Nuns sue Morgan Stanley over bonds - The Irish Times - Fri, Aug 13, 2010

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The Irish Times - Friday, August 13, 2010

Nuns sue Morgan Stanley over bonds

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SUZANNE LYNCH

THE HOLY Faith Sisters in Glasnevin in Dublin are among 88 Irish investors suing London-based investment bank Morgan Stanley for up to €6 million related to bonds they purchased through Bloxham Stockbrokers.

Proceedings were launched this week in the High Court in London related to €6 million of bonds they purchased in 2005 and 2006 from Saturns Investments Europe Plc, a special purpose vehicle set up by Morgan Stanley. The euro-denominated notes were secured by US dollar Dresdner Funding Trust bonds.

The 88 investors, who are represented by London firm Stewarts Law LLP, include the Irish Veterinary Benevolent Fund, BMD Insurance and individual investors.

The claimants allege Morgan Stanley failed to redeem the notes when what they see as a “mandatory redemption event”, as defined in their contract, was triggered in January 2009 – the downgrading of the underlying Dresdner Bonds to junk status by ratings agency Standard and Poors.

They claim that the bank waited until June 2009 to redeem the notes, after the price of the underlying bonds had recovered significantly, securing Morgan Stanley a profit of at least $11.2 million (€8.7 million) on the sale of the notes by way of a “termination payment” but leaving them with nothing.

The case relates to the same fund at the centre of a series of cases being taken against Bloxham Stockbrokers in the Irish courts by various parties, including the Solicitor’s Mutual Defence Fund. The SMDF claims they were mis-sold a bond by Bloxham, which was provided by Morgan Stanley, and subsequently collapsed in value.

Bloxham has strenuously rejected the claim, and has claimed any loss was caused, or contributed to, by Morgan Stanley and Saturns. In February Bloxham was permitted by the Commercial Court in Ireland to join Morgan Stanley as a third party to proceedings against the stockbroker.

Bloxham is supporting the current case being brought in the British High Court by Irish investors, who are claiming damages from Morgan Stanley and Saturns to the value of their entire noteholding, €5,878,500, or, alternatively, the profit which Morgan Stanley made as a result of the sale of the notes in June 2009.

Morgan Stanley has 14 days to respond to the claim.

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irishtimes.com

via irishtimes.com

Morgan Stanley made a profit of at least $11.2 million (€8.7 million) on the sale of the notes by way of a “termination payment” but leaving them with nothing.

Finally! Someone On Wall Street Is Seriously Bearish! CitiGroup are saying..

via businessinsider.com

Bottom line: Our favourite overlays suggest for the DJIA.
The peak may be posted as early as the opening days of January 2011 (possibly even 3rd January as per the other 3 examples) with a down month in the region of 5%.
We will see an intra year bear market next year (fall of over 20%).
We will close the year down double digit percentages (Plus/minus 16% down).
We could be waiting a further 6 to 8 years to eventually see the DJIA regain the 2007 highs on a yearly close basis.

All Of The Huge Threats Facing The Economy Summarized In One Paragraph

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"Market sentiment is as overly optimistic now as it was pessimistic at the July- August lows. Eurozone fiscal deflationary shock. Anti-inflation policy restraint in emerging Asia. Widespread cutbacks at the state and local government level. Debt ceiling issue triggers major rounds of market volatility. Tax breaks that are temporary tend to have marginal economic impact with few multiplier impacts, hence GDP revisions will likely be to the downside post-Q1. Another downleg in home prices undercuts confidence and spending (with around two years’ supply of total vacant inventory backlog)."

Low Risk Investments - Better Choice, Better Off

via low-risk-investments.posterous.com

Bonds in trouble too ?!

FT.com / Special Reports - At the 11th hour: the European rescue plan and asset management

How long does it take to avert a crisis? There seems to be an unwritten rule among negotiators and emergency planners that it requires 11 hours – at least some of which must be spent waiting for a transatlantic phone call and a pizza delivery. Nothing ever comes of third- or ninth-hour talks, does it?

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These conventions have been observed during most geopolitical crises, ever since Ronald Reagan and Mikhail Gorbachev spent 11 hours in a room in Iceland discussing “Star Wars”, the US strategic defence initiative, in 1986.

So, just a few weeks ago, with European governments facing a continent-wide sovereign debt crisis, it was perhaps inevitable that reports of the ensuing €750bn ($925bn) rescue plan cited “11 hours of talks” and some improvised catering at what “was meant to be a two-hour meeting”. In the early hours of May 10 emerged yet another 11th-hour compromise.

But portfolio management cannot always operate to a similar timetable.

After a 48-hour rally, the FTSE Eurofirst index has fallen since the bail-out was announced – leaving wealth managers reconsidering some of their asset allocations.

