BOFA Wealth Management Warning Clients To Dump Hank Paulson's Hedge Fund!

I would fade BOFA here...

"He is one of a handful of bold hedge fund managers who poured hundreds of millions of dollars into Greece, wagering that its economy would recover after years of crisis. Mr. Paulson is also one of Puerto Rico’s biggest hedge fund investors, betting that the commonwealth will emerge from its debt crisis. Many analysts say that prognosis looks increasingly tenuous this week after Puerto Rico’s first bond default."

This is distressed debt from Greece and Puerto Rico bought at pennies on the dollar. Will the EU cover Greece's debts (of course). Will the US cover Puerto Rico's debts (of course). After buying Argentina's debt for pennies on the dollar, his people are still chasing Argentina for the FULL amount of bond principle and interest, after many years of Argentina paying approx 75% of principle and interest yearly and having made very good settlements with most all other debt holders.

John's the good one, Hank's the bad one
 
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Sorry, my bad! I agree Mr. Paulson is brilliant and its possible BOFA's Analysts are worried their going to get sued and "get taken to the shed with the proverbial Cherry Tree Switch!" because the Public is too stupid to think for themselves, they need to blame everyone else for their bad decisions. I remember in the mid 1990s we had experts popping up telling people their best bet was to buy TCW Galileo mutual funds and they could retire in ten years because anything with wild swinging stocks had huge annual returns. Same inept people after getting 25% return were pissed off other mutual funds gained 41% and pulled their funds from very conservative funds making 15% to the most aggressive funds only to get wiped out by 2001.



There's lawsuits against Brokers for allowing people to day trade(Not big on those claims, if they made money they would not sue), lawsuits that claim Brokers allowed, no they pushed people not equipped to trade options(Senior Citizens) by recommended they sell their low yielding annuities to trade options, those lawsuits I can get behind! the lawsuits where people like Mr. Paulson returned large returns and investors could have taken their funds out during window-periods piss me off! Buying debt for pennies and forcing countries to pay "par" is ethically or morally bankrupt, maybe my brain is tweaked thinking that if the hedge fund gets a 10 bagger on those gains he's good is wrong. I am still bummed AIG got par when all the counter-bets on should have left them bust. That's not Capitalism, that's financial socialism!
 
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Don't think of it as getting par for pennies on the dollar. With bonds, the lower you pay for an already circulating bond the higher the interest you receive if the debtor satisfies full principle and stated interest attached to the bond over the life of the bond and/or upon maturity. So you are gaining high interest for taking on high risk such as in Greece or Puerto Rico. But a bond is a contract between buyer and an issuer and especially when the issuer is a gov, nation or state, investors are fairly confident they will get good returns or in the case of default, fair settlements. These bonds must get settled if the govt or nation wants to move forward and repair its standing in the open debt markets and debt auctions.

Now with AIG this was all non-govt private debt. I agree with you. In private debt and securities buyer beware. If the private corp issues debt or securities and recklessly brings down the company through bad decisions no one should be bailed out when bonds or stock falls to zero or cannot be repaid. That is the way capitalism works.

I think right now you are right...wealth management desks are getting nervous regarding the summer Greek story and the frequent calls for a healthy correction in the US markets and are getting cautious about third party risk. Even US govt bonds are fairly illiquid right now.

This was on ft_com today:

"Investors in Claren Road, a credit hedge fund controlled by private equity firm Carlyle Group, are seeking to pull $2bn from it.

Carlyle made the disclosure late on Monday in a filing with the Securities and Exchange Commission.

In the filing, Carlyle said:

Claren Road had received approximately $2.0 billion of investor redemption notices. This represents approximately 48% of Claren Road's assets under management.

These redemptions, and any future reductions in assets managed by Claren Road, will result in lower management fees earned by Claren Road in subsequent periods and lower earnings contributions to the Partnership from Claren Road."
 
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