4 September 2007: DJIA 13,448; LIBOR 6.7975pct; Brent Crude 70.57
The Brits are busting my chops. I come back from vacation, nicely rested and with a fat new portfolio of contacts I met at some of the bars down in the Keys (including a headhunter who is a good friend of John Paulson, no less), to find that interbank trading in London has gone belly up. Basically, no one trusts anyone any more. Long gone are the days when the Brits wandered round in top hats and talked in Latin to each other – Dictum Meum Pactum and all that. Standards are slipping, and this is the result.
It’s a bad place to be, but I’m now very heavily reliant on the intelligent intervention of central bankers – a plain oxymoron. I need Beardy Ben to come up with a bone-crunching rate cut, and I need other central banks to start pumping cash into the system to override the liquidity crunch. If they don’t open the floodgates soon, there are going to be some casualties - and I’m probably invested in some of them.
The problem is that no one knows who is going to go bust next. BofA has bailed out Countrywide, and Bear looks like it is a dead man walking, but there are rumors everywhere about firms that are going to the wall.
Even worse, two of the banks that I have a long position in are getting some bad press with the bloggers. Personally I don’t pay much attention to the sad losers who write blogs – mainly people too stupid to be real journalists or analysts – but there are one or two worth a look. Obviously, I am still a great follower of Jeremy Siegel, the Wizard of Wharton, who has been right on the money so far. He is almost as bullish as I am. But others are starting to worry about both Merrill and Citi, and I don’t like the rumble too much. Is it too late to write some long strangles and try and salvage something from the volatility? If I did, they would have to go through a set of books that I keep in the bottom drawer –I have a special mechanism for processing extra-mural activities.
There’s also no point dragging down the performance of my main fund, so I’m seriously thinking of transferring my C and MER positions to a different fund that some guys would probably think of as a side pocket. I dump a lot of positions into this fund when they look a little sick, hold off on regular valuations (for reasons of illiquidity, of course) and hope for divine intervention before anyone notices. If all else fails, I will just assign the losses (net of sec lending fees, which I will throw in as a bonus) across all our clients over a few quarters. Even our hotshot compliance team won’t be able to track that one down.
But the news not all bad. A new sales lady has started work, and she’s the one I went for during the interviews. She’s called Tersha Wills, and she is HOT! She gives me the strong impression that she likes to have a good time, and so do I. I reckon she’d be a fair substitute for Charlize on the speedboat. A good body on her, and she is eager to please. She’s come to us from some consulting firm that’s taken millions of dollars out of us over the years so she knows the company well. I’m going to take my time and play the long game. I might just leave a few reprints lying around outside her office of that HFR article about my ‘home run’ performance last year, complete with a rather good photo of me in my favorite Brioni suit.
Which reminds me that, whilst in the Keys, Eva gave me her latest list of demands. This is part of the price I pay for independence. We bought a townhouse in Manhattan, on East 11 St, and Eva has never stopped refurbishing it. Every time I think we are close to having the place finished, something else needs fixing. It could be that she has something going with the guy overseeing the project, or maybe she’s just bored, but I could have had the Brooklyn Bridge repainted for less. The list is on my BlackBerry, as are several messages from Haresh. I don’t know which I want to look at less.
Sunday, 26 July 2009
Tuesday, 7 July 2009
TOGGLE OFF!
17 August 2007: DJIA 13,079; Brent Crude 69.53
Lessons my mother taught me #53: Never trust a man with a beard. Now, in a house dominated by my father’s Jewish-Ukrainian heritage, that was a tough call, as there was a lot of facial hair amongst friends and relatives (and not just the men), but my dear old mom had a point. I look at Beardy Ben Bernanke and I see someone who has a bit of a credibility problem. Only a few days ago it was all sunshine and global happiness. Today it’s slashing the discount rate, with ‘increased uncertainty having the potential to restrain economic growth’. Thanks, Ben – I should have listened to Mom.
But here’s the thing: the market actually likes it. We’ve shed hundreds of points – over 400 on the Dow in just a week thanks to the French connection - but now we’re on our way up again. Interest rates are coming down so let’s buy more stock. Perhaps some of those trailer-trash loans will be repaid after all and there’s no need to worry about sub-prime any more.
I am no contrarian. If this is what the market likes, who am I to complain? Curveball is riding the waves well, and my Special Opportunities Fund is looking set for a bumper year. I’m getting a new publicity photo done as I reckon I’ll get a special mention in all those reviews that come out at year-end. If John Paulson knew what a great job I was doing, he’d have hired me by now. He’ll find out soon enough, when he sees my profile in HFR.
My buddies at Goldman must be feeling a bit envious of my performance, too. Everyone in the market was feeling their pain as they announced that they would have to pump three billion bucks – yes, three billion! - into their Global Equities Opportunities Fund. The Global Alpha Fund has tanked too. Oh guys, how we hurt for you. No one likes to see Goldman in trouble.
My other pet project is going well. Brian and Brad at Commodity Kinetics have been in to showcase the technology platform for our Collateralized Commodity Units. It rocks. Simple as that. It is going to do just about everything, other than print money and make Grey Goose martinis. What’s coolest for me is that it will automatically generate trade orders and route them to the best venue, which pretty much leaves me to sit back in the turret and watch the cash pouring into our accounts. We get paid for trading when all we’re really doing is watching screens as they churn out trade instructions. Sweet.
Not all is as sweet. A tricky day with David. He wanted to talk about some loans we’d made to PEq firms. Now, when I said I didn’t want to be in the PEq business, that was technically correct. We are not an investor in that sense. But lending money to the sector is a different matter altogether. These firms all need cash and the terms are pretty good. We know that they’re buying businesses with plenty of cash in the bank, so lending them money to finance the purchase is pretty much risk free. One small wrinkle: some of the loans have PIK toggles attached. PIK (payment in kind – Ed.) normally means that they can pay interest with more debt, rather than cash. No problem as far as I’m concerned, but David sees things differently. He doesn’t like these toggles, and he likes even less the way I’ve told my people to account for them.
So David, what do you want me to do? He agrees that we shouldn’t sell the loans, but wants me to try and sell the toggles. A secondary market in toggles? Well, we’re trading everything else with a pulse, so why not these? That’s what we pay you the big bucks for, Larry. Yeah right. I’ll just call my buddies at Goldman and see what they think. When that fails, I’ll call Stanley and offer him a great package of toggles that will earn him lots of bro and kudos as the first PB to execute in this exciting new market. He might just be that dumb.
I shall have to deal with my toggle challenge later. I am flying back to New York to pick up the family and take a break in the Keys. I keep my Portofino down there, so we can cruise around, sip a couple of cold beers (without Charlize, sadly – I suspect she and the wife just wouldn’t get on), and generally forget about the crazy vagaries of this market. I don’t own a property down there, but a grateful client, who has seen his side pockets stuffed with gold, gives me the run of his modest seven-bedroom bolt hole with private beach. The kids love it.
Eva, of course, has reservations. The sea is too hot or too cold. The kitchen simply isn’t big enough, and the beds are all uncomfortable. The maid is lazy (Eva, did you really say that?). All this I endure in order to get a break. I love Eva, but after a week I am ready to get back to work. Italian women should always be taken in small doses.
