Posts filed under “Hedge Funds”
My recent tirade against bailing out the hedge fund half of AIG makes much more sense when you consider who is actually getting all of the taxpayer largesse: Counter-parties of AIG, especially one Goldman Sachs. Some estimates have been in excess of $25 billion to GS. As AIG ran into the arms of the Fed…Read More
Forget the good bank/bad bank, I have an even bigger beef with this INSANE absurdity: Why are the taxpayers making good on hedge fund trades gone bad? I cannot figure that one out. When AIG first faltered, there were two companies jammed under one roof. One was a highly regulated, state supervised, life insurance company….Read More
We add another chapter in the ongoing debate between Barron’s, the weekly paper that is sister to the WSJ, and James Cramer, the former hedge fund manager now turned pundit/CNBC star/game show host. The back and forth between CNBC and Barron’s amounts to an absurd debate over what Cramer’s stock picking record on the show…Read More
Part of the story about the Madoff Ponzi scheme was that Madoff created this elusive, difficult-to-become-a-member club. The exclusivity and rejections made membership all the more desirable to greedy investors. That actually is turning out to be somewhat of a myth. There is much more to his canny trick of rejecting investors than initially meets…Read More
The Quote of the Day comes from David Swensen, Yale University’s endowment’s chief investment officer, in Tuesday’s WSJ: Fund of funds are a cancer on the institutional-investor world. They facilitate the flow of ignorant capital. If an investor can’t make an intelligent decision about picking managers, how can he make an intelligent decision about picking…Read More
Paul Brodsky & Lee Quaintance run QB Partners, a private macro-oriented investment fund based in New York.
Outlook: As we look at the macroeconomic landscape at the onset of 2009 we see obvious negatives and not-so obvious positives for nominal asset prices. The negatives include:
• Almost unanimous deflationary expectations
• Tattered household balance sheets
• Almost no corporate growth visibility
• A higher cost of debt funding for most businesses
• An obliterated mortgage banking industry
• General pessimism among consumers and homeowners
• Heightened global military tensions, as energy exporting nations with nascent democracies struggle to maintain control while their economies contract
The lesser-recognized positives for nominal asset prices include:
• Trillions of new US dollars sitting latent in foreign reserve accounts that could be used to purchase assets at distressed prices
• Extraordinary amounts of inflation being generated by the Fed (and much more to come) – trillions of new dollars sitting latent on bank balance sheets waiting for the multiplier effect to turn them into up to 10 times that amount, leading to higher nominal prices for commodities, goods, services and financial assets
• US and European governments and central banks willing to act as “bad banks” so that their private sectors can maintain and/or enhance the nominal paper value of their assets
• The recent crash of commodity input costs and downward wage pressures, which should temporarily help businesses produce positive earnings at lower revenue levels
• US fiscal policymakers actively subsidizing home affordability and consumer recuperation
• A likely return to US–led global realpolitik, in which developed countries attempt to engage current and potential flashpoints in the developing world with diplomatic solutions.
If past is prologue, there are strong reasons to fade the notion that G7 economies are headed for a 1930s-type deflationary depression. Chief among them is that all economies of the world (via their respective central banks) issue fiat currencies, which means they can simply print money (inflate) to counteract organic deflationary pressures. This was not the case in the 1930s and it is precisely what global policymakers have begun to do.
As we look across the global investment landscape we see:
• Almost 0% “risk-free” global nominal rates of return (and therefore, substantially negative real rates), implying a dearth of risk capital at work in the markets
• Historically wide yield spreads across most tertiary bond markets (widest since the 1930s in many cases), implying; 1) a dearth of risk capital, 2) internal rates of return closer to risk-adjusted, inflation-adjusted equilibria, or 3) both
• Recently crashed global commodity prices, implying; 1) a dearth of risk capital relative to global demand, 2) global equilibrium pricing that better reflects sustainable global demand
• Generally weak US equity prices, implying; 1) a dearth of US dollar-denominated risk capital, 2) more sustainable corporate enterprise values and capital structures
• Weak US and European real estate prices, implying that previous high watermark values
We see both a reasonably-argued case for general pessimism – the continuance of declining fundamentals, and a reasonably-argued case for optimism – quickly improving commodity and equity markets (in nominal terms) that anticipate the end of poor fundamentals. The pessimistic case is obvious to all and markets either greatly or fully reflect that case. The optimistic case (in nominal terms) is less obvious, proven by generally declining prices of risk assets.