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Thursday 20 March 2014

No Smoke Without Fire: What’s In a Name Change Mr Cohen?

Despite the firm bearing his name SAC Capital being indicted and submitting a billion dollars plus guilty plea settlement, the man himself Steven A. Cohen has not been charged! 

The nature of re-branding SAC Capital to Point72 Asset Management is curiously odd! Is it mere bluff and bluster about SAC’s business continuity in the face of prosecution by US Justice Department and SEC? For those investment professionals familiar with Mr Cohen and SAC-saga, apparently the new name of the embattled SAC hedge fund is inspired by the current address of its headquarters: 72 Cummings Point Road in Stamford, Connecticut. The name change becomes effective 3 days before the crucial 10th April date, when Judge Laura Taylor Swain of Federal District Court of Lower Manhattan is scheduled to approve or reject SAC’s November 2013 guilty plea settlement.

We examine developments since our last blog instalment of the SAC-saga at end-September 2013 entitled “No smoke without Fire – A Denouement”.

Ø      Despite the very recent convictions of two senior SAC Capital portfolio managers (Mathew Martoma in February and Michael Steinberg in December) and a historical litany of guilty-pleas and litigation[1] involving former or then SAC employees, the man presiding over “the breeding ground” for illegal trading astonishingly has yet to be charged. Especially incredulous since Steven A. Cohen’s eponymous firm was itself finally charged in July and pleaded guilty in November 2013. SAC’s indictment alleged that employee insider trading activity was made possible by “institutional practices that encouraged the widespread solicitation and use of illegal inside information”. FPM is circumspect about the United States’ legislature and political morality in letting pass such abject historical professional deceit.

Our sarcasm is best conveyed by Thomas Carlyle:  On the whole what a beautiful establishment here fitted-up for the accommodation of the scoundrel-world[2]

Ø      As FPM updated in its actionable thesis “No Smoke Without Fire: of Reputation Risk”, SAC’s outcome sets dangerous precedents of blatant double standards in the US Justice system. This ‘double-standards’ conclusion is all too obvious when comparing SAC’s current outcomes with the not too distant or dissimilar previous mega-profile insider prosecution; that of billionaire Raj Rajaratnam of the Galleon Group, which resulted in 11-years prison sentence for the Group’s founder. Our contacts suggest that Mr Cohen has so far managed to avoid indictment by negotiating out-of-court settlement on behalf of SAC for a reported staggering record amount of US$1.2 bn (total SAC settlements to-date nearer US$2 bn); whereas Mr Rajaratnam’s personal penalty was a paltry US$62.8 mn. Sounds like Mr Rajaratnam preferred jail to parting with his ill gotten gains. Explains his lengthy jail sentence despite formulaic rules governing sentencing. This ‘money talks’ argument is irreconcilable to FPM’s relationships considering that Mr Rajaratnam’s was evidently investigated, prosecuted and convicted of 14 counts of securities fraud and conspiracy to commit securities fraud. On the other hand Mr Cohen paid handsome settlements and submitted a guilty plea for the firm bearing his name, despite himself not even being charged!

Ø      Punishment unjustly not fitting the crime! Especially if Mr Cohen having overseen a breeding ground for financial malfeasance over two decades merely receives a proverbial ‘slap on the wrist’ from the SEC administrative censure. We will be tracking the date set for the SEC hearing. In that hearing, Mr Cohen is expected in the least to be barred / banned from the securities industry clear – anything short of that will be a colossal conceit in the SAC-saga. The eponymous firm SAC, which was described by the US government as a “veritable magnet for market cheaters”, cannot reputably exist anymore! The announced rebranding is inadvertent realisation of that being put right. The combined authority of the US Justice and its enforcement would be reflected upon as morally and conspiratorially wanting for a) not bringing criminal charges and conviction after 10-years hot pursuit, but b) also for negotiating an expedient settlement at the cost of financial integrity and justice.