Lessons my mother taught me #53: Never trust a man with a beard. Now, in a house dominated by my father’s Jewish-Ukrainian heritage, that was a tough call, as there was a lot of facial hair amongst friends and relatives (and not just the men), but my dear old mom had a point. I look at Beardy Ben Bernanke and I see someone who has a bit of a credibility problem. Only a few days ago it was all sunshine and global happiness. Today it’s slashing the discount rate, with ‘increased uncertainty having the potential to restrain economic growth’. Thanks, Ben – I should have listened to Mom.
But here’s the thing: the market actually likes it. We’ve shed hundreds of points – over 400 on the Dow in just a week thanks to the French connection - but now we’re on our way up again. Interest rates are coming down so let’s buy more stock. Perhaps some of those trailer-trash loans will be repaid after all and there’s no need to worry about sub-prime any more.
I am no contrarian. If this is what the market likes, who am I to complain? Curveball is riding the waves well, and my Special Opportunities Fund is looking set for a bumper year. I’m getting a new publicity photo done as I reckon I’ll get a special mention in all those reviews that come out at year-end. If John Paulson knew what a great job I was doing, he’d have hired me by now. He’ll find out soon enough, when he sees my profile in HFR.
My buddies at Goldman must be feeling a bit envious of my performance, too. Everyone in the market was feeling their pain as they announced that they would have to pump three billion bucks – yes, three billion! - into their Global Equities Opportunities Fund. The Global Alpha Fund has tanked too. Oh guys, how we hurt for you. No one likes to see Goldman in trouble.
My other pet project is going well. Brian and Brad at Commodity Kinetics have been in to showcase the technology platform for our Collateralized Commodity Units. It rocks. Simple as that. It is going to do just about everything, other than print money and make Grey Goose martinis. What’s coolest for me is that it will automatically generate trade orders and route them to the best venue, which pretty much leaves me to sit back in the turret and watch the cash pouring into our accounts. We get paid for trading when all we’re really doing is watching screens as they churn out trade instructions. Sweet.
Not all is as sweet. A tricky day with David. He wanted to talk about some loans we’d made to PEq firms. Now, when I said I didn’t want to be in the PEq business, that was technically correct. We are not an investor in that sense. But lending money to the sector is a different matter altogether. These firms all need cash and the terms are pretty good. We know that they’re buying businesses with plenty of cash in the bank, so lending them money to finance the purchase is pretty much risk free. One small wrinkle: some of the loans have PIK toggles attached. PIK (payment in kind – Ed.) normally means that they can pay interest with more debt, rather than cash. No problem as far as I’m concerned, but David sees things differently. He doesn’t like these toggles, and he likes even less the way I’ve told my people to account for them.
So David, what do you want me to do? He agrees that we shouldn’t sell the loans, but wants me to try and sell the toggles. A secondary market in toggles? Well, we’re trading everything else with a pulse, so why not these? That’s what we pay you the big bucks for, Larry. Yeah right. I’ll just call my buddies at Goldman and see what they think. When that fails, I’ll call Stanley and offer him a great package of toggles that will earn him lots of bro and kudos as the first PB to execute in this exciting new market. He might just be that dumb.
I shall have to deal with my toggle challenge later. I am flying back to New York to pick up the family and take a break in the Keys. I keep my Portofino down there, so we can cruise around, sip a couple of cold beers (without Charlize, sadly – I suspect she and the wife just wouldn’t get on), and generally forget about the crazy vagaries of this market. I don’t own a property down there, but a grateful client, who has seen his side pockets stuffed with gold, gives me the run of his modest seven-bedroom bolt hole with private beach. The kids love it.
Eva, of course, has reservations. The sea is too hot or too cold. The kitchen simply isn’t big enough, and the beds are all uncomfortable. The maid is lazy (Eva, did you really say that?). All this I endure in order to get a break. I love Eva, but after a week I am ready to get back to work. Italian women should always be taken in small doses.
Wednesday, 24 June 2009
CREATIVE ACCOUNTING 101
09 August 2007: DJIA 13,270; C 46.90; MER 76.25
Merde! Who would have thought that a boring old French bank could make such a complete mess of its hedge funds (that I didn’t realize anyone actually bought, apart from some overfed French farmers looking to invest all the subsidies they get for sitting around drinking wine and eating cheese all day). You just don’t expect a French bank to have such a major impact – a 387-point impact, to be precise – on our market. But the toxicity of those four words – ‘complete evaporation of liquidity’ – was enough to send us into meltdown. Merci beaucoup!
Which is a shame, just as we were coming off the back of a little rally, the resignation of Warren Spector, Bear’s co-president, notwithstanding. The bulls were back, helping us all to some serious gains just a couple of days ago. Then these damn Frenchies come and bust up the party. No wonder nobody likes them. I’m never eating French fries again.
When I think of Europe, I think of England. Over there it’s all positive. They’ve had Tony Blair doing a fine job, helping us to try and tame those terrorist towelheads, whilst Gordon Brown has been masterful at running the economy and letting the finance sector get on with its primary task of making money without too much interference. No wonder old Gordie said that this was the start of a ‘golden age’ for those boys in London. I envy them.
Thinking of Mr Brown reminds me that we’ve not made much progress with our London operation. There are plenty of frustrations, even though they reportedly speak the same language as us. We want some nice offices, but the realtors are asking too many questions, trying to make us disclose far too much about us and our business plans. Hey, I only want to sit at a desk, not be the father of your children! What’s all this caution about? We’re a good, decent, honest firm. Trust me.
We’re also hearing the first stirrings of doubt about whether UK pension plans really want to go any larger into alternatives. Consultants say that they are all pretty troubled by mortgage-backed securities, and this French news certainly won’t help any. They cannot see past this little blip to the bigger picture: volatility is good. We love it. You can only make truckloads of cash when there’s volatility. Stability is for politicians and economists. Give me boom and bust any day (which is where I part company with Gordon, who claims to have abolished it. Yeah right – not if old Larry has anything to do with it.)
I wish we had a Treasury Secretary with a much gravitas as Brown. Hank Paulson is so inarticulate he can hardly put one word in front of another. Add in the fact that nobody believes he does anything unless it’s going to benefit Goldman’s and you have a guy who is pretty much a joke from where I’m standing. Fortunately it doesn’t matter too much as he doesn’t really have a lot to do. He makes some speeches and issues reassuring statements about how strong the economy is, but the real power lies elsewhere. He just takes the flak when it all goes wrong.
The question we have to answer is: is it all going wrong? Paulson says no and, more importantly in my view, the Fed sounds confident. All the bets on it having to ease the Fed Funds rate turned out wrong. It said that it reckons the economy is likely ‘to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy.’ Thanks, Mr Bernanke – I’m with you on that one.
That said, central bankers don’t sound too confident today. What I’m hearing is that all the big central banks are going to start pumping liquidity into the system. That’s good and bad, but not necessarily in that order. Paribas has got this whole market spooked, and what with Bear and Countrywide, people are starting to wonder if we aren’t reaching a tipping point.
I sure hope not. I haven’t exactly been meeting my job description as a hedge fund manager recently. I’m not too hedged on anything. I really would like this bull to run a little more, just until I can close, adjust, burn or lose some of my positions. In this business, they say that timing is everything. The people who say that don’t know how right they are. It’s not just about when you sell or buy – there’s also a real skill to knowing when to book the profit (or loss) to the clients’ accounts. That really can make all the difference. And a few more months of upward momentum would certainly help me to get the performance numbers looking just peachy. Knowing how to account for that performance is just as critical as the performance itself, if you want my opinion.
