John At The Center

Eric Falkenstein, “I would estimate 90% of all alpha is misrepresented.”

Falkenblog: McDonald’s Alpha Deception.

Many economists, myself included, believe that China’s asset-buying spree helped inflate the housing bubble, setting the stage for the global financial crisis. But China’s insistence on keeping the yuan/dollar rate fixed, even when the dollar declines, may be doing even more harm now.

Although there has been a lot of doomsaying about the falling dollar, that decline is actually both natural and desirable. America needs a weaker dollar to help reduce its trade deficit, and it’s getting that weaker dollar as nervous investors, who flocked into the presumed safety of U.S. debt at the peak of the crisis, have started putting their money to work elsewhere.

via Op-Ed Columnist – The Chinese Disconnect – NYTimes.com.

Despite the dramatic headlines, there is far less to the executive pay cuts at seven companies secured by the “special master” Kenneth Feinberg than meets the eye. This is a ploy to appease a public enraged by Wall Street bonuses, particularly Goldman’s which is notably unaffected by the move.

It does absolutely nothing to deal with the real problem: that the large financial firms, which nearly drove the economy off the cliff, have been rewarded by an entrenched system of socialized losses and privatized gains.

Recall Mr. Feinberg’s hollow mandate. Larry Summers said, “There is no financial institution that exists today that is not the direct or indirect beneficiary of trillions of dollars of taxpayer support for the financial system.”

via The Fallout From Big Pay Cuts – Room for Debate Blog – NYTimes.com.

“Whenever we read an article about the health dangers of butter, we would immediately run out and buy as much butter as we could find,”

via Economist’s View: “Russians Looked Only for the Agenda”.

Glasson said he expects that all of the major funds will have captive QMS systems in place over time. “In general, the private equity market will continue to become more liquid. GPs don’t want that to happen, but all markets ultimately want to become more liquid. Active portfolio management is the long-term trend and increased liquidity options can only help the industry grow.”

via peHUB » Secondary Market Now Driven by Mega-Funds, Not LP Liquidity.

A number of large buyout firms have implemented captive QMS operations to support general partners in the sale processes and allow the firm to increase safe harbor limitations on the percentage of the fund that can change hands in a given year from 2% without a QMS to 10% with one.

Prior to recent months, limited partners’ main motivation for selling was their own liquidity problems. At this point, most of the cash-strapped portfolio sales have already come to market, including the auction for much of Stanford University’s approximately $600 million alternatives portfolio. So most sellers in the market now are not distressed, Glasson said. Rather, they’re selling to get out of mega-funds which are exposed to high-profile, high-risk deals. The trend has not trickled down into the middle market. “We’re talking to the top 50 private equity firms that have been involved in high profile deals that, according to the media, could turn into Chapter 11s. LPs are hedging their risks,” he said.

via peHUB » Secondary Market Now Driven by Mega-Funds, Not LP Liquidity.

With the comment period on revisions to fair value accounting rules (known, variously, as FAS 157 or Topic 820) expiring a few days ago, we thought we’d take a look at what letters came in. If you aren’t fully up-to-date on what these proposed revisions entail, click here for our handy primer.

While accounting rules aren’t as exciting as pay-to-play scandals, the proposals by the Financial Accounting Standards Board have nonetheless generated a fair amount of hubbub, with more than 100 letters posted on its site.

via FAS 157 Revisions: ‘There Does Not Appear To Be Any Benefit’ – Private Equity Beat – WSJ.

Ironically, dark pools are an antidote to Flash and High-Frequency Trading, which are also under regulators watchful eye.

The best way to understand dark pools is to break it down to its absolute basics and no one does that better than Marketplace Senior Editor, Paddy Hirsch. In the video below, Hirsch, armed with his trusty whiteboard, carefully draws out the actions of what happens within these dark exchanges. The language is simple and understandable and the drawings are quite humorous. For a summary on how it works, we highly recommend watching his explanation:

via Here’s What You Need To Know About Dark Pools.

Why the pushback on the view that the weak dollar is a good automatic stabilizer?

I’m still receiving email pushback on my view that a falling dollar can be good for the U.S. economy. The critics charge: why not just let the dollar fall close to zero or at least hope for such? A few points:

1. I’m not asking for a specific weak dollar policy (we’ve already done enough on that front!). The point is that if the market brings a falling dollar, this outcome can be part of the equilibrating process.

via Marginal Revolution: How can a weak dollar be beneficial?.

The reason why SPACs are back in the news is that they are on a literal death march. A typical SPAC must complete its acquisition within 18 months to two years, and so the last remaining survivors of the 2007 crop are fighting to stay alive.

via Behind the Re-Emergence of SPACs – DealBook Blog – NYTimes.com.