Ø      FPM believes the July 2013 issued SEC administrative civil proceedings charging Mr Cohen of failing to properly supervise insider trading at his firm and a ban from industry will be upheld. Especially after the convictions of close aides Mr Martoma and Mr Steinberg.  However as yet, the lack of criminal charges against Mr Cohen highlights only the cosy arrangements between political expediencies and financial clout. It would seem a great conspiracy of the participating US authorities in the SAC-saga that they pre-conceived the two high profile convictions mentioned. The guilty plea bargaining for reduced sentence of junior analysts like Jon Horvath alone could not alone implicate Mr Cohen in failure to supervise. In organisational hierarchies, more often than not, a firm’s analysts are permitted to speak only to their line manager not directly the group manager like Mr Cohen. So the failure to supervise censure in July 2013 preceded any real and actual failure to supervise at the time of SEC ostensibly issuing it! i.e. no direct contacts of Mr Cohen had been convicted by then! The mentioned two senior portfolio managers’ convictions came in December 2013 and January 2014, was clearly much expected, and as reported the Federal Bureau of Investigations’ target was always the head honcho Mr Cohen. So while Mr Steinberg and Mr Martoma cases were mere show-trials with foregone conclusions, the real-deal settlement talks scheming happened before between September and October 2013 where a global settlement was hatched. A deal which essentially involved a non-prosecution agreement for Mr Cohen. Implying that the two closest managers to Mr Cohen were expendable as a “grain of sand”. To verify this run of events, after Mr Steinberg’s earlier conviction, Mr Martoma’s defense was quoted:

In his closing remarks, Richard M. Strassberg, a lawyer for Mr. Martoma, pointedly appealed to the jury not to convict his client as “a means to make a case against Steve Cohen.” He reiterated that Mr. Cohen had decided how the trading was done, not his client. (New York Times, In the SAC Saga, It’s Hard to Chase a Shadow, February 2014)
Ø      In light of the stitch-up Mathew Martoma and Michael Steinberg were party to, for political and financial convenience they should revolt against Mr Cohen. If they have any sense of humanitarian self worth left, other than handsome financial payoffs probably hidden from authorities but due for confiscation, for that they should save-face and turn on Mr Cohen. Or they will always reputedly be “pimp daddy’s bitches!”, as the street slang goes. 

 Rosemary and Mathew Martoma 2013. Keith Bedford/Reuters

Ø     In NSWF we suggest Mr Martoma as having more providential moral righteousness and therefore more likely to become whistle-blower against his former boss. Other than the opined personal values, it is only circumstantially rational that Mr Martoma being only 40 years old and in the prime of life with a beautiful young wife Rosemary (see picture), should  seek to reduce his prison sentence from the anticipated 10 plus years. Logical considerations for giving testimony evidence against Mr Cohen are that "it is not personal but merely professional!

Ø      Already the simple analysis of SAC’s case suggests racial prejudice, in how an Indian sub-continent descended hedge fund kingpin Mr Rajaratnam was treated in Department of Justice (DoJ) prosecution and how Semitic-descendent American Mr Cohen is in comparison being mollycoddled. The double standards are even starker when considering outcomes of the previous high-profile case to Galleon’s. This was the multi-year on-and-off investigation involving hedge fund founder billionaire Arthur Samberg and his Pequot Capital Management Inc. SEC charged Pequot and its Chairman and CEO Mr Samberg with insider trading in Microsoft Corporation securities. Pequot and Samberg paid nearly US$28 mn to settle the SEC's charges at end-May 2010. No prison sentence was awarded and circumstantial evidence linking a senior Wall Street executive John Mack was suppressed. For FPM’s reputation risk thesis ‘NSWF’, former Morgan Stanley Chief Executive Officer Mr Mack’s associations is of continued interest. Since the Morgans Stanley he taken on many directorships including being on the advisory board of giants like KKR & Co and China Investment Corporation.

