Euro Trash? Non!!

Everyone is Europe is apparently wondering what’s going to happen on Sunday when La Populace in France votes “No” in a referendum on whether to accept the proposed new European constitution. Some of them are worried that a Huge No (as opposed to, say, a 52% No) will cause the Euro to plummet.

What is this new European constitution? Well, nobody has really been reporting much on that, but as far as I can tell it’s mostly about having a common foreign policy (with a European Foreign Minister, like a sort of Secretary of State), a sort of Grand Fromage Presidential type character, and some kind of common defense policy. Theory is that a French No would scupper the whole thing, because, after all, France was the No 1 country responsible for the united Europe in the first place (back in the 50s).

The FT has an interesting little speech on why the Frogs should be croaking “Non!”:

“There is a sentiment that we are entering a new world where the rules of the market prevail and where the state plays a less important role” [says a local expert]. “And there is a feeling that part of society is benefiting from this globalisation, the people who travel abroad, have money, work in businesss and are the company bosses, the journalists, the experts. But we the people are threatened by globalisation”.

Sounds sort of how people feel in the US.

Anyway, why the hell should this cause the Euro to plummet? Even if they don’t get their precious constitution – and they probably will find a way to do it in the end – it won’t make Europe disappear. The common currency will still be there. In fact, with US bond rates back down to around 4% (amazing!!! Jeez, it’s enough to make any forecaster humble), and the Euro down at a six month low or something against the dollar – reflecting huge anxiety already – not to mention that they would be saying “No” to yet another fat layer of bureaucracy -- I think the Euro will actually go up. Anyone wanna bet?

Hedge funds nab another $25bn

Yes, another $25bn into hedge funds in Q1, according to the FT. I've seen different estimates of total hedge fund assets in the last couple of days. Well, two estimtes. It's either $1 trillion or $1.5 trillion.

The long-awaited dampening of hedge fund returns happened at last. They said it was the GM downgrade that did it all, but really that's not the whole story. Convertible arbitrage was already over-arbed, to the point where it wasn't surprising returns became negative. Take a look at the Red Hat convert, says this old friend of mine. Came with some minimal coupon, like 0.5% or something and a huge premium, like 40%. How could the arbs make any money with those numbers? Well, apparently they couldn't, and the thing is now down in the 80s somewhere with a relatively reasonable premium.

Anyway, point is, the more assets go into hedge funds, the more difficult it is to beat the market, because the more you are the market. Here's the part that appeals to the cynic in me, though: fees. Hedge funds take 2% or 2.5% in fees (usually plus 20% of the "carry", ie upside -- but not of the downside, nts). That's a lot higher than for mutual funds. So now you've got (a) less than market returns (b) higher fees and (c) less transparency. Sounds like a great deal for all those guys taking money out of mutual funds and putting it with the savvy hedge fund managers, what?

Executive Perks

So two top bankers leaving Morgan Stanley have been paid not to join the camp trying to get rid of the MS CEO. Apparently Joe Perella (famous from old times as one half of the dynamic duo that propelled First Boston into an M&A powerhouse) and some guy called Terry Meguid, evidently another superstar, got paid $6.4mm apiece for leaving as long as they agreed not to join the eight former Morgan Stanley execs who are trying to get CEO Purcell ousted. In other words, the CEO is using the company's money to protect his own position. Oh well, just another example among many, I suppose...

If you've got it, flaunt it

That was the motto in the 1980s, when greed officially became good. Here's the latest retail numbers, for April:

Neiman Marcus sales up 12.5%
Nordstrom up 6.9%
Federated (including Macy's and Bloomingdale's) up 2.8%
Target up 1.3%
Walmart up 0.9% (mostly in food)

Translation: not really necessary. Let's just say two words: tax cut.

Mind you, the kids are still spending pretty rapidly:

American Eagle up 20%
Abercrombie & Fitch up 16% (these last two being same-store numbers).

Where do they get the money, these kids?