UBS marking ARS to market

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Mar 31, 2008 8:22 pm

UBS announced on Friday they are going to mark ARS for the March statement to market showing on average a 5% decline, up to >20% in some cases.  How upset are clients going to be when not only is there no liquidity, but now the value is declining.  No other firms are following suit, but IMO it is just a matter of time now.

Mar 31, 2008 8:28 pm

After the 1st 20% haircut, it will be a slow gradual process to take them down 50%.  The client griping will be up front and then when they are cut in 1/2 the sh*t will hit the fan.  For the brokers who have a lot of exposure now would probably a good time to switch shops and leave the ARP's behind, tons of exposure to follow.

Mar 31, 2008 9:34 pm
fritz:

After the 1st 20% haircut, it will be a slow gradual process to take them down 50%. The client griping will be up front and then when they are cut in 1/2 the sh*t will hit the fan. For the brokers who have a lot of exposure now would probably a good time to switch shops and leave the ARP's behind, tons of exposure to follow.





fritz, what are you buying? I'm going to use you as my contrary indicator for the week...

Apr 1, 2008 5:43 pm

CD's.  Do not pay much in commish, but my clients will be left standing in the end.  We can check back in 18 months and see how you and your clients are doing.

Apr 1, 2008 6:14 pm

OK... It's common knowledge I've been moving clients to more aggressive stances. What should we use as our benchmark?



The S&P 500 close price today is 1370 w/ a dividend yield of 2.20%. 18 month CD's are currently yielding 4%(I can't find one of these in my inventory, but I'll give it to you) - 6% total. So, the dividend yield will provide 3.3%(2.20% for a year +1.1% for the following six months) return over the next 18 months. If the S&P goes up 2.7% to 1407 in the next 18 months I win!



   Market summary   Apr 1 - Close    



Dow 12,654.36 +391.47 (3.19%)

Nasdaq 2,362.75 +83.65 (3.67%)

S&P 500 1,370.18 +47.48 (3.59%)



Does this work for you?

Apr 1, 2008 6:29 pm

That some interesting math.  How about this.  SFI is currently yielding 24.8%  Assume 2% in and out.  24.8x1.5=37.2%-4=33.2% so if SFI loses less than 27.2% I win.

Apr 1, 2008 6:47 pm

Yup... You can use some of the large cap financials or even a few beaten up pharma stocks & get similar results. It takes a lot of courage with this math to move to fixed income stuff if you ask me. Careful of dividend cuts in some cases, of course.

Apr 1, 2008 7:09 pm

Quick question Ashland, how are you buying the S&P and any fees/comm?

Apr 1, 2008 8:12 pm

My example was for illustrative purposes only. I rarely buy an index fund and wouldn't right now unless it was equal weighted or had a quantative strategy layered on it.