Ø      The legal proceedings in Galleon’s case seems to have set unusual legal precedents which have insulated Mr Cohen from charges. Prior to Mr Rajaratnam’s conviction in October 2011 many insider trading cases were based on circumstantial evidence.  “…But the case against Rajaratnam was based in large part on direct evidence – recordings of over 2,200 of Rajaratnam’s telephone conversations with more than 130 individuals.  As Rajaratnam’s defence team found, it is often difficult or impossible to rebut the validity of wiretap evidence.[3] The issue of wiretaps (taped telephone calls) being permissible in SACs case and the lack of such direct evidence seems to have exonerated Mr Cohen from prosecution. Or was it likely that his heavily guarded security ring-fenced house and office were wary of such snooping and hence outwitted listening devices? FPM kindly asks case-linked individuals to contact us and clarify permitted use of wiretaps in Galleon but not mentioned or used in SAC’s prosecution.

Ø      Circumstantial evidence corroborated by email was not used or accepted as evidence against Mr Cohen, despite the authourities alleging him as co-conspirator in indictments against Mr Steinberg in the Dell insider trading case, and in Mr Martoma’s securities frauds related to the Elan and Wyeth. These are two particular circumstances in the both cases in which Mr Cohen, presiding over a firm with so much history in insider trading, could have been indicted:

Mr Horvath’s email [containing an inside tip-off] was forwarded to Mr Cohen, who was working from his office at his holiday home on Long Island, according to SEC filings. Within 10 minutes Mr Cohen had sold his $11m Dell position. Lawyers for Mr Cohen said he never read the email.” (Financial Times, Decade-long quest ends at SAC front door, 25 July 2013)

Prosecutors introduced evidence that a day before Mr. Cohen gave the instruction to begin dumping Elan shares, he was on the telephone for 20 minutes on a Sunday with Mr. Martoma. The call took place three days after Dr. Gilman first said he told Mr. Martoma about the problems with the clinical trial.
It is not known what the two men discussed during that Sunday call, but prosecutors inferred that they talked about Mr. Martoma’s change of heart about Elan. As Mr. Villhauer’s testimony made clear, Mr. Cohen’s fingerprints were all over the trade”. (New York Times, In the SAC Saga, It’s Hard to Chase a Shadow, February 2014)

Ø      The bare-face effrontery to the authorities, intended or otherwise, of naming the new family office with the address of where "insider trading that was substantial, pervasive and on a scale without known precedent in the hedge fund industry"[4] took place is certainly odd if not perverse! As articulated extensively in ‘NSWF: of Reputation Risk’ we think the strategising from SAC’s spokesman Jonathan Gasthalter and his public relations’ firm Sard Verbinnen & Co is askew. FPM insiders discussed whether Mr Cohen knew too much about insider-trading rings and other high profile participants. Such speculation could have brought unwanted disrepute upon the hedge fund industry if he was put on the stand in a court trial. Individually he may have been "too big to fail". Instead Mr Cohen’s wherewithal about insider trading may have served in the closed-door plea settlements. For Mr Cohen’s silence or simply for the billion-dollar doled out SEC and DoJ would have entered a non-prosecution agreement.We mentioned above a similar, the cover-up involving Pequot Capital and John Mack. Below excerpt from “NSWF: Of Reputation Risk”:

The agency paid $755,000 in 2010 to Gary Aguirre, a former enforcement lawyer who said he was unjustly fired for trying to investigate insider-trading allegations involving former Morgan Stanley (MS) Chief Executive Officer John Mack. The SEC closed its probe of Mack in 2006 without allegations of wrongdoing...” (BusinessWeek, June 2013)

Ø      Positively interpreting the steadfast nature of renaming SAC Capital with the inspiration of the current maligned headquarters’ address: FPM thinks the rebranding is intended to serve as reminder to Judge Laura Taylor Swain of what’s at stake from upsetting proceedings by rejecting the guilty plea settlement. If DoJ wanted to exact a higher price than the settlement doled out by the multi-billionaire Mr Cohen,  the enterprise-value of the diminishing SAC empire would be on the block, including real estate like 72 Cummings Point, causing only temporal shock in market valuations. Additionally, if SEC’s administrative censure against Mr Cohen is implemented it would prevent him practising in the investment industry. Resulting in material loss of business for brokers et al whom he has rewarded generously while in practice.