Take the Thai Baht position. As of today, that looks excellent. At 31.10, we’ve made 34 million and change. Now, you give that back to the clients – less, of course, our 20pct performance fee – and they are as happy as hogs in dirt. It therefore follows that so are we. But that’s not necessarily where it ends for us. Say we still felt bearish about the Baht. Clients have their profit booked, so they’re made up. But were we to run the position until year-end, and it got down to, say, 29 or so, we’re looking at additional profit of 16 mill. That’s for the firm. We close it out, net off the interest cost of the 250 mill we’ve had to borrow because we needed to give back the original client money that funded the transaction, and the rest is all ours. That’s the beauty of performance accounting. We manage it.
Compliance guys and other back-office lamebrains just don’t get it. For them, it’s all about process. But, as I keep on telling them, this is a dynamic business. If we are constantly worrying about the paperwork and the niceties of accounting conventions, we’ll never have any time to make money. At the end of the year, when we’ve earned that huge pot of money, we go hire some hotshot accountants to put all the right transactions into the right buckets. Everyone’s happy, and everyone’s richer than when we started. Do you really need an MBA to work that one out?
Merde! Who would have thought that a boring old French bank could make such a complete mess of its hedge funds (that I didn’t realize anyone actually bought, apart from some overfed French farmers looking to invest all the subsidies they get for sitting around drinking wine and eating cheese all day). You just don’t expect a French bank to have such a major impact – a 387-point impact, to be precise – on our market. But the toxicity of those four words – ‘complete evaporation of liquidity’ – was enough to send us into meltdown. Merci beaucoup!
Which is a shame, just as we were coming off the back of a little rally, the resignation of Warren Spector, Bear’s co-president, notwithstanding. The bulls were back, helping us all to some serious gains just a couple of days ago. Then these damn Frenchies come and bust up the party. No wonder nobody likes them. I’m never eating French fries again.
When I think of Europe, I think of England. Over there it’s all positive. They’ve had Tony Blair doing a fine job, helping us to try and tame those terrorist towelheads, whilst Gordon Brown has been masterful at running the economy and letting the finance sector get on with its primary task of making money without too much interference. No wonder old Gordie said that this was the start of a ‘golden age’ for those boys in London. I envy them.
Thinking of Mr Brown reminds me that we’ve not made much progress with our London operation. There are plenty of frustrations, even though they reportedly speak the same language as us. We want some nice offices, but the realtors are asking too many questions, trying to make us disclose far too much about us and our business plans. Hey, I only want to sit at a desk, not be the father of your children! What’s all this caution about? We’re a good, decent, honest firm. Trust me.
We’re also hearing the first stirrings of doubt about whether UK pension plans really want to go any larger into alternatives. Consultants say that they are all pretty troubled by mortgage-backed securities, and this French news certainly won’t help any. They cannot see past this little blip to the bigger picture: volatility is good. We love it. You can only make truckloads of cash when there’s volatility. Stability is for politicians and economists. Give me boom and bust any day (which is where I part company with Gordon, who claims to have abolished it. Yeah right – not if old Larry has anything to do with it.)
I wish we had a Treasury Secretary with a much gravitas as Brown. Hank Paulson is so inarticulate he can hardly put one word in front of another. Add in the fact that nobody believes he does anything unless it’s going to benefit Goldman’s and you have a guy who is pretty much a joke from where I’m standing. Fortunately it doesn’t matter too much as he doesn’t really have a lot to do. He makes some speeches and issues reassuring statements about how strong the economy is, but the real power lies elsewhere. He just takes the flak when it all goes wrong.
The question we have to answer is: is it all going wrong? Paulson says no and, more importantly in my view, the Fed sounds confident. All the bets on it having to ease the Fed Funds rate turned out wrong. It said that it reckons the economy is likely ‘to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy.’ Thanks, Mr Bernanke – I’m with you on that one.
That said, central bankers don’t sound too confident today. What I’m hearing is that all the big central banks are going to start pumping liquidity into the system. That’s good and bad, but not necessarily in that order. Paribas has got this whole market spooked, and what with Bear and Countrywide, people are starting to wonder if we aren’t reaching a tipping point.
I sure hope not. I haven’t exactly been meeting my job description as a hedge fund manager recently. I’m not too hedged on anything. I really would like this bull to run a little more, just until I can close, adjust, burn or lose some of my positions. In this business, they say that timing is everything. The people who say that don’t know how right they are. It’s not just about when you sell or buy – there’s also a real skill to knowing when to book the profit (or loss) to the clients’ accounts. That really can make all the difference. And a few more months of upward momentum would certainly help me to get the performance numbers looking just peachy. Knowing how to account for that performance is just as critical as the performance itself, if you want my opinion.
Take the Thai Baht position. As of today, that looks excellent. At 31.10, we’ve made 34 million and change. Now, you give that back to the clients – less, of course, our 20pct performance fee – and they are as happy as hogs in dirt. It therefore follows that so are we. But that’s not necessarily where it ends for us. Say we still felt bearish about the Baht. Clients have their profit booked, so they’re made up. But were we to run the position until year-end, and it got down to, say, 29 or so, we’re looking at additional profit of 16 mill. That’s for the firm. We close it out, net off the interest cost of the 250 mill we’ve had to borrow because we needed to give back the original client money that funded the transaction, and the rest is all ours. That’s the beauty of performance accounting. We manage it.
Compliance guys and other back-office lamebrains just don’t get it. For them, it’s all about process. But, as I keep on telling them, this is a dynamic business. If we are constantly worrying about the paperwork and the niceties of accounting conventions, we’ll never have any time to make money. At the end of the year, when we’ve earned that huge pot of money, we go hire some hotshot accountants to put all the right transactions into the right buckets. Everyone’s happy, and everyone’s richer than when we started. Do you really need an MBA to work that one out?
Wednesday, 3 June 2009
GOLD, VIX AND THE ODD MARTINI
27 July 2007: DJIA 13,265; C 46.97; MER 77.31
So, just the small matter of a 5pct drop-off in the Dow in the space of eight days. All those margin players, closing their books and taking their profits – they disgust me. That is not how we look at things. This is nothing more than a blip. The tide is rising and the SS Curveball will be cresting it. People who worry about inflation, durable goods or the price of oil are simply ignoring the fundamental fact that this market still has a way to go before it peaks. This is a buying opportunity.
There’s actually a consensus within the smart money community. You don’t hear the Wizard of Wharton - (my favorite analyst Jeremy Siegel) - telling people to sell stock and head for the hills. Far from it. He’s been consistently bullish and consistently right. In a note, he’s said that the market is oversold and that it could be in line for a sharp bounce. He’s telling the great unwashed to get out there and buy some quality stocks, which are unaffected by any credit tightening. In the Wizard’s view, there’s been an overreaction to the sub-prime issues.
We’re in tune on this. I still see the market going north. But where I disagree with him a little is that I think PEq is a big driver behind market strength. These PEq firms are trying to buy up anything and everything, so prices go up (though not necessarily values). Sure, there will be setbacks when these firms get too greedy – Chrysler and Alliance Boots – but there’s still a huge appetite for deals.
We looked at becoming a PEq player. Plenty of our rivals have gotten into the space and made money. Problem is, it’s a hands-on type of business and we don’t do that. Basically, we don’t care if a business does well or badly, as long as we’re either long or short of the stock. We don’t want to be in there on only one side of the deal, worrying about inventory and human capital (whatever that is) and all that stuff. We’re traders.
