The Credit Crisis Financial Stocks Short Journal

Dear Mr. :

Thank you for your recent inquiry regarding historical data from the Senior Loan Officer Opinion Survey on Bank Lelnding Practices.

The Federal Reserve does not have any of the data available for the pre-1990 questions electronically. In 1990, the survey had a major overhaul, and the pre- and post-1990 versions are not all that comparable. Only the "willingness to make consumer installment loans" question is really consistently asked over the whole period, and that older data is available here:

http://www.federalreserve.gov/boarddocs/SnLoanSurvey/200305/chartdata.txt

If you wish to work with the old surveys, you would have to get them through inter-library loan from a library that stored them and extrapolate the data manially.

The following link may also provide you with historical data:

http://www.newyorkfed.org/research/economists/morgan/20442_Standards_data.xls


I hope this information is helpful.

Sincerely,

JPD
Board Staff

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Quote from ralph00:

I own the Mar 11 calls.

If you want to get in at a price similar to where you bought your Dec 10 calls, you're going to have to move all the way out to Sept or Dec 2011.
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I noticed that, I rather stay out of this till there is some kind of sell-off ala Jun 2009. That NFP employment day should go down as the biggest opportunity in my trading career ever. I should have made 50% or doubled my networth in the months after that by loading up/pyramiding huge in the Feb 2010 contract but I didnt had the guts to take a monster position, I did well but that was a Soros GBP moment. If I only knew about the GE calls back then I'd be a rich man
 
Bill Gross on hedge funds
"Actually their wizardry in my opinion has little to do with buying or selling the right stocks at the right time and everything to do with leverage. Hedge funds in reality are just unregulated banks, operating on a poorly disclosed amount of equity capital and taking the spread between their cost of funds and their riskier and longer dated assets. How much equity capital and therefore how much leverage is a fair question without reliable answers.

Grants Interest Rate Observer in a recent issue, while asserting that nearly three quarters of HFs use leverage, surprisingly released their own survey showing $3 of assets on average for every $1 of capital, a figure that would stand in conservative contrast to banks at $10 per $1 of capital. I have my doubts, not because of Grants, which is a well-written and researched bi-weekly, but because the industry’s “advertised” returns require a much healthier dose. Banks after all, provide historical returns of 1¼% on assets and via 10 to 1 leverage manage to up that return to 13-14% on equity.

Granted there are very few equity equivalents in bank portfolios but with poor to negative returns for stocks over the past 4 years it’s difficult to believe that the hedgies can come close to double-digit returns without a much healthier dose of leverage. Those returns may be coming through their use of derivatives which themselves are levered many times over. Whatever the amount, to my thinking it’s leverage, not the investment acumen of 7,000 hedge fund managers that makes this mare go."
 
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2004/IO_August_2004.htm

I've been always fascinated by leverage, its a very tempting thing to do. Currently my leverage is quite high, mostly due the fed futures position, netting that out I'm well below 100%. But if Gross is correct that returns in financial assets over the next decade are going to be low(with high yield bonds at 10% and stocks quite overvalued thats hard to argue with), then levering up will be the only way to make decent returns.

But I too fear blow up risks, I have decreased some of that risk by doing my trading through a corporation instead of a personal account. If that account blows up in some kind of black swan I will lose about 50% of my networth but not all. But I need to come up with other plans, perhaps implemeting some kind of options strategy of using way OTM options in some liquid instruments could provide additional protection.

Once the one trick ponyness of betting the fed will stay low ends(Should happen in 2011 or 2012) I'm going to be forced to leverup by being long assets with positive risk premiums and good fundamentals(probably commodities). Levering up correctly will be crucial
 
Gross back in 2005 talking about low financial asset returns

"Our own Paul McCulley, even before he rejoined PIMCO in 1999, made the amazingly simplistic but powerful distinction between disinflation’s journey and its destination. The journey, he suggested, had phenomenal strength much like that of the universe’s “electromagnetic” force. As inflation sunk to near zero (and real interest rates with it) the price investors would be willing to pay for future income should expand, since it would be “discounted” at lower and lower real rates. “Stock P/Es and bond prices, therefore, should go up,” he said and, of course, they did. Once they reached their destination, however, the power would weaken as the multiple expansion based on the journey would reach its finale. Once disinflation or its real interest rate companion reached its “destination,” much like a spaceship approaching the speed of light, the investment world would begin to change. No longer would the stock market’s form take the shape of this sleek, lengthy cone-shaped vehicle able to generate double digit returns. But instead, its “mass” and future returns would compress into something resembling current real interest rates and expected future inflation, a number that today is close to five percent. Elegant. Like Einstein and other scientists have known for centuries, the simplest equation explaining a phenomena is often the best."

Junk bonds are yielding 10%(duration 3.9y)
IG bonds are yielding 5%(4.6y duration)
SPY 1.83% plus buybacks(Not sure what the adjusted yield is but I bet its not much above 2.5%)
USTs 3.3% for 10y

Junk bonds are looking pretty overvalued. Expected inflation is in the range of 2.1% for the next 10 years. It does seem that future US financial asset returns will be low
 
I have not mentioned commodities. There probably lies the opportunities, if there is a secular bull market going on it will be an asset where 'multiples' will expand, people will pay higher and higher prices for storing or hedging them as protection against future disruptions and inflation. One way to participate on them is through the futures contract GSCI(CME Goldman Sachs Commodity Index future), this would enable one to use leverage and boost the 10-20% annual return from commodity indices

But I need to do in-depth research of the idea that there is a secular bull market in commodities the same way I did with trendfollowing, I'm just not sure where to start
 
Sure, a great many of the hedge funds offer little alpha, and simply generate returns through leverage. The guys who run and raise money for these things are little more than well-dressed, well-spoken salesmen, who went to the right schools, belong to the right clubs, and have a lot of fine art on their walls.

Let's not throw all of the funds into this bowl though. Is Einhorn levering up a simple carry trade to generate his returns? Klarman? Thiel? Paulson? Dalio? Jones? Hendry? The list could go on, but the point is that there will always be opportunities for a smart macro guy or a great stockpicker to generate alpha.
 
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