And here it is: Goldman, like cream, rises to the top

Goldman Sachs Rakes in Profit in Credit Crisis
While other firms tumble and fall, Goldman rises with profits from their hedges against toxic mortgage backed securities.

Meanwhile,

Fed fund futures show traders see a 90 percent chance the central bank will reduce its target a quarter-percentage point to 4.25 percent at its Dec. 11 meeting, 67 percent odds of another 25-basis-point cut in January, and a 43 percent likelihood the rate falls to 3.75 percent in March. Policy makers already lowered the target from 5.25 percent in August.

So, unless Bernanke feels like bucking the trend, expect to see further rate cuts, no matter what the other Fed governors say.

Simple, but not easy

A billionaires' guide to investing.

Hedge funds normally charge fees of 1.5 to 2 per cent of the asset value plus 20 per cent of the return. Their own fees make it hard for them to deliver the goods.

Mr Oldfield quotes the decline of the first hedge fund, A. W. Jones. In December 1968 it had $200 million under management: in September, 1970, that had fallen to $31 million. Later George Soros was to rebuild the reputation of hedge funds but there remain questions about whether they can find the exceptional talent they need and whether clients will pay their fees.

Don't believe the hype

OPEC Interested in Non-Dollar Currency
Do you believe the behind the scenes leaked news that OPEC members want to support the dollar, or the posturing by Iran's Ahmadinejad and Venezuela's Chavez, who have blatant political motives for creating a new world standard for pricing oil? I'll go with door number 1. Nevertheless, oil will price over $100 this week.

[Added 11/19/2007] Note that this was only the third time that a full OPEC meeting has occurred with all members and states since the committee was formed in 1960. What does that say?

Saudis don't want the US dollar to collapse

Saudi Arabia Won't Include U.S. Dollar in OPEC Talks
Good thing it was accidentally broadcast to journalists.

86% chance fed will cut rates in Dec: take the pain now or later?

Fed's Kroszner Says `Rough Patch' Won't Warrant Cuts
This is exactly what I was expecting in September, but instead of holding steady, the Fed cut rates by 50 bps. So now they are saying they want the economy to weather the rough waters of the coming months, and probably all of 2008. The 5-headed monster Fed is testing the waters by letting the Fed governors speak freely. First Poole says that only a calamity would force a change in Fed policy, then the 50 bps cut, then Miskin's the man to watch as his guidance has more closely followed what the Fed did, now Kroszner pops his head above water.

First the recession is imminent. Then there's a 30% chance. Now no one is sure.
One thing may be sure: earnings next year doesn't look too good. However, I'm investing in ROW stocks. That's stocks that sell to the Rest Of the World more than the US.

Hedge fund collapse? Why not banks and brokerages instead? Why not cities and towns?

Florida Holds $2.2 Billion of Debt Cut to Junk Status
This article goes over the how mortgage-backed securities are threatening some cities and towns that invested in them. But buried at the end is a little history on the collapse of banks and brokerages. Not exactly the hedge funds I was looking for, but tragic enough:

Potential losses by states are part of the subprime meltdown that shook up Merrill Lynch & Co., the world's biggest brokerage, in October. The firm reported a $2.24 billion third- quarter loss and an $8.4 billion write-down, leading to the firing of CEO Stan O'Neal.

Executives Step Down

The next week, subprime losses reported by Citigroup Inc., which at the time was the largest U.S. bank by market value, led to the departure of CEO Charles Prince.

In June, two bear Stearns Cos. hedge funds holding subprime debt reported losses of $1.5 billion. Bear Stearns fired Warren Spector, the firm's co-president for fixed income and asset management and the bank's stock lost 30 percent of its value in the following two months.

Bernanke: Fed will respond "as needed"

Bloomberg report.

Fed speaks II

Lacker says the mortgage crisis isn't over yet. I say just wait until next year's rate cuts. Dissention in the ranks by non-voting members. If it gets much worse you may see more regulation in the mortgage market.
Warsh is waiting for more information.
Poole says we may need more cuts, which worries me, because he was against this before the first one.
Instead of Greenspan, now we have a five-headed monster to deal with when attempting to decode future moves.

Miskin Speaks; Fed outook is as volatile as the markets

Miskin spoke to the House Small Business Committee. Bloomberg report. Reuters. Looks like he's taking back what he said about taking back the Halloween rate cut. "Wait and see" seems to be the tone of this cautious Fed. Later today we'll hear from Warsh, Lockhart, and Poole, then Bernanke tomorrow.