My triple-barreled amigo from Lehman calls. They’re taking some heat on account of a rather heavy exposure to CDOs. Bear has already taken its beating – the BSC stock has dropped by 24pct since June (and I’m still short) – and now Lehman seems to be taking up where Bear left off. Jules is all sweetness and light, pointing out the differences between the two firms and assuring me that all shall be well and all shall be well and all manner of things shall be well. Like I care. But I need to get Art into gear and establish just how many prime brokerage relationships we could have, because Lehman is beginning to scare the hell out of me just as much as Bear. Sometimes you look at pictures of Dick Fuld and wonder if he’s carrying a piece of shrapnel in an important part of his anatomy.
Anyway, I thought I’d give Jules a little cardiac jolt by asking him if he’d got any Lehman stock I could borrow. Like every good broker, he was torn between the prospect of making some money out of the deal, or defending the honor of his employer and saying that they felt unable to lend their own stock. Jules took less than half a beat to square that one. “How much were you looking for?” he asked. That kid could go far.
After that, it was into David’s tank – the windowless meeting room attached to his office where we hold the most sensitive discussions – to talk over the day’s events. Otherwise intelligent people have been selling off gold, such is the panic about this temporary correction. But it has spooked David and he needs to be stroked and humored. If he’s not, we might have to liquidate some positions that would be very painful, both to me and clients (although not necessarily in that order).
“Is this the start of the meltdown?” he asks. Where can you go from there? The guy has clearly been watching the wrong channel. So, to keep him off my back, I agree to go through all our positions and explain their logic. Macro stuff, nothing too detailed – there are some things that, for now, need to remain in my locker. For each asset class there are questions, challenges, and an uncomfortable debate about the cost of unwinding trades or, ironically I guess, hedging our exposures, which is kind of what we’re meant to be doing in any case.
I have to give in on some bets, but I manage to hold on to the key elements of the Special Fund, which is bearing up pretty well. The good news is that David encourages me to take more short positions in certain sectors; the bad news is that those sectors – like construction and financials – have already been shorted to hell. I’ll have to come up with some fancy synthetic trades that get us the exposure we want at a price that gives us some flex. That’s why you’re paid the big bucks, Larry!
He doesn’t like the upside potential of the market. He thinks that we should be following some others who are buying index puts to hedge against a market decline. We have a bit of a discussion about this one. Puts are expensive, blunt instruments. The VIX is high precisely because people don’t have a clue what’s going to happen next, not because a fall is inevitable. I want us to be more forensic and go stock-by-stock if we’re going short. A lot of S&P firms are long of cash on the balance sheet which makes them attractive to PEq firms, so this baby has got a way to go yet.
David wants to think about it. He’s got some PEq buddies who are going to share a bottle or two of triple-filtered mineral water tonight so he’ll ask them. Thanks chief: that’s a real vote of confidence. I’ll be chewing my way through the martini list at The Lenox while David checks out my theories with a bunch of overpaid asset strippers. But it’s worth holding my tongue. If he needs to do that, fine. The market has traction and the PEq boys know it. They’ll confirm what I already know. This is nothing more than a nervy correction, driven by traders with no cojones.
So, just the small matter of a 5pct drop-off in the Dow in the space of eight days. All those margin players, closing their books and taking their profits – they disgust me. That is not how we look at things. This is nothing more than a blip. The tide is rising and the SS Curveball will be cresting it. People who worry about inflation, durable goods or the price of oil are simply ignoring the fundamental fact that this market still has a way to go before it peaks. This is a buying opportunity.
There’s actually a consensus within the smart money community. You don’t hear the Wizard of Wharton - (my favorite analyst Jeremy Siegel) - telling people to sell stock and head for the hills. Far from it. He’s been consistently bullish and consistently right. In a note, he’s said that the market is oversold and that it could be in line for a sharp bounce. He’s telling the great unwashed to get out there and buy some quality stocks, which are unaffected by any credit tightening. In the Wizard’s view, there’s been an overreaction to the sub-prime issues.
We’re in tune on this. I still see the market going north. But where I disagree with him a little is that I think PEq is a big driver behind market strength. These PEq firms are trying to buy up anything and everything, so prices go up (though not necessarily values). Sure, there will be setbacks when these firms get too greedy – Chrysler and Alliance Boots – but there’s still a huge appetite for deals.
We looked at becoming a PEq player. Plenty of our rivals have gotten into the space and made money. Problem is, it’s a hands-on type of business and we don’t do that. Basically, we don’t care if a business does well or badly, as long as we’re either long or short of the stock. We don’t want to be in there on only one side of the deal, worrying about inventory and human capital (whatever that is) and all that stuff. We’re traders.
My triple-barreled amigo from Lehman calls. They’re taking some heat on account of a rather heavy exposure to CDOs. Bear has already taken its beating – the BSC stock has dropped by 24pct since June (and I’m still short) – and now Lehman seems to be taking up where Bear left off. Jules is all sweetness and light, pointing out the differences between the two firms and assuring me that all shall be well and all shall be well and all manner of things shall be well. Like I care. But I need to get Art into gear and establish just how many prime brokerage relationships we could have, because Lehman is beginning to scare the hell out of me just as much as Bear. Sometimes you look at pictures of Dick Fuld and wonder if he’s carrying a piece of shrapnel in an important part of his anatomy.
Anyway, I thought I’d give Jules a little cardiac jolt by asking him if he’d got any Lehman stock I could borrow. Like every good broker, he was torn between the prospect of making some money out of the deal, or defending the honor of his employer and saying that they felt unable to lend their own stock. Jules took less than half a beat to square that one. “How much were you looking for?” he asked. That kid could go far.
After that, it was into David’s tank – the windowless meeting room attached to his office where we hold the most sensitive discussions – to talk over the day’s events. Otherwise intelligent people have been selling off gold, such is the panic about this temporary correction. But it has spooked David and he needs to be stroked and humored. If he’s not, we might have to liquidate some positions that would be very painful, both to me and clients (although not necessarily in that order).
“Is this the start of the meltdown?” he asks. Where can you go from there? The guy has clearly been watching the wrong channel. So, to keep him off my back, I agree to go through all our positions and explain their logic. Macro stuff, nothing too detailed – there are some things that, for now, need to remain in my locker. For each asset class there are questions, challenges, and an uncomfortable debate about the cost of unwinding trades or, ironically I guess, hedging our exposures, which is kind of what we’re meant to be doing in any case.
I have to give in on some bets, but I manage to hold on to the key elements of the Special Fund, which is bearing up pretty well. The good news is that David encourages me to take more short positions in certain sectors; the bad news is that those sectors – like construction and financials – have already been shorted to hell. I’ll have to come up with some fancy synthetic trades that get us the exposure we want at a price that gives us some flex. That’s why you’re paid the big bucks, Larry!
He doesn’t like the upside potential of the market. He thinks that we should be following some others who are buying index puts to hedge against a market decline. We have a bit of a discussion about this one. Puts are expensive, blunt instruments. The VIX is high precisely because people don’t have a clue what’s going to happen next, not because a fall is inevitable. I want us to be more forensic and go stock-by-stock if we’re going short. A lot of S&P firms are long of cash on the balance sheet which makes them attractive to PEq firms, so this baby has got a way to go yet.
