Financial World War: last ditch attempt at throwing SEC lawyers against CDS nukes fired by hedge funds?

Today's Bloomberg announcement of SEC subpoena and investigation into short and CDS position of hedge funds may indicate the next stage of the battle where the mainstream American financial institutions and their friends in government decided to fire back at their attackers from the hedge fund "enemy" camp. In my "big picture" model, international hedge funds have been heavily shorting the world financial system, both stock and bonds! Put options can be used to implement leveraged short stock positions; Credit Default Swaps (CDS) can be used for the same purpose to implement leveraged short positions in bonds. Previous partial disclosures of some hedge funds indicated that CDS'es can be an order of magnitude (factor of ~10) larger than the underlying bonds. The amount of leverage that is possible with CDS is probably comparable to that of stock options but - at much lower cost! Shorting the financial companies or other distressed corporate bonds is probably much more lucrative than shorting their stocks. That was probably going on since last year: - the stock shorting action was probably a side attack to trigger their downgrades, to "push" the banks over the cliff so to speak, whereas the line of attack and profit taking took place on their bond shorts.

The last Sunday's unsuccessfull derivative trading session that purportedly "ended up in chaos" showed us that there are many players who seemed more interested in seeing CDS'es triggered rather than unwound. That seems to confirm the "big picture". So is the bail-out of AIG that was deemed necessary just after Lehman's collapse. The AIG suddenly running out of cash and getting a 85 billion dollar life saving injection, just a couple of days from having declared 20B$ cash in possession as adequate (they "borrowed" that from their subsidiaries) clearly indicates that something bad happened to them on that Monday: perhaps that sudden 65B$ shortfall was casued by Lehman collapse triggering their bonds' CDS'es, of which AIG was the liable issuer! Suppose they allowed a subsequent colllapse of Merrill, WaMu and Morgan - could each one of them result in further CDS triggers of the same magnitude, of the order of 300B$ - a nuclear pop just a couple of days apart? Potentially more destruction in just one week than during the first 6 months of the property subprime crisis! This is the real financial nuclear weapon of mass destruction, that Buffett was talking about, seen in action!

Prediction:

Hedge fund "pirates" are fighting on the side of the Free Market. The Mother Nature of Economy is on their side, therefore they will most likely win the war (though might lose this particular battle). Free Market has always won all the wars in the past rendering her institutional opponets, the rulers, the presidents, the main street banks, the governments and the upper classes holding bags of worthless paper. Every single time. This time it will end just the same! The market will win again and effortlessly, the bankers will loose big way, eventually.

Stan (of StanInvest)

Guten TTAGGG telomerase!

Interesting article appeared here:

http://www.washingtonpost.com/wp-dyn/content/article/2008/09/16/AR2008091601497.html

Quote

Telomerase repairs and lengthens telomeres, which are DNA-protein complexes at the end of chromosomes that directly affect how quickly cells age. As telomeres become shorter and their structural integrity weakens, cells age and die more quickly, according to background information in a University of California, Irvine, new release. Shortening of telomeres is emerging as a marker of disease risk and premature death in many types of cancer, including prostate, lung, breast and colorectal cancers.

In this study, Dr. Dean Ornish, a professor of medicine at the Preventive Medicine Research Institute in Sausalito, Calif., and his colleagues at the University of California, San Francisco, asked 30 men diagnosed with low-risk prostate cancer to make significant lifestyle changes.

The changes included eating a diet with only 10 percent of calories from fat, low in refined sugars, and rich in whole foods, fruit and vegetables. They supplemented their diet with vitamins and fish oil and did moderate aerobic exercise, stress management, relaxation techniques, and breathing exercises.

The men's telomerase levels were measured at the start of the study and again at three months. At that time, the researchers found a 29 percent increase in telomerase levels and a decrease in "bad" (LDL) cholesterol.

(more general stuff on telomerase in this and that article)

I have mixed feelings reading that Lancet paper write-up. On one hand telomerase can be indeed called the enzyme of immortality, unfortunately the only cells that produce sufficiently active telomerase are germ line cells (sperm cells and ova) and cancerous cells! Without reading the full text I have no way of telling what exactly did Dr. Ornish et al find. Did they find 29% more telomerase in serum, from prostate cancer or did it come from macrophages and lymphocyte cells where it is also supposed to be present but probably inactive? Was the telomerase active or inactive?

Centenarians, large size LDL, high HDL

http://www.forward.com/articles/14047/

Quote:

...the centenarians examined have not led the sorts of lives that doctors generally recommend. “Among our centenarians we have no athletes, no vegetarians,” Barzilai said. Thirty percent of his subjects were overweight or obese in the 1950s, and close to 30% were smokers. “We have a woman who smoked two packs a day until the age of 91. She is now 105,” he said. “What I’m saying is that they didn’t do what we tell our patients to do.”

and

The most publicized and the most important gene located so far, however, is CETP. This gene helps to regulate cholesterol — both LDL, the so-called “bad cholesterol,” and HDL, the so-called “good cholesterol.” Researchers have found that many of the centenarians have extremely high levels of HDL and large overall particle sizes of both HDL and LDL. CETP is involved in regulating these cholesterol particles. At the same time, scientists have found that the life-prolonging variant of CETP preserves exceptional cognitive function and protects against dementia.

I have to comment also on the issue of cognitive functions.

Good cognitive performance seem to be associated with high cholesterol, while the opposite: various neurological disorders, mood disorders and depression, correlate with low cholesterol. There seems to be a deeper connection: brain seems to work better on ketone bodies (or when high level of ketone bodies are present) - that is associated with a diet high in animal fat and animal produce in general, and either low in carb or when carbs are eaten only intermittently.

Another connection between high animal produce consumption and a good health of the neural system, is through EPA and DHA. Those are essential fatty acids present only in fish and land animals.

I suspect (guessing) that the diet of the Ashkenasi centenarians from that study is not much different from the SAD however their unique genetic makup probably causes metabolic modifications similar to what a high animal fat low carb diet causes among normal not genetically endowed people.