Posts filed under “Derivatives”
Here’s something you may not have heard:
The surprise selection of NYSE CEO John Thain as Merrill’s new CEO over the more widely expected BlackRock CEO Larry Fink was based on reasons you may not be aware of.
What are those reasons? Well, according to CNBC.com, Fink would only agree to take the position if Merrill was willing to give a full and complete accounting of it’s subprime exposure:
"Merrill’s selection of Thain was a surprise because the firm had recently
indicated to BlackRock CEO Larry Fink that the job was his if
he wanted it. CNBC has learned that Fink said he would take the job but only if
Merrill did a full accounting of its subprime exposure. At that point, Merrill,
which owns 49% of BlackRock , moved in a different direction and decided to go
with Thain instead."
I obviously have no way to verify that, but I give the benefit of the doubt to CNBC reporters like Charlie Gasparino and Herb Greenberg. (UPDATE: I have just confirmed with Charlie Gasparino that he was the one who’s fine investigative work uncovered this; You can see some of the discussion via CNBC video here, right margin, labeled "The New Bull at Merrill").
Note: I don’t know who uncovered this.
If the story is true, and Fink passed on the position (or was passed over) because of his insistence on a complete sub-prime accounting, apparently not accommodated by Merrill, it makes one wonder what the old lady is hiding.
Merrill Taps Thain After Fink Demanded Full Tally
CNBC | 14 Nov 2007 | 04:36 PM
Merrill’s New CEO Hoping To ‘Make Things Better’
By CNBC.com with Wires
CNBC.com 14 Nov 2007 | 05:30 PM ET
Yesterday, Traders embraced the release of the FOMC minutes. Indices were flat up until just before the 2:00pm release, and then took off, with the Dow gaining near 1%.
The thinking behind the Fed action was clearly revealed in that release. The emphasis was on the subsequent impact of credit on the entire system. The WSJ reported:
"Federal Reserve officials worried that credit-market
turmoil could reinforce slower growth at a time of "particularly high
uncertainty," leading to their half-point interest-rate cut last month,
minutes from the meeting show.
Without a cut, there was concern that "tightening
credit conditions and an intensifying housing correction would lead to
significant broader weakness in output and employment," the
rate-setting Federal Open Market Committee said. The minutes, released
yesterday, also showed members worried that market turmoil "might
persist for some time or possibly worsen."
They offered no clues about
the direction or timing of the Fed’s next move."
That last sentence is quite intriguing. Understanding whether or not a rate cut is forthcoming impacts yields, stocks prices, etc.
Given the significance of the Fed’s action, one would suppose that the markets which trade the Fed Futures would be, if not prescient, than at least telling about their future price action. One of the more fascinating aspects about this, however, has been the way the Fed Fund Futures have functioned over this time. They have been wildly wrong, forecasting an imminent rate cut since January 2006. I thought it might be instructive to look at why this maybe so, and what it might mean . . .