Ø      While the recent spate financial settlements related to ‘bulge-bracket banking’ malpractices have tended to be approved it technically need not be the case – see next bullet point. In this SAC’s case, rejecting the guilty plea settlement with the opportunity to recoup greater financial forfeitures from indicting Mr Cohen himself and his enterprise, would serve the public interest vastly more. Also practically serving as a deterrent exemplar case in insider trading enforcement to would-be cheats in the burgeoning hedge funds or other shadow banking operations. While Mr Cohen is worth some US$8-9 bn and public debt is ballooning to unsustainable levels; there’s the public interest solution! Instead of the US government tinkering with social welfare and essential ‘Obma-care’ budgets to reduce national debt, why not morally go after the ‘big fish’ financial class that put the country in this precarious financial mess! Anyway, it’s logical commercial sense to pursue the big deals given a choice.

Ø      SAC’s obliteration or demise has not or will not cause widespread market panic. Mr Cohen and his firm’s irregularities imn the news so much will more likely shock or ripple in capital markets. It’s not like if similar sounding Goldman Sachs were to be capitulated by DoJ and authorities. The distinction of the two is that one is a bulge-bracket global institution and the other is relatively inconsequential after the 10-years plus scandal!  The widespread global banking wrongdoings brought to Justice since the financial crisis which ballooned national debts and caused austerity to ordinary citizens, could actually mollify public interests if at least scape-goats were properly punished. Why are multi-million dollar white-collar crimes and their perpetrators not synonymous with appropriate punishment and jail sentences?

Ø      A crucial point of law, not too often mentioned by the pandering financial press, is that SAC’s guilty plea settlement may not be rubber-stamped or approved if the Judge decides that this would not be in the public interest. FPM asks: How in all conscience is an expedient and relatively small financial settlement (total circa US$2 bn) by a multi-billionaire (worth US$8-9 bn), after a decade-long investigation and prosecution in the public interest? Especially in light of SAC being indicted for potentially committing 20-years of systematic fraud, pleading guilty after “being on the run” from authorities so to speak, accepting punitive financial liability, and yet ringmaster avoids criminal jail-sentence and his firm continues to practice. To put a finer point to this, be mindful that the ‘monied-class’ in this instance is a professional from the higher echelons of financial services. The public cannot seriously be expected to believe in the integrity of financial capital markets, if a token billionaire banker amid the wrought financial crisis can walk away from professional malpractices. Now that’s scandalous!

Ø      With the media-speculated prospect of SAC becoming a smaller hedge fund operation do they need office space of some 98,900 square-foot? Less office space would be commensurate with the anticipated diminishing assets under management (AuM) at SAC. Seeing that its insider trading reputation has forced Mr Cohen to close its doors to the unlimited pool of external investment capital; through essentially investor capital-flight redemptions. And left SAC managing only internal proprietor’s and employee’s money as a family office. After the carefully managed winding-down of operations, as ‘orderly’ as prescribed for future bankruptcies, and after the many years of the outrageous SAC-saga, Sard Verbinnen  have to be credited for managing the financial announcements and public interest news without causing populist or corporate saver’s backlash. So this is how Sard Verbinnen’s orchestrated news mitigates, pacifies and spins the fall from grace of SAC and its founder:   

The move comes as SAC begins a process of winding down and rebranding itself after pleading guilty to criminal insider trading charges late last year. As part of the plea, Mr. Cohen agreed to close his hedge fund to outside investors. He has set in motion plans to start a new so-called family office that will manage employee money and his personal $9 billion.” (The New York Times: Chief Compliance Officer at SAC Capital Is Stepping Down, February 14, 2014)

Ø      The implication of the name change suggests falsely or perhaps intended as a self-fulfilling prophecy, some degree of business continuity. Current dwindling staff of around 850, and near 1000 at SAC’s zenith has led some resourceful speculators to suggest Point72 and HQ-site may become an alternative investment manager sponsor. Following in the footsteps of other hedge fund luminaries who have also voluntarily or otherwise taken a step back from trading, such as Julian Robertson when he invested in his ‘Tiger Cubs’ or protégée asset managers. In this respect FPM expects that “pigs will also fly!”

