the beach at Shelter Island. There were dogs on the sand and a naked child waving. It felt very St.-Tropez. “Roads are over,” said Mr. Brambilla, [a friend of Balazs] as he stepped onto the shore.

Taking Off-via SeaPlane- To The Hamptons [WSJ]

Article courtesy of Dealbreaker

Last month, we noted that a group of UBS employees who “worked in operations and were responsible for securities movements and payments” had been escorted out of the building and told not to come back “pending an internal review into their conduct.” Now we’ve been informed they were recently told not to come back, period. If you’re a current employee or about to join the firm and are unclear on the rules, know this: it turns out UBS does in fact frown upon skimming some off the top for yourselves.

“The employees were transferring securities that UBS held to personal accounts and then just selling them in their personal account. Not sure how the bank didn’t know, but apparently it went on for a few years.

We were told last week that the employees in question were asked to resign and given severance packages. UBS declined to comment, other than to confirm that the people are “no longer with the bank.”

Article courtesy of Dealbreaker

If you watched the HBO version of Andrew Ross Sorkin’s book last week, what kind of tears did you shed while watching?

Tears of joy because you loved it so much? Or the kind that slipped down Moe Tkacik’s face “because it was just that unbelievably bad”?

[Paris Review via HNM]

Article courtesy of Dealbreaker

Unless the Wilpons think they can come up with $200 million, in which case they’d better start sending Irving Picard a daily Edible Arrangement now.

Einhorn has agreed in principle to purchase roughly 33 percent of the team for $200 million, which will infuse cash and keep the organization solvent in the immediate future. In three years, according to the source, Einhorn has an option to up his stake to 60 percent, although principal owner Fred Wilpon and his family have an opportunity to block Einhorn from gaining that majority stake.

The source said the Wilpons can stop Einhorn from gaining the majority share essentially by returning Einhorn’s initial $200 million investment. In the latest incarnation of the deal, if the $200 million is returned Einhorn’s share of the team will be reduced from a third to a sixth. It was originally reported that Einhorn would retain the 33 percent share of the team.

[ESPN]

Article courtesy of Dealbreaker

Something that apparently constitutes a ‘trophy pad’ to some people.

Over the holiday weekend, the Post ran an article about New York men who use their “luxury apartments to attract the ladies,” in which several dudes were interviewed about their abodes’ abilities to get them laid. One of them was well-known comedian Jim Norton, who was obviously fucking with the paper when he said stuff like:

“Women see windows — and skirts come off. This one businesswoman, she came over, and she said she was ‘not like the other girls,’ ” he recalls of the guest, who announced that she did not sleep with men on the first date. “Well, fast-forward an hour after seeing the apartment, and not only was she like the other girls, she was worse. They like the view…I remember another woman . . . I knew she was impressed with the place and decided to sleep with me. I gave a horrible [sexual] performance. She walked around the apartment a couple of times before she left — almost reminding herself that this is why she just put herself through that.”

Then there was “financier” John, who clearly took this seriously and while flexing in front of the mirror, told the reporter:

“In New York, when you say porn, more people are likely to think you mean real estate,” says John, a multimillionaire financier who asked that his real name not be used. “Every two-bit banker at Goldman Sachs can buy you an expensive dinner or have a $175,000 Ferrari, but how many can have the $10 million trophy pad?”

Putting the call on speaker so he could use both hands to get in some Shake Weight time, John went on:

John frequently lets his friends borrow his 5,000-square-foot Upper East Side apartment so they can bring home the ladies while he’s away on business. After letting a London hedge-funder borrow his flat for a few days, the financier reported that his friend was able to score every night with three women (though not at the same time). “He told me: ‘They were excited when they got to the door — and when they saw the view, it was a done deal.’ ”

[NYP]

Article courtesy of Dealbreaker

All that effort creating “an encyclopedia of everything” for nothing!

Mr. Plate said he believed 3Com was a good buy at the time based on its fundamentals. After discussing those beliefs at a bar one night, Mr. Plate said he was told by Emanuel Goffer to put those thoughts in an instant message the next day—giving them a reason for buying the stock, even though they had already done so. After being tipped separately on the Axcan deal, Mr. Plate said he was told by Zvi Goffer to tell anyone who asked that it was based on information another Schottenfeld trader had received from the company.

Ex-Trader Testifies Zvi Goffer Shared Inside Tips [WSJ]

Article courtesy of Dealbreaker

Bloomberg Brief: Speaking of participants, a lot of commodity hedge funds got hit pretty hard by the sell-off earlier this month. Any theories what that might be about?
Jennifer Fan, Arrowhawk Capital Partners: A lot of funds’ decisions to focus on directional trading, particularly in light of the late move, is at least in part based on their capacity. Many of these funds are large, due to the fee incentive to grow as big as possible as fast as possible, and for that you need to run mostly directional bets that provide the units of volatility for the size of the markets. For us, if we’re doing things like Skype-ing farmers and trading ocean freight to get an informational edge the best way to generate alpha is through some of the examples I mentioned earlier. for this type of investing there are constraints, so we tend to be very conservative about capacity.

BB: Hang on. Skype-ing farmers?
JF: I Skype with farmers. Farmers love Skype.

Bloomberg Brief: 5.21.11 [BB]

Article courtesy of Dealbreaker