David wants to think about it. He’s got some PEq buddies who are going to share a bottle or two of triple-filtered mineral water tonight so he’ll ask them. Thanks chief: that’s a real vote of confidence. I’ll be chewing my way through the martini list at The Lenox while David checks out my theories with a bunch of overpaid asset strippers. But it’s worth holding my tongue. If he needs to do that, fine. The market has traction and the PEq boys know it. They’ll confirm what I already know. This is nothing more than a nervy correction, driven by traders with no cojones.
Tuesday, 12 May 2009
THE COMMODITY SQUEEZE
19 July 2007:DJIA 14,000; C 51.13; MER 84.55
People who don’t know anything about this business are always talking about ‘important psychological barriers’ when it comes to indices. So, a 14,000 Dow becomes one of these barriers in the minds of the puerile hacks who couldn’t find a real job so got into journalism instead. Market guys, on the other hand, do not worry about such artificial obstacles to making a lot of money. We have been trading for months, if not years, on the assumption that, sooner or later, it was going to break 14,000, so today has not found us psychologically ecstatic. It is simply a validation of everything we’ve been doing, and a next step on the ladder to what Stanley describes as dinero serioso. He thinks that means serious money in Spanish – but then he also thinks that absolute return is what happens when you drink too much vodka.
As it happens, Stanley is still hustling and I’m still passing bits and pieces of business to him, but it’s not like the old days and he knows it. His heart really isn’t in it any longer, and he wants out. Do I know anywhere? I know he’s angling for a chair at Lehman, but I’m not sure I want him there. Frankly, his best days are behind him. He needs to go and sell Florida real estate to Bostonian retirees and fledgling snowbirds.
The guy covering us at Lehman is good without being too aggressive. I do have one problem with him. His name is Julio César Pérez Jerez. All of it. Guess he’s Mexican or Puerto Rican or something and I think those Hispanics like to load them up with names – a few guys even get their mom’s name too. Go figure.
Lehmans are incredibly bureaucratic so, even if I wanted Jules to take me out to a ball game and look for some action afterwards – what Stanley charmingly refers to as fur-hunting - he’d probably need to get Dick Fuld’s permission. I can live without that.
In any case, prime brokers are not on my radar today. I have seen Brian and Brad, and we have scoped out a deal. These two guys have brains the size of Wyoming, but no idea of how to make money out of them. That’s where I come in – and maybe, if they’re super-nice, my partners at Curveball. But I am setting the pace here, and that will need to be recognized when the deal kicks off.
The next question is how to pitch it to the partners. They have to have the imagination and the ambition to go with this one. We need to get out of the whole continuum of long, short, long/short, arb – all the fiddling at the margins that keeps us out of trouble but never quite shoots the lights out. If Revis wants to buy a bigger place in Hingham, complete with a dungeon and live-in dominatrix, he needs to get with the program – my program. I can make us all hugely wealthy, and it would all be totally legal. All they have to do is say: “Sure, Larry, sounds sweet. Go do it.” Yeah, kiss my ass.
The deal is there to be done for someone, and damned if I’m going to miss out on it. Brian and Brad and their geeky little outfit, Commodity Kinetics, are on to something really hot. I’ve done my research on this one. Graham, Hayek, Kaldor – I’ve read their papers, studied the theory, done the math, and it all adds up. The Brits didn’t make Kaldor a Baron for no good reason. The man was a genius. It was a pity he just missed out on seeing some of his best ideas made real by Lawrence E. Podolsky.
We’ve even come up with a name. CCUs: Collateralized Commodity Units. Sweet. We Googled it and nothing unpleasant came up – we don’t want to find out it’s an acronym for some deviant sexual behavior or a racist redneck outfit. The boys wanted to go for something clever like SPDRs, but I want something that looks and sounds more weighty. CCUs are the type of thing a government might issue.
Except we’re going to be the ones doing the issuing. The whole deal revolves around us being issuer and market-maker for a bunch of CCUs. Brian and Brad provide the intellectual stuff, with all the software to calculate index and collateral numbers. Curveball adds the kudos of a house with an unblemished record, the highest fiduciary standards and the market muscle to issue and distribute the units. That’s us, to a T. When do we start?
Lots of details to thrash out, but we’re closer than ever to doing something. The market isn’t going to know what’s hit it. A whole new currency class – now that is something to get excited about. I was there at the birth. Goddam it, I was the midwife!
People who don’t know anything about this business are always talking about ‘important psychological barriers’ when it comes to indices. So, a 14,000 Dow becomes one of these barriers in the minds of the puerile hacks who couldn’t find a real job so got into journalism instead. Market guys, on the other hand, do not worry about such artificial obstacles to making a lot of money. We have been trading for months, if not years, on the assumption that, sooner or later, it was going to break 14,000, so today has not found us psychologically ecstatic. It is simply a validation of everything we’ve been doing, and a next step on the ladder to what Stanley describes as dinero serioso. He thinks that means serious money in Spanish – but then he also thinks that absolute return is what happens when you drink too much vodka.
As it happens, Stanley is still hustling and I’m still passing bits and pieces of business to him, but it’s not like the old days and he knows it. His heart really isn’t in it any longer, and he wants out. Do I know anywhere? I know he’s angling for a chair at Lehman, but I’m not sure I want him there. Frankly, his best days are behind him. He needs to go and sell Florida real estate to Bostonian retirees and fledgling snowbirds.
The guy covering us at Lehman is good without being too aggressive. I do have one problem with him. His name is Julio César Pérez Jerez. All of it. Guess he’s Mexican or Puerto Rican or something and I think those Hispanics like to load them up with names – a few guys even get their mom’s name too. Go figure.
Lehmans are incredibly bureaucratic so, even if I wanted Jules to take me out to a ball game and look for some action afterwards – what Stanley charmingly refers to as fur-hunting - he’d probably need to get Dick Fuld’s permission. I can live without that.
In any case, prime brokers are not on my radar today. I have seen Brian and Brad, and we have scoped out a deal. These two guys have brains the size of Wyoming, but no idea of how to make money out of them. That’s where I come in – and maybe, if they’re super-nice, my partners at Curveball. But I am setting the pace here, and that will need to be recognized when the deal kicks off.
The next question is how to pitch it to the partners. They have to have the imagination and the ambition to go with this one. We need to get out of the whole continuum of long, short, long/short, arb – all the fiddling at the margins that keeps us out of trouble but never quite shoots the lights out. If Revis wants to buy a bigger place in Hingham, complete with a dungeon and live-in dominatrix, he needs to get with the program – my program. I can make us all hugely wealthy, and it would all be totally legal. All they have to do is say: “Sure, Larry, sounds sweet. Go do it.” Yeah, kiss my ass.
The deal is there to be done for someone, and damned if I’m going to miss out on it. Brian and Brad and their geeky little outfit, Commodity Kinetics, are on to something really hot. I’ve done my research on this one. Graham, Hayek, Kaldor – I’ve read their papers, studied the theory, done the math, and it all adds up. The Brits didn’t make Kaldor a Baron for no good reason. The man was a genius. It was a pity he just missed out on seeing some of his best ideas made real by Lawrence E. Podolsky.
We’ve even come up with a name. CCUs: Collateralized Commodity Units. Sweet. We Googled it and nothing unpleasant came up – we don’t want to find out it’s an acronym for some deviant sexual behavior or a racist redneck outfit. The boys wanted to go for something clever like SPDRs, but I want something that looks and sounds more weighty. CCUs are the type of thing a government might issue.