FPM does not believe the SAC-saga has ended: every good story has some sort of twist in the tale. Ask Hollywood! Despite the legal-point about five-year statute of limitations on insider trading charges or non-prosecution agreement, new evidence may be revealed or uncovered to haunt Mr Cohen from the unlikeliest sources when least expected! Mr Cohen’s reputation as King of Information Arbitrage precedes him. The likelihood of Mr Martoma or Mr Steinberg turning into prosecution witness against their former boss for reduced jail time is still a probability.

We know he was lauded as a trader who could sleep at nights without worrying about book positions. Can he sleep at night now that his reputational association in insider trading racquets is broadly published, tarnished and forevermore lingering? While Mr Cohen may have made his fortunes and kept most of it while playing his keep-out-of-jail card, he will also be expected to retire with ban from industry. The aggressive management of the multi-year insider tipping case should have resulted in a prison sentence for the ‘big man’. Preet Bahraa, the regional US attorney for DoJ and Sanjay Wadhwa, the Associate Director of SEC's regional office, who oversaw the agency’s investigation into SAC, may have been politically stymied from their ultimate goal. Despite the rhetoric quoted below from April 2013 installed SEC Chairman Mary Jo White, FPM understand that investors pays their “2/20” hedge fund fees for the added reputation-risk on the line:

Redress for wrongdoing must never be seen as a cost of doing business made good by cutting a corporate check” Mary Jo White at the Council of Institutional Investors conference in 2013

[1] FPM list of SAC-related litigation: " SAC Capital's Litany of Litigation & Proceedings”
[2] Source: Thomas Carlyle description circa 1850 writing about prisons “Latter-Day Pamphlets”
[3] Source: Hedge Fund Law Report Vol. 5 No.42 (Nov. 9, 2012)
[4] Description used in the indictment against SAC Capital Advisors LP filed by the U.S. Department of Justice

Tuesday 11 March 2014

Product Convergence or Incestuous Orgy in Alternatives - A Review

An FPM principal noticed this headline today 10th March 2014: “Carlyle commodity fund Vermillion's assets halved to below $1 billion” on Reuters. One may be forgiven for thinking that another hedge fund losing money in a zero-sum game – no great news! Once again, FPM reading between the lines and emphasizing joined-up thinking scored a humble bullseye in our outlook perspectives.

Here’s why we hit the bullseye on the investment-dartboard, and not just on paper: In our 2012 risk assessments entitled “Product Convergence or Incestuous Orgy in Alternatives”, published  in two parts (Part 1 & Part 2 here), we highlighted specific and broad risks in the alternative investment industry infrastructure.

Serving as a review of our rambling blogs and demonstrating understanding of risk trends we show excerpts published from the June and September 2012 about orgies in alternatives:

Excerpt 1:

In literary terms we think The Carlyle Group’s [CG] activity represents Jacob Marley’s ghosts showing Ebenezer Scrooge things that have been in the past, are currently and will come to pass. Carlyle’s activity in asset management deals are complex if not opaque beyond the reported details…” (Source: Orgy Part 2 published 19 September 2012)

To appreciate the extent to which FPM have highlighted the evolution of risks in alternative investment industry - an industry aligned as “shadow banking” - please DO read Orgy Part 2. In that blog presentation, FPM describe the industry’s evolutionary risks through its operational infrastructure as “Accumulating Risk Trends – ARTs in Alternative Investments”’ We cited “Commodity and leveraged loan products risk – a time bomb!” as one of ARTs (Accumulating Risk Trends) in Orgy Part 2. Today’s headline about Vermillion Asset Management is the latest in a string of commodities strategies that experience hot-money flows. Current Citigroup research shows that commodity products as a sector, saw a record net outflow of $50 bn in 2013 alone.

