Aug 18, 2007

Chaos in the Financial Markets

Here is an email from one of my readers, Slawek Rogulski:

Hello Mr Wang,

You are no doubt aware of the world financial situation, especially that of the US with the sub-prime mortgages and other exotic instruments starting to lose their value. In your opinion what if any impact on Singapore will this have? Have any funds here had to close or at least temporarily halt withdrawals? And how sound are the local banks? I would appreciate your comments on these issues. Thank you. Regards,
Yes, I am very aware of the current world financial situation. However, for two reasons, I will not comment specifically on the US subprime mortgage situation.

1. There is already an abundance of articles and commentaries in the news and media about the US subprime mortgage situation.

2. No one knows what's going to happen next anyway. That includes Mr Wang.
Me, I'm getting at least 4 jokes per day by email, about Goldman Sachs, Bear Stearns or hedge funds in general. But if you really want to read some serious, and excellent articles on this topic by an anonymous blogger, click

Trust that man, he's very good. At the same time, being anonymous, he doesn't have to tailor his commentary to suit any particular vested interest, which he would have to do if he were a known person employed by, say, certain investment banks or hedge funds right now.

As for myself, over the past two months, I've heavily dumped my own fund investments worldwide in the past two months and I'm very long on cash right now. It's been a brilliant bull run, I've made my money over the past two years and I'm out. The party's over, and it sure was fun!

I'm not going bottom fishing yet, because I think we're still a long way from bottom. It is frankly not just about US subprime - it is the market doing a major repricing of credit risk everywhere that credit risk appears. In other words, not just CDOs, but debt in general, and equities too.

Now I'm going to work on my Plan B and Plan C. What shall Mr Wang do, if in three or six months time, his own job (in credit derivatives) vanishes? Poof. Magic, just like a Bear Stearns hedge fund.

Sigh, I may have to become a lawyer again.


bsd said...

Mr Wang, you think that the equity bull run is over? Don't you think that the Fed have a lot of room to cut interest rate if the subprime financial market crisis were to spillover to the real economy?

But I think you can forget about selling CDOs or anything that is leveraged on credit to your clients for a while.

Anyway in a credit downturn, you consider joining a distressed desk. The IBs are already buildng up their distressed debt capabilities.

Anonymous said...

You are right...
A "nuclear winter" for structure products is a real possibility. It is unlikely that there will be buyers for these after what the fund managers who held these have gone thru...

Definitely, the market will not go away, but the issuance will fall to about 20% of current levels. This is after a fed easing.

Anonymous said...

Mr Wang,

If one invests in a $10 million AAA-rated corporate bespoke CDO tranche put together by your bank, how much fees are earned by the sales desk, the structuring desk and the rating agencies respectively?

Gilbert Koh aka Mr Wang said...

In % terms, *much* less than if a man in the street were to buy a unit trust from the retail branch of a local bank, LOL.

hugewhaleshark said...

Interesting times indeed, Mr Wang. Life was actually getting a bit boring earlier.

I've kept most of my positions so far, and the drawdown has been quite fierce.

I think the central banks will get us out of it for now, and the markets will live to tank another day.

But like you say, no one really knows. That's the fun of it.

One motivation came out of the correction though. Got to open a futures account so I can go short!