Except we’re going to be the ones doing the issuing. The whole deal revolves around us being issuer and market-maker for a bunch of CCUs. Brian and Brad provide the intellectual stuff, with all the software to calculate index and collateral numbers. Curveball adds the kudos of a house with an unblemished record, the highest fiduciary standards and the market muscle to issue and distribute the units. That’s us, to a T. When do we start?
Lots of details to thrash out, but we’re closer than ever to doing something. The market isn’t going to know what’s hit it. A whole new currency class – now that is something to get excited about. I was there at the birth. Goddam it, I was the midwife!
Monday, 20 April 2009
DANCING WITH WOLVES
17 July 2007: DJIA 13,971; MER 89.23; C 52.46; BSC 139.91
Thank you Stan. Having bought Merrill stock at the end of 06 at an average of 90, I have been patiently waiting for the trade to get even close to being neutral, let alone positive. And Stan O’Neal – who is so unpopular that even his friends don’t like him – has come up with the goods. A storming second quarter has made my day. Granted, the chairman and CEO of Mother Merrill doesn’t always sound convincing, but these numbers are hard to ignore. The guys have done well, much as it pains me to say it.
Unlike poor old UBS, who finally dumped Wuffli – what kind of a bank hires a CEO with a name like a character out of the Gummi Bears? – and brought in Rohner, his deputy, who I think also has quite a lot of blood on his hands. I would short his stock.
When I told ALCO that I was short financials, I probably overlooked the fact that I hold MER and one other: the Big C, Citi. Don’t ask me why I did it. I bought a lump of stock at a not-very-smart price (55 even) on the day that HSBC announced its 2006 sub-prime problems. I figured that, if the market could take that in its stride, there wasn’t much to worry about with a bank as big as Citi. But I did have one reservation about the trade: Chuck Prince ranks up there with some of the worst, most unconvincing CEOs ever. How he got the job is a mystery – even to him, I suspect. Why do I get the feeling he has problems balancing his checking account?
Well, he just signed his own death warrant. I waited patiently and I have been rewarded. If you want to act like a complete fool, you could do no better than to look at what he said the other day about Citi’s position in the leveraged loans market. ‘As long as the music is playing, you’ve got to get up and dance,’ he said, when asked about the health of the market. ‘We’re still dancing.’
Did I hear that right? Even Ken Lewis at BofA – another one whose IQ I suspect is not much above room temperature – has started to have his doubts about leveraged loans. Not Chuck. He’s still dancing, just like Elton John. I think he’ll be dancing all the way to the exit, making way for someone smart – preferably Jamie Dimon – to come in and rescue the bank, and my investment.
Ideally, I need a few analysts to give him a vote of no confidence, watch the stock dip, lend what I have and buy some more to improve the average cost. Problem is, most analysts are right up the fundaments of the CEOs they’re meant to be covering. Independent analysis is a contradiction in terms. Oh Chuck, we love you and your bank – now can we have that trip down to Hilton Head on the corporate yacht?
Meanwhile, my old buddies at Bear aren’t exactly joining in the mood of celebration and general market euphoria. After pumping more bad money into their terminally sick hedge funds, they’ve had to fess up and say that they are essentially worthless. Anyone here shocked? Of course, there are a few of the living dead who put money in, but who cares about them? If they chose to invest with Bear, rather than my very own Special Opportunities Fund (up 39pct on the year, thank you), they can go hang.
The Dow continues on its inevitable flight path to 14,000. It’s already at record levels, even though there are some serious worries about inflation – oil is up to 74 bucks, and that doesn’t help the cost of living. Looks like my friends at OPEC have done me a favor – if only we could get a bad winter as well.
So things are looking sweet. I’m lending MER, borrowing BSC, nursing a good profit on the old Thai Baht deal and oil is on the rise. All the other transactions that are going on are pretty much run-of-the-mill stuff that keep the clients happy and show that we can behave like responsible citizens and guardians of their assets. But the Curveball Special Opportunities Fund is my very own baby, the only pool of money I still actively manage. It’s certainly a special opportunity for me, as I can pretty much throw anything I want into it. It was the deal I struck with my partners when we formed the company.
My partners. Have I been through a learning experience or what? There have always been just the four of us. We started with Revis LaTrobe as chairman, David Vitale as CEO, and Art Massolo chief administration officer (look Mom, I made CAO!). I was – and am - chief investment officer. We hired a couple of other dudes, like Bohdan and Bengt, and we were in business.
Six years on, and we look like a regular firm. Offices in 111 Huntington Avenue, a receptionist, fish tanks, even a compliance officer (although he may soon be sleeping with the fishes if he doesn’t get off my back). We have so many hangers-on, in the form of auditors, consultants, administrators, vendors and sundry advisors that it feels like we are fueling the New England economy single-handed.
The partners have never been great buddies. That was part of the deal. We didn’t want friendships getting in the way of business. Just as well, as we pretty much hate each other’s guts. Revis has an education and isn’t afraid to flaunt it. He went to school with a lot of the Boston Brahmins and lives near some of them in Hingham. I guess he couldn’t quite pull enough strings to get a partnership at Brown Brothers.
David is very different. He is sharp, analytical, very personable and great with clients. He knows a little bit about money management, which can be dangerous. He tries to engage with me about investment strategy – recently opining that sub-prime was an unpinned hand grenade was one of his notably dumb remarks – but, most of the time, he minds his own business and gets on with schmoozing.
Art is probably the most boring guy I have ever met. He wears a bow tie, which is about as wild as it gets. In our meetings he is always the one who shakes his head, blows out his cheeks and offers a hundred reasons why it can’t be done. It’s in his JD. He deals with all the finance, admin and ops crap that flies at us on a daily basis. He seems to like it, so we consequently have little in common. I suspect he’s behind this relentless pursuit of me by Haresh.
So these are the guys that want to tie my hands, and effectively let our not-so-little ‘Matka’ do all the work. Or rather, wanted to tie my hands. Since reading the file from Brimm, I am much more confident about my standing vis-a-vis these boys. Each of them has little secrets that they probably don’t want aired in the Globe or on Bloomberg, let alone slipped to the regulators or the Feds. Revis, in particular, needs to be very cautious, as I advised him during what was threatening to turn into a showdown a couple of weeks back.
“Revis, old buddy, we should probably kill this discussion right there,” I said, after he’d all but accused me of rigging the performance numbers. “I have my weaknesses and you have yours, but we want to keep the firm afloat, don’t we? Why rock the boat?”
He got it real quick and shut up. He knows I know. I asked Stanley, just for verification, if it was all true. “I thought you must’ve known,” he said. “That’s why I never mentioned it.” Thanks for sharing.
But the real excitement comes in a couple of days’ time, when I am due to meet Brian and Brad, the dynamic duo who have been cooking up this fantastic commodities deal for me. I can’t wait to see the look on Revis’s face when I tell him that Curveball is going to be transformed into one of the world’s largest money managers. Fidelity, State Street, AXA, and all the rest of you bandits, watch out: Curveball is coming.
Thank you Stan. Having bought Merrill stock at the end of 06 at an average of 90, I have been patiently waiting for the trade to get even close to being neutral, let alone positive. And Stan O’Neal – who is so unpopular that even his friends don’t like him – has come up with the goods. A storming second quarter has made my day. Granted, the chairman and CEO of Mother Merrill doesn’t always sound convincing, but these numbers are hard to ignore. The guys have done well, much as it pains me to say it.