98% bet that Fed will lower fed funds rate 25bps tomorrow

Quotes From Fed Officials on Economy

Hopefully they will surprise again with a 50 bps cut. The bursting of the housing and credit bubbles, compounded with China's "irrational exuberance," according to Greenspan, will hopefully inspire the Fed to be more aggressive, but the comments above suggest otherwise. If there is no cut, the market will fall. The 25 bps cut is already priced in. People may take profits if this happens. If it's a 50 bps cut, the market will rally.

$20 billion down the drain. just wait for the blowback.

Merrill, Citi, Bear Stearns, and JPMorgan write off a massive total of $20 billion
Click the link for details-- don't mind the ads.
Another reason to raise interest rates in the coming years and stick it to the middle class.

They're all just treading water right now...

I wonder if Bernanke will wait until a democrat is in office before he starts raising rates.

Trichet, Dodge, King May Follow Bernanke in U-Turn on Policy
September 2007 Rewind: Bernanke's Emotional Rescue
Why Bernanke might need India to'Do a China'

I keep thinking of this quote:
"Double digit is something that is likely to happen for a short period of time," from Greenspan.
Greenspan sees double-digit rates

Inflation level, but food & energy up

From Bloomberg TV:
Since Feb/Mar 2007, when Bernanke said we should watch inflation, prices have gone up:
24% oil
10% gold
75% wheat
Yes, they are not in core consumer price index, but still, in march 2007, the CPI was .1. The last reading was .2.
If inflation is the main risk to the economy, and the cpi has gone up as well as oil and wheat, which are not in the cpi, and oil affects many parts of the economy, how can we not be experiencing inflation?

Well, the fed cut rates

Fed Cuts Key Interest Rates by a Half Point - Sept 18, 2007 - NY Times.
Federal Reserve Press Release September 18,2007

Fed's surprise move: Flip the discount and raise the fed funds rate?

I'm researching the viability of the Fed flipping rates & raising the fed funds rate today. Why would they do this? To prevent against inflation while still offering liquidity to banks. Here's the Google Search.
And some results:
Fed holds rates steady - June 28, 2000 - CNN Money
Fed cuts discount rate, stands ready to do more - The mess that greenspan made
Fed Funds Target vs. Effective Funds Rate - Calculated Risk
The T-Bill Message for Bush & Bernanke - August 16, 2007 - Kudlow's Money Politic$
Some Wall Street Journal definitions:
How does the fed keep rates near its target? A primer - August 16, 2007 - WSJ
Explaining the Discount Window - August 17, 2007 - WSJ
And here's a result which may give a clue about what happens when the discount window is lower than the fed funds rate:
Economists React: 'Lifting the Wizard's Curtain' - August 17, 2007 - WSJ

"Prior to 2003, when the discount rate was lower than the funds rate, cutting the discount rate was the most powerful tool in the monetary policy toolbelt. Indeed, prior to 1994, when the Fed began announcing changes in the funds rate target, a discount rate move was the ONLY move that was explicitly announced. Many market participants will think of the discount rate cut in those terms, which is not the correct way to consider it. Instead, this should be thought of as another (indeed, probably the last) intermediate step short of an ease. –Stephen Stanley, RBS Greenwich Capital"

Bernanke's the new sheriff in town-- when he lowered the discount rate after Bill Poole said only a catastrophe would cause the Fed to change monetary policy earlier than their September meeting-- his actions showed his new tactics. Where Greenspan would have lowered the fed funds rate-- the famous Greenspan put, Bernanke may be reverting to the past, when the discount rate was more important.
Will Bernanke revert to considering the discount rate the most important rate? This is a new boss-- the Greenspan era is over-- no more Greenspan put, the book is out and he's coasting. Bernanke is an academic. He may not be in it for the short term like Greenspan. He may not want to be popular and enjoy the public eye. He's less impressed with his public image than his predecessor. It's not all about ego, but-- Greenspan enjoyed the limelight. He liked speaking in riddles and being the most powerful man on the planet. He didn't follow the advice of the group-- sometimes he lowered rates even if the others on the board didn't want to. He followed the Federal Express stock price to feel the pulse of the economy. He made instinctual decisions and most of the time he was right. Bernanke is an academic-- he listens to the group, he uses models. Most likely, he will not follow the historical pattern and make his mark today.
So, with 25 minutes to go-- will Bernanke raise the fed funds rate 25 basis points to 5.5% and lower the discount rate 50 points to 5.25%?

