25 April 2007: DJIA 13,089
This market has cojones. New Century filed for Chapter 11 just three weeks ago, and the party goes on. The Dow is up 700 points for April and has gone over 13,000. It’s a good day to be having our monthly ALCO meeting.
In theory, everyone has one – the asset and liability committee. We’re meant to worry about our balance sheet and the mismatches between what we owe and what we’re owed. A vast package of information arrives from our finance department two days before each meeting, which we’re expected to read, mark and inwardly digest. ALCO is serious stuff.
The committee wants to know what I think of our positions. Basically, I’m comfortable with just about everything. We’re tracking the Dow and see no reason to stop. We’re long commodities and probably going longer (suck it up, Amaranth). We are short financials and we don’t like the dollar much, especially against the euro (the Thai Baht is an exceptional exception – we’re already up 9pct. Thank you, Stanley’s buddy). We have used the carry trade for finance but no one is thrilled about it, on the basis that anything this easy is bound to have some unintended consequences, i.e. dropping a ton of (client) money. We’re running down all our Yen and Swissy loans.
Just about everything. I feel we’re missing a trick somewhere. You see all these big guys – like Soros, Paulson, Falcone and Griffin – making market-changing bets, paying themselves billions of dollars and no one batting an eyelid. Look at Bernie Madoff. He is sucking in money left, right and center, even turning down investors (isn’t my money good enough for you, Bernie?), which all adds to the mystique.
That’s where we should be. Right now, we are little more than bottom-feeders. We get the crumbs that drop from the top table and it’s not enough. We have about five billion under management, which is good, but not life-changing. Truth to be told, I could go back to Wall Street and probably make as much money as I do now. That wasn’t the plan. We need to have higher aspirations.
And, maybe, just maybe, I have the answer.
We run some money through a couple of guys who have a commodities and resources shop. They’re not the sort of guys you want to have dinner with – cutlery deployment might be a challenge – but they know commodities. They’ve been talking to me about a really neat concept that could change the whole market paradigm. Really, it’s that big. If it works.
Trouble is, I’m not sure about my partners and their long-term goals. They seem to be happy with where we are now. I don’t want to take this idea to them, have it voted out and then be left to look on as some smarter, hungrier firm picks up the ball and runs with it.
If they don’t like it, I may just have to go solo on the deal. Without me, Curveball is dead anyway and they know it.
Back to ALCO, and one of the things we all agree on is that sub-prime is going to claim a lot of victims. Forget about the homeowners – mostly redneck trailer park trash anyway – it’s fund managers who are beginning to look really dumb. Some of them are even buying into sub-prime lenders. Yes, buying! Those allegedly smart folk at Blackstone and Citadel are buying ‘em up, while others are lending them huge lumps of cash. Even my buddies at Bear are allegedly getting in on the act. Could be time for a rethink of our relationship if that’s really true.
And all this after some gal at the Fed (Ed: Susan Bies, Federal Reserve Governor 2001-2007) said that sub-prime defaults are ‘the beginning of a wave’. The Fed is not normally given to flights of hyperbole, yet the hedge funds think they know better. Us? We’re not touching it. I can guarantee you that ‘toxic’ will become the most used verb on the Street next year.
Sunday, 22 February 2009
Monday, 16 February 2009
COMPLIANCE WITH WHAT?
07 February 2007: DJIA Close: 12192; HSBC GBP9.34
Turns out we do have a compliance officer.
I’m sitting in the turret, watching a screen that is telling me the news that, despite HSBC taking a modest USD6.8bn hit on its sub-prime business in the US in 2006, the share price is actually going up. The market likes it. Strangely, Stanley hasn’t called this morning.
I am eventually aware of some little guy who looks like a bad virus hovering just to one side of me, but still in my field of vision. ‘Larry?’ he says, as if that might not be my name. ‘Yeah?’ ‘Larry, my name is Haresh. I’m head of compliance.’
