From Thursday night cocktail chatter with a Bank of America employee, on the fate of the traders who sold the subprime mortgages which brought down the banks:
“Of course, the traders made millions in commissions. They all did fine. Now they’re getting fired. But it doesn’t matter. They starting up hedge funds. They’re buying up distressed debt, the same mortgages they sold which crashed and which are now bargains. They’re going to make even more!”
PerTrac Financial Solutions has released a study indicating that emerging hedge funds outperform established funds.
“Our original study, released early last year, asserted that smaller, younger hedge funds outperform larger, older hedge funds, based on research spanning January 1996 to July 2006,” said Meredith Jones, managing director of PerTrac. “The new study, which includes data through December 2007, confirms the original results.” Data was compiled and analyzed using the PerTrac Analytical Platform software application.
So much for experience.
Sometimes despotic monarchies do work better than democracies. If Saudi Arabia was a functioning democracy, rather than an old-fashioned monarchy, the oil would likely be pumping much faster, and President Bush and other leaders of oil-addicted nations wouldn’t have to go begging to the King for more oil, a request the King is politely denying. Wisely, in fact, as he is looking out for the long-term revenue stream of himself, his family, and possibly even the people who live in his country.
In a democratic Saudi Arabia, self-interested citizens would vote to open the taps and get the cash now. The world, and the United States in particular, would have a short term cushion, and serious decisions about efficiency and use could be staved off. When the oil did run out, however, it would run out more precipitously. Better a steady diet than a feast and a famine. Thanks, oh, glorious King.
Above, Bush is pictured, hoping the meeting is going well. It didn’t. link
The U.S. Senate Committee on Homeland Security and Governmental Affairs is looking into the effects of speculators — or, as we will call them from now on, “the devils in their gambling hells” — on the prices of commodities.
With oil approaching $130 a barrel and a global food crisis looming, the panel heard testimony from experts about how speculative investment by institutional investors and hedge funds may be contributing to food and energy price inflation.
One angry American reports:
“The gambling in food products utterly destroys anything that could be called a market. What business has a man (or a devil) selling or pretending to sell, a food product which he does not possess? These men who ‘operate’ on the boards of trade (more appropriately called gambling hells) have no more right to the consideration of honest men than the devil has to a seat in heaven.”
That last American was speaking in 1892, and is quoted in Ann Fabian’s Card Sharps and Bucket Shops: Gambling in the Nineteenth Century. Her chapter on the rampant speculation in commodities at the end of the nineteenth century is remarkably current, with a little more devil talk than we get these days.
The scene: A lifelike, full-scale reproduction of the living room of billionaire Blackstone Group founder Stephen Schwarzman, very similar to the one built for the man’s fabled $3 million 60th birthday party. It is a perfect rendition, because it is his living room, at 740 Park Avenue, also known as “the fortress of plentitude,” as it’s where all the other captains of paperwork live with their quilted jackets, little loafers, special tiny dogs, etc.
Paul LeClerc, CEO of the New York Public Library: Sir, your gift staggers!
Schwarzman: ‘Tis nothing!
LeClerc: $100 million. It is unprecedented.
Schwarzman: You embarrass me!
LeClerc: With this money we will be able to open that cafe in the lobby, and crush Barnes & Noble at last! No one will go there!
Schwarzman: It is of no moment to me how it is used. It is for the people.
LeClerc: Sir, we wish to make a memory of your gift.
Schwarzman: Please, do not.
LeClerc: I beg of you, it will be Just a handful of tiny reminders, that the people may remember and strive toward your example. We were thinking of five separate plaques, at eye level, spread all around the entrances.
Schwarzman: Hmmmm…. Do the people desire it?
LeClerc: They do! Yes!
Schwarzman: (Blushing, fanning his face.) Well… then, you may, if you must.
LeClerc: It is right, and just, and noble, and befitting.
Schwarzman: It shames me, but…. Let it be done! Now, go, do not humiliate me further.
LeClerc: My liege.
(Exit LeClerc, walking out backwards.)
We thought the last post was so depressing that we decided to bring a little Christmas early, in the form of this Wall Street Journal video about the lovely light show put on by billionaire Paul Tudor Jones III, which rocks Greenwich every year.
There is no more money left. James “Jim” Simons, manager of the Renaissance Technologies Medallion fund, earned the last of it, with an astonishing $2.8 billion total compensation for 2007, according to Alpha’s latest roundup of top hedge fund earners. It marks the end of the 69-year-old’s lifelong quest to “win it all.”
When contacted, Simons shouted, “You get nothing! You lose! Good day, sir!” and hung up.
Later, in a separate call, he relented, allowing that much of it will go to charity, so that it will trickle down into the economy and he can earn it back again. “What’s the fun, otherwise?” he asked.
Wall Street: We’re totally democrats! Always have been!
Strangely, almost in spite of itself, this remix of a Kingdon Capital meeting borders on amusing.
Pastor Douglas Scott, of the River of Life Church in Colorado Springs, Colorado, was sentenced to hard labor yesterday: Well, actually, the judge told him to get a job and do 200 hours of community service, although it’s not clear whether or not the two could be satisfied by working as a pastor.
In any event, Scott’s hedge fund, The Vision Fund, managed by XL Capital Partners, lost about half of as much as $24 million under management.