FMT Proposal Bullseye about dynamic creative-destruction has irrefutably and evidently seen many commodities operators losing money though a difficult leveraged strategy (i.e. that of using futures and options) and in a challenging global financial environment. Challenging, not least due to effects of the finally acknowledged onset of climate change, but also in-play factors like the policy-driven macro environment. We have identified ARTs contributing to the end of wild-west commodities investing. FPM have documented these hedge fund strategy risks in exclusive subscription research called “Impending Commodities Crash and Amaranth x 10”. Also, FPM have been monitoring and disseminating this strategy’s risk trends since beginning of October 2012. The examples of difficulties faced by commodity-focused hedge funds are numerous, but our first observation and subsequent monitoring was based on an uncompleted transaction i.e. FMT proposal on Touradji Capital Management LP.   

Where FPM missed the Bullseye (i.e. not biased and only indulging in self-praise) was in calling for completion of Carlyle’s strategic acquisition-interest in K2 Advisors. K2 is a prestigious fund of hedge funds operator managing US$9.3 bn in assets then, and who was part-owned by another private equity investor TA Associates, as well as the founding partnership. K2 was majority-acquired by Franklin Resources Inc [BEN], a deal announced in November 2012. Franklin Resources’s long-only investment management arm, in the traditional asset management mould, is called Franklin Templeton Investments with AuM US$731 bn at the time. From industry sources FPM tentatively understands that Carlyle walked away from the K2 bid-deal, due to high price asked by its private-equity owner, and Carlyle balking at taking on K2’s debt obligation.  TA’s sale price and deal term with Franklin Resources were not published.

Excerpt 2:

We believe the creative-destruction cycles are quicker in the alternatives space. The relative rate of growth of assets in hedge funds versus it procreator or predecessor, closed-end mutual funds, is a stark statistic FPM possesses. Remember, closed-end long-only funds were the origins of hedge funds, ETFs and multitude other pooled-assets vehicles. The first such collective investment scheme in the world is Foreign and Colonial Investment Trust, started in 1868. Coincidentally, the first fund of hedge funds is known to have started almost 100 years later in 1969…(Source: Orgy Part 1 published 27 June 2012)

In our Fund Manager Transactions - FMT investment proposals we had been recommending the vestige brand-value and other corporate existentialism embodied in F&C Asset Management Plc [FCAM]. FPM have profitably held the London-listed asset manager in our wealth management portfolio. Significantly, F&C traces its history to 1868 with the founding of “Foreign and Colonial Investment Trust”, the world’s first publicly listed investment pool. 

FMT Proposal Bullseye was evidenced when in January 2014, BMO Financial Group [BMO], the parent company announced the acquisition of F&C for £708 mn / US$1.2 bn. Notice that BMO (short for Bank of Montreal) is Canada’s oldest bank, established in 1817 and operating in Britain since 1870. The bank employs about 45,000 staff globally and has divisions focusing on retail banking, wealth management and investment banking services.

Other reviews of FPM activities and transactions available on request to Kristian via kks@FundPortfolioManagement.com. FPM does not represent itself on websites other than this blog site. Please email us for further information.

Thursday 6 March 2014

FPM Macro and Markets Themes for 2014

We were writing our top-down investment themes for the year ahead, deliberating in the cold day of light after the exuberance of the seasonal festivities and the New Year celebrations. Then we were distracted by putting into play one of our macro themes: Ukraine. You've seen the headlines since our chart below,which captures CDS premiums to 10 February 2014 – what do you think happened since to this chart?

