Professor Elam

Archegos Warning Sign

 

 

Wed March 31 202

A reader wonders why the big fuss over Archegos losing money, you take chances uyou win or lose.

 

The answer is

how many Hwangs and leveraged funds are out there

In these swaps as the banks own the assets, any one bank has no idea of the total risk exposure of all of them, which no doubt is just what Hwang wanted

So when the margin call comes, Goldman  and Morgan dump om their fellow bankers getting out first

The losses are so large Credit Suisse still does not know the extent of losses to themselves

All financial calamities have the same start, too much debt and in the end, too little collateral

You will need access to the TAMUSA library to read these WSJ Articles.

https://search-proquest-com.tamusa.idm.oclc.org/news/docview/2507021057/fulltext/3C0F07C325C84CD9PQ/1?accountid=130967

There are additional articles and diagrams on swaps but these are not on proquest.

The author makes this comment

We have to hope that banks haven't been dumb enough to allow lots of others to borrow so much for such concentrated trades as Archegos, which appears to have eschewed risk management for bets on a handful of Chinese stocks and U.S. media groups ViacomCBS Inc. and Discovery Inc.

Isolated fund blowups are exciting, but they are a spectator sport for the rest of us. The risk at the moment is that hedge funds are united in their bets in two areas: inflation and speculative technology stocks.

Hope is not a plan.  Recall that it was just a short ten years ago that Goldman was so desperate for capital they had to grant Buffett a  10% preferred stock in the amount of $1 B to stay in business, Guess the GS boys have a short memory.

Past examples of banks getting themselves in trouble

https://en.wikipedia.org/wiki/Panic_of_1837

https://en.wikipedia.org/wiki/Panic_of_1907

https://en.wikipedia.org/wiki/Black_Monday_(1987)

https://en.wikipedia.org/wiki/Long-Term_Capital_Management

contributing factors this time included

elevated prices

crowded positions

derivatives

In these swap arrangements the banks own the assets so the borrower need not disclose his position as technically he has no position the bank does

But then the banks have no idea what their collective risk exposure is.  Once again banks relax standards at high prices and tighten them at low prices.

 

 

 

 

An Overbought Market

Tuesday March  30 2021

Steve Hochberg made a 25 minute presentation at a recent Money Show.  Steve is the Chief Market Analyst for Elliot Wave.

His presentation features numerous charts showing this is the most over bought market perhaps in history. I suggest you watch.

https://www.elliottwave.com/Free-Reports/special-presentation-markets-mayhem-and-elliott-waves/Signup?utm_medium=aff&utm_campaign=cr-mmew&utm_content=eml&utm_term=affem&acn=11tmp&utm_source=11tmp&rcn=affem

Archegos Capital Mismanagement

Tuesday March 30 2021

Here is another story on Archegos meltdown last Friday.

 

https://finance.yahoo.com/news/one-world-greatest-hidden-fortunes-002617417.html

 

I wonder how many more Bill Hwang's are out there, borrowing more and more, higher and higher leverage, and losses all around when the margin calls  arrive.A popular idea in the late 1980s was the concept of portfolio insurance. But when the sell off hit in October 1987, PI made the selling just that much worse, the opposite of what a hedge was supposed to do.

 

this reminds me of Long Term Capital Management.

https://en.wikipedia.org/wiki/Long-Term_Capital_Management

not all fraudsters intend to defraud, consider  the case of Nick Leeson who destroyed Barrings Bank.

https://en.wikipedia.org/wiki/Nick_Leeson

 

 

 

Goldman and Morgan Have but One Client - themselves

tuesday March 30 2021

Goldman Sachs Group Inc. and Morgan Stanley were quick to move large blocks of assets before other large banks that traded with Archegos Capital Management, as the scale of the hedge fund’s losses became apparent, according to people with knowledge of the transactions. The strategy helped limit the U.S. firms’ losses in last week’s epic stock liquidation, they said.

Losses at Archegos, run by former Tiger Asia manager Bill Hwang, have triggered the liquidation in excess of $30 billion in value. Banks were continuing to sell blocks of stocks linked to Archegos Monday, traders said.

“This is a challenging time for the family office of Archegos Capital Management, our partners and employees. All plans are being discussed as Mr. Hwang and the team determine the best path forward,” a company spokeswoman said in a statement Monday evening.