Unlike poor old UBS, who finally dumped Wuffli – what kind of a bank hires a CEO with a name like a character out of the Gummi Bears? – and brought in Rohner, his deputy, who I think also has quite a lot of blood on his hands. I would short his stock.
When I told ALCO that I was short financials, I probably overlooked the fact that I hold MER and one other: the Big C, Citi. Don’t ask me why I did it. I bought a lump of stock at a not-very-smart price (55 even) on the day that HSBC announced its 2006 sub-prime problems. I figured that, if the market could take that in its stride, there wasn’t much to worry about with a bank as big as Citi. But I did have one reservation about the trade: Chuck Prince ranks up there with some of the worst, most unconvincing CEOs ever. How he got the job is a mystery – even to him, I suspect. Why do I get the feeling he has problems balancing his checking account?
Well, he just signed his own death warrant. I waited patiently and I have been rewarded. If you want to act like a complete fool, you could do no better than to look at what he said the other day about Citi’s position in the leveraged loans market. ‘As long as the music is playing, you’ve got to get up and dance,’ he said, when asked about the health of the market. ‘We’re still dancing.’
Did I hear that right? Even Ken Lewis at BofA – another one whose IQ I suspect is not much above room temperature – has started to have his doubts about leveraged loans. Not Chuck. He’s still dancing, just like Elton John. I think he’ll be dancing all the way to the exit, making way for someone smart – preferably Jamie Dimon – to come in and rescue the bank, and my investment.
Ideally, I need a few analysts to give him a vote of no confidence, watch the stock dip, lend what I have and buy some more to improve the average cost. Problem is, most analysts are right up the fundaments of the CEOs they’re meant to be covering. Independent analysis is a contradiction in terms. Oh Chuck, we love you and your bank – now can we have that trip down to Hilton Head on the corporate yacht?
Meanwhile, my old buddies at Bear aren’t exactly joining in the mood of celebration and general market euphoria. After pumping more bad money into their terminally sick hedge funds, they’ve had to fess up and say that they are essentially worthless. Anyone here shocked? Of course, there are a few of the living dead who put money in, but who cares about them? If they chose to invest with Bear, rather than my very own Special Opportunities Fund (up 39pct on the year, thank you), they can go hang.
The Dow continues on its inevitable flight path to 14,000. It’s already at record levels, even though there are some serious worries about inflation – oil is up to 74 bucks, and that doesn’t help the cost of living. Looks like my friends at OPEC have done me a favor – if only we could get a bad winter as well.
So things are looking sweet. I’m lending MER, borrowing BSC, nursing a good profit on the old Thai Baht deal and oil is on the rise. All the other transactions that are going on are pretty much run-of-the-mill stuff that keep the clients happy and show that we can behave like responsible citizens and guardians of their assets. But the Curveball Special Opportunities Fund is my very own baby, the only pool of money I still actively manage. It’s certainly a special opportunity for me, as I can pretty much throw anything I want into it. It was the deal I struck with my partners when we formed the company.
My partners. Have I been through a learning experience or what? There have always been just the four of us. We started with Revis LaTrobe as chairman, David Vitale as CEO, and Art Massolo chief administration officer (look Mom, I made CAO!). I was – and am - chief investment officer. We hired a couple of other dudes, like Bohdan and Bengt, and we were in business.
Six years on, and we look like a regular firm. Offices in 111 Huntington Avenue, a receptionist, fish tanks, even a compliance officer (although he may soon be sleeping with the fishes if he doesn’t get off my back). We have so many hangers-on, in the form of auditors, consultants, administrators, vendors and sundry advisors that it feels like we are fueling the New England economy single-handed.
The partners have never been great buddies. That was part of the deal. We didn’t want friendships getting in the way of business. Just as well, as we pretty much hate each other’s guts. Revis has an education and isn’t afraid to flaunt it. He went to school with a lot of the Boston Brahmins and lives near some of them in Hingham. I guess he couldn’t quite pull enough strings to get a partnership at Brown Brothers.
David is very different. He is sharp, analytical, very personable and great with clients. He knows a little bit about money management, which can be dangerous. He tries to engage with me about investment strategy – recently opining that sub-prime was an unpinned hand grenade was one of his notably dumb remarks – but, most of the time, he minds his own business and gets on with schmoozing.
Art is probably the most boring guy I have ever met. He wears a bow tie, which is about as wild as it gets. In our meetings he is always the one who shakes his head, blows out his cheeks and offers a hundred reasons why it can’t be done. It’s in his JD. He deals with all the finance, admin and ops crap that flies at us on a daily basis. He seems to like it, so we consequently have little in common. I suspect he’s behind this relentless pursuit of me by Haresh.
So these are the guys that want to tie my hands, and effectively let our not-so-little ‘Matka’ do all the work. Or rather, wanted to tie my hands. Since reading the file from Brimm, I am much more confident about my standing vis-a-vis these boys. Each of them has little secrets that they probably don’t want aired in the Globe or on Bloomberg, let alone slipped to the regulators or the Feds. Revis, in particular, needs to be very cautious, as I advised him during what was threatening to turn into a showdown a couple of weeks back.
“Revis, old buddy, we should probably kill this discussion right there,” I said, after he’d all but accused me of rigging the performance numbers. “I have my weaknesses and you have yours, but we want to keep the firm afloat, don’t we? Why rock the boat?”
He got it real quick and shut up. He knows I know. I asked Stanley, just for verification, if it was all true. “I thought you must’ve known,” he said. “That’s why I never mentioned it.” Thanks for sharing.
But the real excitement comes in a couple of days’ time, when I am due to meet Brian and Brad, the dynamic duo who have been cooking up this fantastic commodities deal for me. I can’t wait to see the look on Revis’s face when I tell him that Curveball is going to be transformed into one of the world’s largest money managers. Fidelity, State Street, AXA, and all the rest of you bandits, watch out: Curveball is coming.
Thursday, 16 April 2009
WHO NEEDS A BACK OFFICE?
28 June 2007: DJIA 13,422
So the Fed took two days to decide to do nothing – pretty much sums them up. At first I thought that no change in the Fed Funds rate was bad, then good, then bad, so after all that I stopped worrying and just got on with real life. Stanley says everyone else is equally confused. It’s a great market. If in doubt, ignore fundamentals and just buy stock. Oil is moving up nicely too. Ideally we need those grease monkeys at OPEC to turn the taps down a little, just to squeeze supply. Bad news for a few people, perhaps, but it would make a hell of a difference to my performance numbers. If it goes the right way, I’m looking at a very serious compensation shot at year-end.
At home today. I live pretty close to the office, in the Carlton House building. The firm rented the apartment for me when I moved up from NYC. It’s neat, although I don’t spend a lot of time there. But I’ve had the maid clean up specially for today, as Martina Brimm is paying a visit. Ms Brimm is a ball-buster of the first order and I am lucky to have her as my lawyer. She doesn’t come cheap and she doesn’t come to the office. What we discuss needs to be taken offsite and offline.
Basically, Brimm and I have to solve a problem. My partners have raised some totally invalid concerns about the way I run the desks. They say that there’s no structure, no controls, no process – all the stuff we wanted to get away from when we quit our jobs to set up this firm. Freedom to act was meant to be part of the deal. You fancy selling some Thai Baht? Hey, Larry, go right ahead. Shorting Bear? Be my guest.
