Weil on Finance: Fighting SEC Pays Off
Happy hump day, View fans. Here’s a look at my morning reading.
Back in 2010, Mark Maremont and Leslie Scism of the Wall Street Journal wrote a terrific article about Life Partners Holdings Inc., a Texas company in the business of buying life-insurance policies from the elderly and selling interests in them to investors. Life Partners charged the investors heavy fees. And it often significantly underestimated the policy holders’ life expectancies, according to the reporters’ analysis. The Securities and Exchange Commission opened an investigation. Then the SEC sued the company, its chief executive officer and its general counsel, who took the case to trial. The jury verdict came yesterday, and it was mixed. The SEC won on some claims but lost on some of the most important ones. Both sides declared victory. Sometimes it pays off to fight the government. Shares of Life Partners gained 16 percent.
Another reminder that it’s a celebrity stock market out there.
Last week an online-advertising company called Blinkx saw its stock get crushed after a Harvard Business School professor, Ben Edelman, wrote a scathing blog post about its operations. Then the shares got hammered again yesterday after Carson Block of the research firm Muddy Waters said he had been shorting the stock (but had nothing to do with Edelman’s article). Block has been right enough times that, at least for some investors, it’s not worth sticking around to see if he’ll be proved right again.
Hedge fund shorts the country that gave us Legoland.
Owl Creek Asset Management was one of last year’s best-performing hedge-fund firms. Here’s a Bloomberg News article explaining why it’s betting against Denmark’s sovereign bonds in anticipation of a debt crisis. Owl Creek also has bought credit-default swaps on the country’s biggest lender, Danske Bank. One thing that makes the sovereign-debt trade interesting is how little it costs to buy protection on Danish bonds right now. The swaps are even cheaper than CDS on U.S. or German sovereign debt, according to data compiled by Bloomberg. They may not be for long if Owl Creek spawns imitators.
How changes in the Federal Reserve’s interest-rate policies can whipsaw the rest of the world.
The Bank for International Settlements yesterday released a paper by Philip Turner of its Monetary and Economic Department that’s a good explainer for anyone looking to understand the reasons behind the recent turmoil in emerging-market economies. Here’s an excerpt: “At some point over the next few years, central banks in the advanced economies will both increase short-term interest rates and reduce their holdings of government and other bonds. How this policy shift will unfold is not known, and uncertainty about the policy path could unsettle global bond markets. Downward pressures on some EM currencies could be accentuated, increasing the local currency cost of servicing dollar debt. Higher long-term rates, currency depreciation and more volatile markets could make even more difficult the choices that EM central banks face on their policy rate, on the exchange rate, on the long-term interest rate and on the best use of their balance sheet.”
The Daily Mail of London runs a lot of bizarre articles about animals that are a lot of fun to read.
Like this one. Here’s the headline: “Rats could one day be bigger than COWS.” It must be true. A scientist says so. Plus, the headline writer put the word “COWS” in all capital letters. The article also had a sidebar: “Global warming could lead to snakes the size of buses.”
(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter.)
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