Archegos took big, concentrated positions in companies and held some positions in a mix of stock and swaps. Swaps are a common arrangement in which a trader gets access to the returns generated by a portfolio of shares or other assets in exchange for a fee.

 

Losses threatened to spill over into the so-called prime brokerage businesses that have been handling the firm’s trading. The group of large Wall Street banks includes Goldman, Morgan, Credit Suisse Group AG, Nomura Holdings Inc., UBS Group AG and Deutsche Bank AG , said people familiar with the firm’s trading.

Archegos Fund

• What Is Archegos and How Did It Rattle the Stock Market?
• Archegos Liquidation Hit Nomura, Credit Suisse
• Who Is Archegos Fund Manager Bill Hwang?
• Unraveling Archegos Fund Shows Risks of Investment Banking
• Stocks Waver as Banks Warn of Losses

On Thursday, Archegos asked banks handling its business to meet to hash out a strategy to liquidate its holdings, said a person familiar with the meeting. The firm’s largest positions had turned sharply negative following a long run-up. A proposal emerged for all the banks to hold off on large trades and to talk further over the weekend, but the call ended without any agreement.

On Friday morning, banks started seizing Archegos’ stock, and Goldman Sachs started selling in size. It quickly became clear there would be little to no coordination among the banks.

Goldman and Morgan each raced to liquidate positions tied to Archegos.

A Not so Bright Tax Return Perparer

Weekend March 272 2021

El Paso businessman, 59-year-old Victor Manuel Gonzalez, sole proprietor of the now-closed Tax Preparation Service, allegedly underreported his income on personal tax returns causing a tax loss of over $100,000, announced U.S. Attorney Ashley C. Hoff and Special Agent in Charge Richard D. Goss, Internal Revenue Service Criminal Investigation (IRSCI), Houston Field Office.

A federal grand jury indictment unsealed last week charges Gonzalez with three counts of filing a false federal income tax return. The indictment alleges that Gonzalez filed fraudulent returns for three years. Gonzalez claimed his income was $17,462, $18,450 and $25,328 for tax years 2014, 2015 and 2016, respectively. Court testimony today revealed that Gonzalez actually earned over $350,000 during that period. In addition to underreporting his yearly income, Gonzalez applied for and improperly received funds through the Earned Income Tax Credit (EITC). EITC is a refundable tax credit for low to moderate income workers.

Former CITGO Officer Pleads Guilty in Bribery Scheme

Wed March 24 2021

 

A former Citgo Petroleum Corp. procurement officer pleaded guilty to a federal criminal charge for his role in a scheme involving the payment of millions of dollars in bribes to help individuals obtain contracts from Citgo and its parent company, the U.S. Justice Department said this week.

Jose Luis De Jongh Atencio, a dual U.S.-Venezuelan citizen, on Monday pleaded guilty in the U.S. District Court for the Southern District of Texas in Houston to one count of conspiracy to launder money, according to court documents.

Mr. De Jongh’s plea is the latest in the U.S. government’s investigation into Citgo’s parent, Venezuela’s state-owned energy company Petróleos de Venezuela SA, or PdVSA. At least 28 individuals have been charged by the Justice Department as part of the investigation. Twenty-two of them have pleaded guilty, according to the department.

Mr. De Jongh was charged in July with one count of conspiracy to launder money and five counts of money laundering. He pleaded not guilty at the time.

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“Mr. De Jongh has admitted his wrongdoing and accepted full responsibility for his conduct,” Dane Ball, a Smyser Kaplan & Veselka LLP partner representing Mr. De Jongh, said in an email. “Today Mr. De Jongh begins a new chapter of his life.”

 

A Citgo spokesperson said the company terminated Mr. De Jongh’s employment in 2018 and is cooperating with the government’s investigation.

Efforts to reach PdVSA for comment weren’t successful.

Mr. De Jongh, who worked for Houston-based Citgo’s special projects group, accepted more than $7 million in bribes from businessmen and related companies that were seeking to procure contracts with Citgo and other business advantages between 2013 and 2019, prosecutors said.

Mr. De Jongh admitted to directing bribe payments from individuals into shell companies that he controlled in Panama and Switzerland and then laundering the bribe proceeds through U.S. and international bank accounts, the Justice Department said.

