Market Updates and Insights Team Vega August 15, 2012.

Market Updates and Insights

Team Vega

August 15, 2012

• US retail sales rise 0.8%

• Stronger than forecast Job Gains

• Household indebtedness falls to lowest level since 1994.

• Positive global news: French GDP unchanged, German GDP up 0.3%

Indices Rally

• “Twist Shape of yield curve”

• Selling $267B in ST securities

• Program extended through end of 2012

• The 10-year note has fallen seven times in the last eight days

• Keep FFR at 0.25% through 2014

Operation Twist

• Financials, 29% holdings decrease among Smart Money 30

• Lack of revenue growth. Slowed trading revenues / bad loans

• Banks - Macro players in bad economy (Political turmoil in middle east / Japan Tsunami / Euro Crisis)

• New regulation – Frank Dodd Financial Reform Law

Unloading the Banks

• Eurozone edges back towards recession

• Eurozone GDP shrank 0.3% over last 3 months

• Germany’s GDP expanded 0.3%

Europe Update

• Greece is seeking a two-year extension on latest austerity program

• Spain is trying to arrange a deal for small savers who purchased risky savings products from losing all their money in bank bailouts.

• European blue chip companies taking advantage of investor’s search for haven by issuing bonds.

Europe Update

• Not a good July for China

• Total GDP growth at 7.6%

• Industrial growth down to 9.2% from 9.5%

• Retail sales growth down to 13.1% from 13.7%

• Is inflation the silver lining?

Asia Update

• USDA report released Friday gave better than expected results

• Fannie Mae does not require extra US Treasury funds for second quarter in a row – is this the end of the housing market downturn?

US Update

June 29 2012- UK banks offer to compensate for mis-sold interest rate swaps

June 27 2012- Barclays fined for LIBOR manipulation.

Aug 6, 2012- DFS accuses StanChart of hiding $250bn of transactions with Iranian government.

July 12, 2012- HSBC’s chief compliance officer steps down following US Senate

Aug 7, 2012- Lloyd’s former head of fraud and security pleads guilty to defrauding the bank.

More to Come!

Banks Gone Bad : Summer of Scandal

• On Aug 6, DFS revealed it was investigating Standard Chartered for falsifying records in transactions with Iran.

• Today Standard Chartered agreed to pay $340m to settle accusations.

Banks Gone Bad : Standard Chartered

• FSA suggests Libor should be scrapped.

• The Liberal Democrats in the UK are pushing for a re-examination on whether bank’s retail operations should be allowed to market complex derivatives

Banks Gone Bad : What’s Next?

• Largest trader in US equities (HFT Algorithms)• #1 trade market share on NYSE & NASDAQ• Mispriced 148 securities• Aug 1, Trading disruption - $440M loss• Shares down by over 70%• Aug 5, raised $400M in preferred convertible stocks

Knight Capital

• “Realizing the financial markets were heavily influenced by "Greed and Fear" we set out to explore innovative and alternative ways of quantifying human emotion.”

• "Twitter mood predicts the stock market“

• Derwent Capital hedge fund uses “sentiment” as trading indicator

New Strategy: Twitter Fund?

• Manchester United IPO goes ahead at $14/share

• Bloomin’ Brands Inc. (Outback Steak House) IPO sells below expected range

• Facebook to tumble?

• Not surprisingly, not much IPO activity in Europe.

IPO News

• European banks continue to withdraw funds that speculate on food prices.

Other Fund News

Thank You

Closing Remarks ~ Comments ~ Questions