The judge, proving once again that all judges think they are recurring guests on Rowan & Martin’s Laugh-In, told Scott he should be fishing for souls, not wallets.
Things are fine! We’re optimistic! Yes, we have your money. It’s in this safe here. Of course you can have it, but right now the door is closed, for safety, of course. That’s why they call it a “safe.” We couldn’t just leave the door open. A key, yes, we have a key. Where is that key? It’s in our office, of course, right here, somewhere. We shouldn’t say where. Can you come back this afternoon? We should have the key then. We have to open the desk drawer first. Of course, I could open it now, but if you come back after lunch, it will be easier. It’s not a problem. Everything’s fine, it’s just a matter of timing. You can come back and get your money after lunch! It’s fine in the safe for now, though. It’s all cozy and it likes it there!
Business Week: Hedge Funds Frozen Shut
Folsom, California resident and former youth minister Stefan Andre Wilson was denied bail in the mounting and increasingly weird FBI case against him, which alleges that his “Christians in Crisis Investment Fund” provided nothing more than an avenue for him to lose more than $5 million in investor funds on an Ameritrade account, to put a down payment on a million-dollar home, and to buy his wife a Gallardo Lamborghini and then a Porsche Cayman. His wife, the former Christina Silvas, is a one-time stripper who ended her career so her daughter could continue in her Christian day school, although the school was disappointed to hear that she later posed for Playboy’s web site.
One investor told the Folsom Telegraph that Wilson’s outfit’s headquarters looked “impressive” with 34 monitors on the wall.
Though we admit it is extreme to suggest bankers start vetting apple cart vendors, it is rather disturbing to hear that Peloton Partners, a $2 billion London-based hedge fund, shut down last week. This seems more important than the usual collapse, unless we are misreading it entirely, which is likely.
Peloton’s demise comes after posting spectacular gains–87 percent in 2007!–with prescient subprime bets, and from a fund leveraged (or “geared” as they say in London) a mere four to five times, very standard and “safe” for a hedge fund. Long Term Capital Management, which imploded in 1998, in contrast, was up 20 to 1 at the end.
The Financial Times reports here.
Talk of a resulting domino effect–with mass fund closures–gets kicked off by the Times here.
… that anyone gets to say “dastardly fraud” in a legal arena and with a completely straight face, but the honorable United States District Judge Stephen V. Wilson got his chance yesterday when he brought the hammer down on ex-hedge fund manager Keith Gilabert, 33, of Valencia, California.
Institutional Investor reports that Pequot Capital’s three shuttered funds may not have been performing as badly as other funds under management, which is kind of odd. Stay tuned.
KreditTilsynet, The Financial Supervisory Authority of Norway, has suspended Terra Securities’ (Terra Gruppen AS) right to operate after four towns near the Arctic Circle recently discovered that they had unwittingly guaranteed loan packages offered by Citibank, which have collapsed.
The investments in loans made by the towns ran some $81 million US, however, as Nordic News, put it: “it was surprising news to the four municipalities that they simultaneously guaranteed a $600 million loan to a hedge fund managed by Citibank.” “Guaranteed” as in are now responsible for securing. The first call was for some $15 million.
Manager Ola Sundt Ravnestad, pictured above in the Norwegian magazine E24, has been fired. The KreditTilsynet’s press release, here, has yet to be translated, but one phrase has no Norwegian substitute, and remains in English: “Collateralized Debt Obligations.”
Takk en meget Citibank. (Bastards)**
*What the fuck happened to all my money?
**Thanks a lot, Citibank. (Bastards.)
Vice Chairman of the Federal Reserve Donald L. Kohn addressed the Council on Foreign Relations in New York yesterday. His remarks, though short, included a hint that rates might be eased, which goosed the markets. Less emphasized, however, was the introduction, which included a Rumsfeldian list of known, unknown and only partially known unknowns, and the factors that would obscure them. For example:
The repricing of assets is centered on relatively new instruments with limited histories–especially under conditions of stress; many of them are complex and have reacted to changing circumstances in unanticipated ways; and those newer instruments have been held by a variety of investors and intermediaries and traded in increasingly integrated global markets, thereby complicating the difficulty of seeing where risk is coming to rest.
He also admitted a fair degree of uncertainty about the current conditions, and added that central banks must make decisions “based on analyses made with incomplete information and partial understanding” and that “the extent to which institutions face liquidity constraints, as opposed to capital constraints, or the moral-hazard consequences of policy actions, are inherently ambiguous in real time.”
But, yeah, never mind the fact the Vice Chairman of the Fed admits that he is as befuddled as a dog in a funhouse… the rates might ease!
Read here, with questions from banks and funds
Listen here
Sydney-based Absolute Capital, whose cheery website quaintly advertises themselves as, “The Structured Credit Specialists for… Generating Income,” has announced the appointment of a voluntary administrator to oversee the Absolute Capital Group’s dissolution. Absolute had aimed “to deliver attractive returns in all market conditions,” but what they really meant was all market conditions except the present one. Creditors of the AUS$400+ million fund will meet to discuss the bad news on Monday, December Third.
pdf of the announcement here
As for the volunteers, they are corporate meltdown specialists McGrathNicol, and they must be busy.
