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September 2008 and Beyond

Short Term: · The consensus expectation is for recession and a hard landing particularly in US and Europe with a protracted trough before recovery. There is some disagreement over the outlook for emerging markets but sentiment is beginning to deteriorate. The short term, however, is a poor guide for the medium to long term. ·
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Hedge Fund Redemptions Dec 2008

Hedge funds will face massive redemption requests for 31 December 2008 as investors seek to reduce risk across the board. This is an unprecedented position for the industry. Hedge funds often face liquidity mismatches in that there are positions with longer duration than the redemption intervals offered by these funds to their investors. They can
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Paulson’s address at the Shanghai Futures Exchange March 2007:

China‘s third challenge is a banking system which, while making progress, is still transitioning to a modem, efficient, market-driven system with proper controls, management, and professional staff. Some risk-averse credit officers may still believe it is safer to lend to state-owned enterprises backed by what they see as implicit government guarantees, rather than to dynamic
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Short Selling and Market Efficiency

A few interesting findings about short selling: 1. There is evidence in short selling activity consistent with information leakage and front-running. (Do Short Sellers Front-Run Insider Sales? Khan and Lu, June 2008.) 2. Short selling restrictions tend to be effective against negative skewness at market level but not at individual stock levels. (Efficiency and the
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Economic Consequences of the Paulson Plan

In the US: The consumer is quite broke. Unemployment is rising. Firms have no access to credit. And now the government is quite broke too. The cost of cleaning up the banking system will fall on the government first. A budget deficit would imply austerity and a severe limitation to government fiscal spend as well
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