He also received bribes in the form of gifts and other things of value, such as tickets to a 2014 World Series baseball game and a concert by rock band U2, the department said. Mr. De Jongh also used the funds to purchase real property located in the Houston area, prosecutors said.

Fifteen commercial and residential properties in the U.S. that prosecutors said Mr. De Jongh purchased with the bribe proceeds and more than $3 million in total will be seized, according to a forfeiture order signed Monday by U.S. District Judge Gray Miller.

Mr. De Jongh is scheduled to be sentenced in August. He faces up to 20 years in prison, according to the Justice Department.

Day of the Jackal

Tuesday March 23, 2021

Here is the official trailer for the 19743 movie Day of the Jackal. Anti Gaulists had tried and failed to assasinate Charles De Gaulle several times. In desperation they hire a professional hit man known only as Jackal, played by Edward Fox.

Watch the first few seconds of the trailer when Fox comments that whoever does this can never work again adn then demands half million dollars. Sounds cheap now but this is an event in  1961.

https://www.youtube.com/watch?v=h6xMnTPEzPo

I have never forgotten that scene. When his wold be hires object to the price he replies, given I am handing you the keys to the kingdom of France I would think twice the fee would be reasonable.

Oe woudl think the kMichael Taylor 60 former Green Beret and his son Peter 28 might have at least stiudied the movie to get some hints on how to proceed. They were hired to extricate Carlos Ghosn former Nissan Renault CEO from Japan and return him to Lebanon. They sucessfully did that by hiding Ghosn in a large case designed to house musical equipment.

The odd thing to me is that they succeeded in getting him to Lebanon a country without a extradition treaty to Japan.

But incredibly they returned to their MA home. What were they thinking that an embarassed Japan would not seek extradition of both. And so they  were at home when the police arrived. Now they are in Japan, WSJ page b2 3/23/21. At least the term they are facing is only three years but individuals with lesser convictions have died in jail.

Amazing, one would think part of the deal would have been assured residence in  Lebanon and enogh money to live the rest of their lives

What were they thinking?

Eastwood in Cry Macho

Tuesday March 23, 2021

Most movie stars lose their luster with age.  Jack Lemmon and Christopher Plummer  were rare exceptions so is Clint Eastwood.

All the Money in the World

https://www.imdb.com/title/tt5294550/?ref_=fn_al_tt_1

Gran Torino featured Clint age 78 i  story about a retired Detroit Auto Worker coming to grips with his new Asian neighbors.  Using first time actors this was rumored to be his biggest pay day at the box office ever.

He followed that with the story of an aging baseball scout, eyes failing, who is assisted by his daughter.

Then he played a horticulturist, long at odds with his family, who become a drug MULE for the Mexican cartel.

This October his latest Cry Macho debuts in October. This time he is a washed up horse trainer breeder and ex rodeo star. His job is to return a boy from his alcoholic Mother back to the States.

On the journey he teaches the young man about becoming a man and finds the redeprtion that has eluded him.

Once again he calls on talented amateurs, Dwight Yoakum co stars.

 

 

 

Gary Cain Seeks Release from Prison

Monday March 22 2021

https://www.expressnews.com/business/article/Ex-state-Sen-Carlos-Uresti-s-co-defendant-16044086.php?utm_source=newsletter&utm_medium=email&utm_campaign=SAEN_210Report&utm_term=news&utm_content=headlines&sid=5bbcfeb73f92a45e831e00e

Gary Cain, who three years ago was convicted with ex-state Sen. Carlos Uresti in a scheme to defraud investors, has asked a judge for his release from federal prison.

Cain, 64, cited a numerous medical problems, including a bad heart, obesity, hypertension and rheumatoid arthritis, in making the request.

His declining health makes him particularly vulnerable to the adverse consequences of the coronavirus, a Wednesday court filing says.

Cain was sentenced to 68 months in prison in 2017 after a jury convicted him on nine felonies, comprised of various money-laundering and wire-fraud charges.

Uresti, a San Antonio Democrat whose more than 20-year political career was upended by the scandal, was convicted of 11 felonies and sentenced to 12 years in prison.

The pair, along with others, also must pay $6.3 million in restitution to the victims.

Cain is serving his sentence at a low-security correctional institution in Seagoville. He’s been behind bars for roughly half the sentence, with his release set for August 2023.

 

IIA Webinars

Monday March 22, 2021