Yet we already have more committees than tropical fish, not to mention that compliance guy whose name temporarily escapes me. What do they want? Bottom line, I’ve delivered for this firm, and that needs to be recognized. All the rest is just so much flute music. Clients don’t care whether we have a hundred committees or none, as long we give them back more money than they started with.
Larry, they say, be reasonable. We have to have some structure. Problem is, I think we already have too much structure. At huge expense, we had a consultant come in and tell us what to do about administration and all the back-office plumbing. As he collected his fees, he told us that we needed independent this, that and the other, all of which eat into the fees pretty dramatically. On top of all the horrendous charges I pay to the prime brokers, I also have to give up more skin to an army of administrators, custodians, valuation agents, revaluation agents, auditors and, on a very regular basis, more consultants.
So, we pay all these people, and what do they do for us? For one, tell us what we can and can’t do. Sorry, Larry, but that trade can’t be settled, because…blah, blah, blah. Who is the money manager here? What’s worse, my partners seem to like this. They like being pussy-whipped by a bunch of guys who are proud to call themselves administrators. I mean, honestly: how could you go home to your folks and say, “Hey, Mom, Pop, I just got a new job as an administrator”? That’s right up there with being an astronaut or a brain surgeon.
That’s where we are. The partners want layers of bureaucracy that will make our firm as turgid and flabby as the Wall Street firms and fat-assed New England money managers we are trying to beat. I am holding out for a bit of flair, entrepreneurship and the general American can-do attitude. If I’d wanted regulation, I’d have moved the operation to France, where you can’t visit the bathroom without triplicated approval from some government fonctionnaire. Funny how entrepreneur is a French word.
Once – only once – they sent a guy from our custodian to see me. He was dressed neck-to-toe in Brooks Brothers. Could’ve come straight out of the store window, and had about as much intelligence. Wanted to know what the hot issues were and what kept me awake at night. Where do they get these guys from? For this, I am paying multiple basis points? Just don’t lose my stock, I told him. That’s what keeps me awake at night. Do you think you could do that?
Anyway, back to Brimm. She could have had a starring role in The Addams Family. The way I figure it, if she scares me this much, and I’m paying her, what will she do to the people I really want scared? As always, she has a plan. It involves being given more equity in the firm, or leaving – or threatening to leave, at the very least. From where I’m sitting, there are a whole bunch of reasons why this isn’t going to fly, but I am not Martina Brimm, and she exudes nothing but total confidence. Plan B is an alien concept to her.
I am not to worry, she says. She pushes a folder across the coffee table between us. “It’s all in here. I didn’t want to e-mail it. Too sensitive.” Holy crap! Do I want to know what’s in the folder? “What’s in the folder?” I ask, nodding at it without looking at it.
“Your insurance.” Beat. “And my bill. Good luck, Larry.”
Ms Brimm sees herself out. I check Bloomberg, briefly look at the BlackBerry – a high-priority mail from Haresh, signed ‘Chief Compliance Officer’, still on about some client trades – then settle down with the folder.
So the Fed took two days to decide to do nothing – pretty much sums them up. At first I thought that no change in the Fed Funds rate was bad, then good, then bad, so after all that I stopped worrying and just got on with real life. Stanley says everyone else is equally confused. It’s a great market. If in doubt, ignore fundamentals and just buy stock. Oil is moving up nicely too. Ideally we need those grease monkeys at OPEC to turn the taps down a little, just to squeeze supply. Bad news for a few people, perhaps, but it would make a hell of a difference to my performance numbers. If it goes the right way, I’m looking at a very serious compensation shot at year-end.
At home today. I live pretty close to the office, in the Carlton House building. The firm rented the apartment for me when I moved up from NYC. It’s neat, although I don’t spend a lot of time there. But I’ve had the maid clean up specially for today, as Martina Brimm is paying a visit. Ms Brimm is a ball-buster of the first order and I am lucky to have her as my lawyer. She doesn’t come cheap and she doesn’t come to the office. What we discuss needs to be taken offsite and offline.
Basically, Brimm and I have to solve a problem. My partners have raised some totally invalid concerns about the way I run the desks. They say that there’s no structure, no controls, no process – all the stuff we wanted to get away from when we quit our jobs to set up this firm. Freedom to act was meant to be part of the deal. You fancy selling some Thai Baht? Hey, Larry, go right ahead. Shorting Bear? Be my guest.
Yet we already have more committees than tropical fish, not to mention that compliance guy whose name temporarily escapes me. What do they want? Bottom line, I’ve delivered for this firm, and that needs to be recognized. All the rest is just so much flute music. Clients don’t care whether we have a hundred committees or none, as long we give them back more money than they started with.
Larry, they say, be reasonable. We have to have some structure. Problem is, I think we already have too much structure. At huge expense, we had a consultant come in and tell us what to do about administration and all the back-office plumbing. As he collected his fees, he told us that we needed independent this, that and the other, all of which eat into the fees pretty dramatically. On top of all the horrendous charges I pay to the prime brokers, I also have to give up more skin to an army of administrators, custodians, valuation agents, revaluation agents, auditors and, on a very regular basis, more consultants.
So, we pay all these people, and what do they do for us? For one, tell us what we can and can’t do. Sorry, Larry, but that trade can’t be settled, because…blah, blah, blah. Who is the money manager here? What’s worse, my partners seem to like this. They like being pussy-whipped by a bunch of guys who are proud to call themselves administrators. I mean, honestly: how could you go home to your folks and say, “Hey, Mom, Pop, I just got a new job as an administrator”? That’s right up there with being an astronaut or a brain surgeon.
That’s where we are. The partners want layers of bureaucracy that will make our firm as turgid and flabby as the Wall Street firms and fat-assed New England money managers we are trying to beat. I am holding out for a bit of flair, entrepreneurship and the general American can-do attitude. If I’d wanted regulation, I’d have moved the operation to France, where you can’t visit the bathroom without triplicated approval from some government fonctionnaire. Funny how entrepreneur is a French word.
Once – only once – they sent a guy from our custodian to see me. He was dressed neck-to-toe in Brooks Brothers. Could’ve come straight out of the store window, and had about as much intelligence. Wanted to know what the hot issues were and what kept me awake at night. Where do they get these guys from? For this, I am paying multiple basis points? Just don’t lose my stock, I told him. That’s what keeps me awake at night. Do you think you could do that?
Anyway, back to Brimm. She could have had a starring role in The Addams Family. The way I figure it, if she scares me this much, and I’m paying her, what will she do to the people I really want scared? As always, she has a plan. It involves being given more equity in the firm, or leaving – or threatening to leave, at the very least. From where I’m sitting, there are a whole bunch of reasons why this isn’t going to fly, but I am not Martina Brimm, and she exudes nothing but total confidence. Plan B is an alien concept to her.
I am not to worry, she says. She pushes a folder across the coffee table between us. “It’s all in here. I didn’t want to e-mail it. Too sensitive.” Holy crap! Do I want to know what’s in the folder? “What’s in the folder?” I ask, nodding at it without looking at it.
“Your insurance.” Beat. “And my bill. Good luck, Larry.”
Ms Brimm sees herself out. I check Bloomberg, briefly look at the BlackBerry – a high-priority mail from Haresh, signed ‘Chief Compliance Officer’, still on about some client trades – then settle down with the folder.
Subscribe to:
Posts (Atom)