Talk about having the worst job title in the world. Then I remembered: we’d hired a compliance guy – this year’s must-have fashion accessory – but nobody told me that he might actually come and bother me. ‘Compliance with what?’ I had asked at the time the partners first discussed the role. We’re not regulated – how I love Republican politicians – so what did we have to comply with?
I was overruled. Haresh was the unfortunate result. Probably a great guy and all that, but compliance just gets in the way of making money. ‘And?’
‘Larry, we need to discuss certain transactions that have gone across client accounts. Could we set up a time to meet?’
‘Why? Is there a problem?’
He is about to launch into something when the Stanleyphone vibrates into life on my desk. I don’t say anything, but make a face that is meant to show that, whilst I’d like to do nothing better than chew the fat with old Haresh about compliance issues, a client call would sadly have to take precedence. Haresh is obviously not up to speed with traders’ body language, standing dead still. ‘Hey, buddy, just hold one mo,’ I say into the phone. Sotto voce, to Haresh: ‘I’ll call you later, and we can talk. OK?’ He doesn’t look thrilled, but leaves.
Stanley doesn’t want to talk about HSBC. Instead, he wants to talk boats. As always, there is an angle. We chat a little about how I am getting on with the Sunseeker – I have a Portofino 53 – before he mentions that a client of his is thinking about selling his 1967 Riva Super Aquarama. Am I interested?
One day I’ll write a book about Riva boats. I could probably even write a book about my feelings towards them. Yeah, women can be good in short doses, but a Riva boat is something else. Every man should have the opportunity to stand at the wheel of one, fire up the twin Crusader engines and motor round the bay at some fantastically tony location in the south of France or Italy, preferably with a bikini-clad Charlize Theron as your passenger.
Stanley burbles on a bit about the guy – says that the market has peaked, valuations are way out of line, sub-prime is going to kill us all and he is getting out and selling everything – but I’m not really listening. I am thinking of Charlize and me, the Riva moored in the harbour as we drink Bellinis and enjoy the sunset before heading to my hotel room for an intimate dinner à deux.
Half a million would secure it. I tell Stanley I am seriously interested.
Turns out we do have a compliance officer.
I’m sitting in the turret, watching a screen that is telling me the news that, despite HSBC taking a modest USD6.8bn hit on its sub-prime business in the US in 2006, the share price is actually going up. The market likes it. Strangely, Stanley hasn’t called this morning.
I am eventually aware of some little guy who looks like a bad virus hovering just to one side of me, but still in my field of vision. ‘Larry?’ he says, as if that might not be my name. ‘Yeah?’ ‘Larry, my name is Haresh. I’m head of compliance.’
Talk about having the worst job title in the world. Then I remembered: we’d hired a compliance guy – this year’s must-have fashion accessory – but nobody told me that he might actually come and bother me. ‘Compliance with what?’ I had asked at the time the partners first discussed the role. We’re not regulated – how I love Republican politicians – so what did we have to comply with?
I was overruled. Haresh was the unfortunate result. Probably a great guy and all that, but compliance just gets in the way of making money. ‘And?’
‘Larry, we need to discuss certain transactions that have gone across client accounts. Could we set up a time to meet?’
‘Why? Is there a problem?’
He is about to launch into something when the Stanleyphone vibrates into life on my desk. I don’t say anything, but make a face that is meant to show that, whilst I’d like to do nothing better than chew the fat with old Haresh about compliance issues, a client call would sadly have to take precedence. Haresh is obviously not up to speed with traders’ body language, standing dead still. ‘Hey, buddy, just hold one mo,’ I say into the phone. Sotto voce, to Haresh: ‘I’ll call you later, and we can talk. OK?’ He doesn’t look thrilled, but leaves.
Stanley doesn’t want to talk about HSBC. Instead, he wants to talk boats. As always, there is an angle. We chat a little about how I am getting on with the Sunseeker – I have a Portofino 53 – before he mentions that a client of his is thinking about selling his 1967 Riva Super Aquarama. Am I interested?