“For the first time, the politicians moved ahead of the market,” says Cesar Perez, chief investment strategist, EMEA, at JP Morgan Private Bank. “€750bn takes out the funding needs of Ireland, Spain and Portugal for the next three years. So the bond vigilantes should step aside for a bit … but now the governments need to implement the necessary reforms.”

Yves Bonzon, his counterpart at Pictet private bank, agrees: “I think we’re certainly past the worst.”

But can it get any darker before the dawn? “It is not as catastrophic but, from the point of view of investors, [the rescue plan] will just entrench the view that the financial crisis has not gone away,” says Bill O’Neill, chief investment officer at Merrill Lynch Wealth Management. “It will deepen caution.”

Peter Lees, head of equities at fund management house F&C, predicts some will use the bail-out as an opportunity to reduce their equity allocations. “The immediate reaction was positive, with equity markets soaring the day after it was announced, but re-evaluation is essential, given the heightened risks emerging from the EU. The question now is whether the positive response to the rescue deal is an opportunity to reduce risk, or will the bull market now resume?”

His colleague Ted Scott adds: “Any substantial rally should be used as an opportunity to reduce risk or sell.”

But with the only certainty being that “interest rates are going to be low for longer”, according to JP Morgan’s Perez, the next question is: what is a low-risk alternative to cash? “The sovereign debt crisis has affected markets in ways not seen in the past,” says Bonzon.

Hywel George, partner at Integral Asset Management, agrees. “The sovereign debt crisis is a clear warning to investors that government bonds, which have previously been viewed as low-risk investments, are rapidly becoming high risk. This is a particular problem for many private client portfolios that tend to hold large positions in UK gilts.”

Portfolios that used passive bond tracker funds have already experienced this problem. Managers are being asked to find alternatives to fixed income. “Clients have been trying to buy higher yield, [such as] emerging-market debt and dividend stocks,” says Perez. “A bit more than a third have left money market funds. Looking for yield is here to stay.”

At Pictet, emerging-market debt is also favoured, for the “combination of attractive yields with structural exchange rate appreciation”. Bonzon sees emerging-market currencies driving asset allocations for some time to come. “Where the tectonic shift is happening is the currency side,” he says. “That’s where people are taking action, and it’s one-way action ... This shift away from an equity-centric portfolio for the non-euro investor has only just begun.”

Where equity exposure is being maintained, it is with protection. “What this volatility is creating is the opportunity to go back into equity markets through structures with some protection on the downside,” says Perez. Ironically, he notes the post-bail-out volatility is helping to price the derivatives that can provide this insurance. At times like these, it is only options traders who can say: “Crisis? What crisis?”

via ft.com

"... government bonds which have previously been viewed as low-risk investments, are rapidly becoming high risk." That's the problem!

Hong Kong Housing Risks May Exceed 1997 on Rising Rates, HKMA's Chan Says - Bloomberg

via bloomberg.com

The property market has been rising “quite rapidly” and may collapse if prices keep going up, the Ming Pao Daily cited Chan as saying in an interview

4 Types of Guaranteed Investments

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Putting money into guaranteed investments can provide you with an extremely safe way to make a return on your investment. There are a few different types of investments that are considered to be guaranteed in the markets. Here are a few of the different types of guaranteed investments for you to choose from.

A guaranteed bond is a type of bond that is issued by one entity, and guaranteed by another entity. This type of guarantee takes away the risk associated with the default of the bond issuer. For example, if the company that issued a bond goes bankrupt, the individuals who own the bonds can still receive payment from the entity that guaranteed the bonds. An insurance company, or a government, could be the entity that guarantees this type of bond. One of the most common examples of this scenario takes place in Canada. Certain bonds that are issued by companies are backed up by the Canadian federal government. If these companies go out of business, Canada's government will step in and pay back the bondholders.1. Guaranteed Bonds

2. Income Bonds

Another type of guarantee investment is the income bond. With this type of bond, the face value of the bond is promised to be paid to the investor at some point. In addition, the investor can receive coupon payments from the bond issuer based on the amount of profit that is generated by the company. The coupon payments are not guaranteed, but the principle of the bond is guaranteed. In some cases, you may have to pay a penalty if you cash out the bond early.

3. Fixed Rate Bonds

A fixed-rate bond is a bond that is issued by a company, or a government, that can pay you a particular rate of interest over the life of the bond. With this type of bond, you agree to give the company your money for a specific amount of time. The company then agrees to pay you a set amount of interest at regular intervals over the life of the bond term. At the end of the bond term, the company also will pay you back your original principle that you invested. This type of bond is generally guaranteed because you are considered to be a creditor of the company. If the company goes out of business, your principle has to be repaid before other things can be paid for by the company. Typically, the longer you agree to let the company keep your money, the bigger your fixed interest rate will be.

4. Savings Bonds

Savings bonds are another type of guaranteed investment. This type of investment is offered by the federal government. With this type of security, you will give your money to the United States Treasury and it will earn regular interest. This type of bond is backed by the full faith and credit of the United States government.