The Fed Will Not Lower Rates

The Economic Outlook--speech by Jeffrey Lacker of the Federal Reserve Bank of Richmond to the Charlotte Risk Management Association in Charlotte, North Carolina on Aug. 21, 2007 at 12:30pm.
Basically, he said don't look for the fed to cut the federal funds rate soon.
However, that may be just as believable as William Poole's comments that only a "calamity" would justify an interest rate cut, the day before the Fed cut the discount rate.

Countrywide Up on Rumor, Down on News?

Thrifts Hit by Housing Market Problems
The good news obscured by the headline:

Mortgage defaults are slamming the savings and loan industry, although thrifts should be able to weather the housing market downturn, federal regulators said Tuesday.

CFC is a thrift.
US regulator says watching Countrywide very closely

The Office of Thrift Supervision is very closely monitoring events at Countrywide Financial Corp and has had a consistent onsite examination presence at the California company since it converted to a thrift charter in March 2007, an OTS spokesman said on Monday.

Stocks to Watch: Capital One, Countrywide, KKR, Target, Viacom

Countrywide Financial's (CFC) stock fell 7.6% despite the company's attempts to reassure depositors that their funds were safe at the company's Countrywide Bank savings bank unit

My opinion? Countrywide will fall when Buffet says he's not buying.

Their timing couldn't be any better...

China Prepares to Dump US Dollars

CFC the next sacrificial lamb?

First Wells Fargo:
Wells Fargo to close non-prime mortgage unit

Now Capital One:
Capital One to Close Mortgage Unit

And
Countrywide announcing layoffs

As someone on Yahoo finance said, CFC now in Baghdad Bob mode

Flagged for future reference

JIM,
I'll say this 1 more time....the HYBRID system
is going to fail us and we will have a giant
crash...might not be this year or next but it
will happen. That and the new no downtick rule
is crazy.
I'm a trader and I see this happen daily in a
ton of different stocks and it will happen in
the overall market. What say you? They need to
do something about this and they need to, at a
minimum, have a backup plan that they don't tell
anyone else about....because they don't want to
look like clowns. We need specialists or a
different system....I can move CAT a point with
no volume if I wanted to. This is the only
thing scaring me about this selloff!!!!!!!
Asked by jnorine

I dont disagree with any of this. The difference is
that i am the only one in the nation willing to go on
national t.v. and say it and then no one backed me up.
Answered by Jim Cramer

Update on the NYSE's hybrid system

Fed cuts rates and saves the world

Here's a good write up of what just happened:

Five Things You Need to Know: What the Discount Rate Cut Really Means

LTCM II

John Lonski from Moody's Investors Service compares current situation to collapse of LTCM fund today on Bloomberg's final word.

The Sky Keeps Falling

More news stories as the market enters into an official correction (10% down).
Maybe a good time to buy Apple stock.

Why Mortgages Blew Up
UPDATE 1-Fitch revises further its CDO ratings methodology
FOCUS: Valuations In Spotlight As Funds Halt Redemptions
Business comment: Fundamentally, it's time to step back from the maelstrom
Asia property retains allure in stormy market
Banks refuse to mark CDOs to the market
`India to benefit as growth continues`
ETFs Tumble On Investor Worries
Sharp sell-offs on Wall Street

Chicken Little Cries Again

On why good assets get knocked down when markets go bad:
"There's no skill in buying mortgages...The skill was in the credit officer who could get the cheap line of credit," Frank Husic, CIO Husic Capital Management.

Managers sell good assets to raise cash. Tech may get hit by subprime fallout.

Other Articles:
Credit contagion
EDITORIAL - Global financial turbulence; local impact possible
Killer Derivatives, Zombie CDOs and Basel Too?!
Basis Fund Down 80%
'After the Greed, Fear Reigns'
Countrywide Falls, Merrill Cites Bankruptcy Prospect (WOW!)
Mitt Romney Hit by Mortgage Meltdown
Investment fund in Chicago hit by wave of withdrawals

Panic avoided. We live to trade another day.
Stocks End Amazing Day Little Changed