We like volatility-based asset plays for 2014, especially to confirm the capital markets secular uptrend established from the ‘mirage’ economic recovery contrived by colluding central governments. If the illusory recovery, established on quantitative easing and other accommodative global government policies, has any foothold we seek policy-bucking assets with intrinsic macro-volatility.

Sovereign CDS, municipal-debt-referenced assets and other futures and options based strategies are FPM's vogue recommendation in our bumpy recovery outlook. For example, we recognise sovereign states that we expect to undergo a process of tumultuous evolution before arriving at democratic and financial stability.

We highlight one such country CDS chart below in current trading observations 

Source: Deutsche Bank, note that this chart is before the full escalations of protests into near civil war centred in the capital city of Kiev

Of course there is civil unrest in many other countries simultaneously, including Egypt, Thailand, Venezuela, South Sudan, Greece etc. However, for our asset play recommendation and outlook we point to the destabilising situation in Puerto Rico, which is a self-governing territory of the USA with its inhabitants having American citizenship. Never mind the largest USA municipality debt bankruptcy declaration to date in mid-2013 by Detroit City with US$18 bn debt; Puerto Rico's debt is said to be US$50 -70 bn! This territory's default is expected to have far-reaching systemic consequences, not only because of the size of debt, but due to its tax-advantages making it a widely and popular constituent in portfolios.

While one of our major risk thesis hangs on sovereign-sized implosion, we are also mindful that news is managed in a way as not to cause sensational market panics but drip-fed for shocks to fizzle-out. So when the Puerto Rico default does eventually materialise it would be damp-squib event.

Our joined-up thinking does not think the fall-out from the inevitable hard landing of the Chinese economy will be a mere ripple of a shock. Having analysed the historic levels of national debt accumulated in the Chinese economy in a record time, i.e. twice as much as its GDP in 5 years, unprecedented economic crash is expected. The Western foreign banks credit alone represents nearly a trillion US Dollars, currently at US$709 bn, according to a ZeroHedge article. Of that western banks' creditor total claim against China by European banks represents US$329 bn. While debt default and recovery levels in China maybe uncertain and irrelevant, what is sure is that emerging markets type exodus of hot-money is likely from any liquidity panics. Referring to the second largest economy as an emerging market may seem a misnomer but the likelihood of easy-money fuelled enterprises becoming insolvent would not be a new phenomena in the Far East markets. This writer was at a global bank and topl player in the regions at the the time of the 1997-98 Asian financial crisis and recognises the sequence of crisis. Then it was the crisis of confidence about Thailand's Bhat currency devaluation which was the trigger and catalyst for the region's crisis. For China's bursting bubble scenario some punters are looking at chain-reaction defaults in their Trust Company funding arrangements. There maybe other bubbles such as housing related write-down of investments.
In regards to China, FPM deeply shares the conclusions reached in the aforementioned ZeroHedge comment, as below:

There is a very good chance that the crisis that began in 2008 is actually not over by any stretch – it is merely moving from one place to the next. After all, the developments discussed above are a direct result of the reaction of the world's monetary authorities to the initial crisis. China's credit bubble and ZIRP in the US and Europe are all children of the crisis and have evidently sown the seeds for the next crisis. As we always stress, we expect that the next major crisis will eventually lead to a crisis of confidence in said monetary authorities. At some point, faith in central banks is bound to crumble and then we will really experience 'interesting times'.”

This leads us to financial Armageddon in slow motion, and gathering of pace in re-rating economic values and principles, a sort of new deal for socio-economic politics. Beginning with the disintegration or greater convergence of the European union, by circa 2017. As we seemed to have hedged our original view for the breakup of European Union, we reserve any conviction trade based on the pivotal referendum on Scotland's split from Europe.

FPM principal has returned from a convalescing break in Braemar, Scotland near the Cairngorm National Park and the Royal Family's Balmoral Castle. See our next provocative post: European Indpendence By The Scottish Bravehearts.