Here’s another bullet point in our ongoing tally of reflation indicators. It’s the return of risk in the form of start-up hedge funds (John Meriwether included).
From the FT:
Hedge fund launches are growing in size and number after months of subdued activity in the wake of the collapse of Lehman Brothers last year.
The revival of fund [...]

John Meriwether, the 62-year old former Salomon bond trader and LTCM wizard is back for, what is this, his fourth go round.
For those of you who don’t remember the 1980s, John Meriwether was the biggest of the ‘big swinging dicks’ on Wall Street, leading Salomon Brothers to huge profits in its fixed income division. Lionized [...]

A friend passed me a URL now which led me to a few posts over at Bronte Capital and at Felix Salmon’s blog at Reuters about a firm connected to the Biden family called Ponta Negra. T here may be a connection here to the alleged Stanford fraud.
I have done and probably will not do [...]

An article in the FT caught our eye that makes plain that the TALF (Term Asset Security Program) is a bailout for the shadow banking system (HT Tom). The bailouts for the banking industry continue unabated despite a change in Administration on January 20th. The Obama Administration has topped up bailout money for Bank of America, AIG and Citigroup, three of the weakest ‘too big to fail’ institutions without putting them through a bankruptcy process. Now, the Federal Reserve and the Administration are set to move on the TALF program which we chronicled here in three earlier posts, “TALF: A bailout if one reads the fine print,” “TALF details suggest Obama doesn’t get it,” and “A few words from a reader on TALF mechanics.”

Let’s talk a little about the data released on Friday. On the plus (contrarian) side, everybody is talking about the unemployment number and NOBODY happened to mention that consumer credit was UP on Friday, even before TALF. I think we are very close to the bottom. I think that New York Fed President Dudley is screaming to the investment funds, hedge funds, private equity to do these deals with TALF.

Goldman Sachs London conducted a poll of fund managers today that had interesting results. The poll demonstrated that fund managers are expecting deflation more than inflation and that they expect the U.S. or Asia to escape the downturn first (and certainly not Europe or the UK). I imagine that funds are positioned accordingly.

Here are the poll results:

UPDATE: Given the recent news on AIG and HSBC plus the dividend cuts at KKR and PNC, I am re-posting this article.

Back in June before real panic struck, I outlined my thinking on the financial services sector in a post called “Financials: catching a falling knife.” My basic point at the time was that investors – especially sovereign wealth funds (SWFs) and hedge funds – were seriously underestimating future losses in the financial services. I suggested that buying financials was like catching a falling knife and that things would only improve when these investors gave up and went home.

Since that time, those investors have indeed given up after sustaining hundreds of billions in losses. Yet, their money is now being replaced by government money, which is propping up failing and bankrupt institutions. I see this as a problem, not a solution. However, it is unclear whether the new U.S. administration, the U.K. government, the German government, and the Irish government will continue this ill-fated policy response. If they do, you can expect things to get much worse.

On a recent Bloomberg Radio with Tom Keene broadcast, Harvey Pitt and Arthur Levitt, two former SEC Chairman were guests. Levitt made the suggestion that hedge funds had once been given the choice of “regulation-light” or “regulation-heavy.” Now, in the wake of the Madoff scandal, “regulation-heavy” is all but assured. But, isn’t this just?

Many will suffer at the hands of Lehman Brothers. That is the verdict by white-shoe law firm Wachtell, Lipton, Rosen & Katz – a firm I had the pleasure of working with during my previous life in finance. They are very good. Apparently, the bankruptcy laws will not be a protection for [...]

I ran across a very disturbing news item today that is getting a lot of press in Germany. Apparently, the leveraged finance community is getting routed at the German Automaker VW. The crux of the situation is that Porsche, which controls VW, upped its stake in the company causing shares to rise. [...]