The Morning News

Financials hit hard on word of hedge-fund selling
U.S. Stocks Head for Sharply Lower Open
Countrywide Financial Corp. (CFC)
PowerShares QQQ (QQQQ)
Very Scary Things
NY Fed didn't intervene in forex market in 2nd qtr
Wall Street stunned by funds freeze
News & Views: Wall Street stunned by funds freeze
Hedge Funds Pluck Money From Air in $19 Billion Weather Gamble
Bernanke's Bind: No Easy Answers
Countrywide, Accredited Home Lenders, RadNet in focus
U.S. Stocks Head for Sharply Lower Open
Bloomberg news
Supply fears set wheat futures afire
DJ US Wheat Outlook: 6-8c Up On Tech Momentum, Tight Supplies
Markets to Watch 08/10/2007

No one likes a chicken little, even when the sky really is falling

So BNP Paribas SA, a French bank (actually, one of the largest banks in France), froze three funds that invested heavily in U.S. subprime CDOs (I'm guessing here. They said they could not value the subprime market). For those who don't know what they are, a CDO is a collateralized debt obligation consisting of a bundle of debts, in this case, subprime mortgages, which are themselves bundles of individual mortgages. What's causing the panic is that these bundles of bundles are essentially worthless because in the go-go days of 2005-2007, when people in California, Las Vegas, and Florida were lining up at realtors to buy a home with no money down in the hopes of flipping it for a substantial profit a week later, no one remembered that what goes up must come down, and that when it did come down, those holding the bags of hot potatoes would have to pay.

This, combined with the unwinding of the Yen carry-trade (a system of making money by borrowing funds from a country with a low interest rate and putting the money in higher interest vehicles in another) is causing a tightening of liquidity in the markets. Liquidity is a measure of how easy it is to buy and sell stocks for a profit, and convert it to cash. Liquidity is tightened when you can't sell for as much of a profit, because no one wants to sell for a loss, so you have to hold and wait for your positions to go up again, only, this takes time, and time is the enemy of liquidity.

So this economic environment is limiting the profits and sustainability of hedge funds and hedge fund profits. The Dow went down over 350 (almost 3%) today and the Nikkei is already down over 350 (2%).

Cramer had a fit, the Fed added a sentence to their statement that said they recognised that there is a credit problem, but they wouldn't change the rates, but followed the European Central Bank by adding money to the market. The Bank of Japan, not to be left out, just joined in.

Also, if that weren't the worst of it, Countrywide Financial (CFC), which was touted as being able to survive this row, has announced that the mortgage situation is "unprecedented." They were down 12% in the aftermarket. Lord only knows what will happen tomorrow.

Sources:
Dow Sinks 387 on Renewed Credit Concerns
Countrywide: Mortgage market 'unprecedented'
Japanese Stocks Drop on Concern Subprime Losses Will Spread
BNP Paribas Freezes Funds as Loan Losses Roil Markets (Update5)
Bank of Japan Adds Biggest Amount of Funds Since June (Update1)

Time to Short BSC, GS, JPM, MER, UBS, WM, BAC

Time to short the financials-- they've been riding high for too long on too much liquidity. Unfortunately, it's going to go down before it goes up. We are in a similar situation to when Bush the first was campaigning for office-- except the time frame has been lengthened. Instead of being a lame duck president for one year, Bush the second will be a lame duck for two, and even though the President doesn't determine the economy, the market doesn't know that. High volatility and frightening drops will keep coming until long into 2009, when a democratic win may bring back the market highs of the late 90s.

Hedge Funds Behind Late-Day Stock Moves

Will Citadel Fall?

micaiah2004 on the Beazer Homes (BZH) message board says that Citadel puts alot of liquidity into the market, but warns that it could fall as well. Nicholas Yulico writes in The Street that Citadel upped it's stake in BZH to 5.7%.

Sowood fund Assets Gobbled Up by Citadel

The assets of the Sowood fund, which recently lost over $3 billion
as reported in Reuters, was gobbled up by Citadel, which also grabbed 
Amaranth's assets. With hedge funds, it is a matter of time and liquidity before
they make or lose money. The article goes on to say that Ken Griffin,
the manager, can wait out the bad calls and ultimately make money
on the positions. If hedge fund managers weren't so impatient, they
would eventually make money on all their positions as long-term
investors. But not everyone is as patient as Warren Buffet.

Amaranth Accused of Manipulating Gas Prices

The Sydney Morning Herald reports that the Commodity Futures Trading Commission has filed in US Court for the Southern District of New York a civil enforcement action against Amaranth, accusing the former hedge fund of manipulating natural gas prices. The Amaranth fund bought futures contracts for natural gas in 2006, betting that prices would rise in the cold winter months. 
But the winter was not cold, prices fell, and the fund lost over $6 billion.
Also reported on Bloomberg.com.