One day I’ll write a book about Riva boats. I could probably even write a book about my feelings towards them. Yeah, women can be good in short doses, but a Riva boat is something else. Every man should have the opportunity to stand at the wheel of one, fire up the twin Crusader engines and motor round the bay at some fantastically tony location in the south of France or Italy, preferably with a bikini-clad Charlize Theron as your passenger.
Stanley burbles on a bit about the guy – says that the market has peaked, valuations are way out of line, sub-prime is going to kill us all and he is getting out and selling everything – but I’m not really listening. I am thinking of Charlize and me, the Riva moored in the harbour as we drink Bellinis and enjoy the sunset before heading to my hotel room for an intimate dinner à deux.
Half a million would secure it. I tell Stanley I am seriously interested.
Friday, 6 February 2009
TRAILER PARK TROUBLES
6 February 2007: HSBC GBP9.31; DJIA Close: 12,207
I couldn’t take Stanley’s call this morning. I was in a meeting, trying to explain what we actually do to a potential client – a big West Coast pension plan that I thought I heard looked after retired zookeepers. We have these bizarre conversations with clients and their advisors, where they always ask us about our strategy. What about portable alpha, they ask? What about it, I want to say: the strategy is to make everybody a truckload of money, but apparently that’s not good form. So we talk instead about global macro, short extension strategies, and a load of other BS that they seem to like – and, once they’ve signed the contract and they’re out of the door, we get back to the serious business of ending the day with more money than we started it. Did I miss something?
All the time Stanley was leaving messages on my private cell phone. I buy a new one every week, just for our conversations, and then toss it into the river when I’m done. What we’re doing probably isn’t illegal, but you can’t be too careful with regulators, especially near election time. It’s about the only time they actually give out vital signs.
‘This is big,’ Stanley says when I get back to him.
‘Aren’t they all?’ Rule Three: It doesn’t pay to get too excited. You lose control and before you know it you’ve bought the entire external debt of some African country you’ve never heard of, collateralized nine times over by a coffee crop that was never planted, let alone harvested.
‘HSBC.’
Slightly interested now. ‘Is this a conversation we should take offline?’ I ask. We have had plenty of profitable discussions in Starbucks.
‘No time buddy. Listen, they’re going down big time. Oh-six results are going to stink. My man says they have finally struck out on trailer park loans, and there are big provisions in the numbers.’
Pause. Stanley is good at this. Build up, pause. I knew a girl like that once, but I didn’t pay her as much as I pay old Stan. I know what he is thinking, and he knows I know, and I know he knows I know, et cetera.
‘Do you have access to any inventory?’ I ask, taking the bait. If I decide to short HSBC, I would need to borrow the stock from somewhere – Stanley is hoping to oblige, no doubt.
‘Yards and yards. Give me the word and it’s yours.’
And here’s the thing, the unbelievable thing. I have an inside line from a good source. I have access to stock that I can short. I have no principles, scruples, morals or any of those other disabilities that stop otherwise talented traders from fulfilling their potential. But something says no. And when that happens, there’s only one thing to do – play it by the book.
‘I’ll have to take it to Bengt,’ I say. It’s the kiss of death to any deal. Bengt Hammar is our very own Doctor No. Apart from being so anally retentive he needs weekly colonic irrigation, he’s a damn fine credit and risk man. We thought it would be good to have him on board. Six years on, he still has his uses.
Stanley gets it. ‘Call me if you change your mind,’ he says, then cancels the call.
If we had a compliance officer, he’d be proud of me.
I couldn’t take Stanley’s call this morning. I was in a meeting, trying to explain what we actually do to a potential client – a big West Coast pension plan that I thought I heard looked after retired zookeepers. We have these bizarre conversations with clients and their advisors, where they always ask us about our strategy. What about portable alpha, they ask? What about it, I want to say: the strategy is to make everybody a truckload of money, but apparently that’s not good form. So we talk instead about global macro, short extension strategies, and a load of other BS that they seem to like – and, once they’ve signed the contract and they’re out of the door, we get back to the serious business of ending the day with more money than we started it. Did I miss something?
All the time Stanley was leaving messages on my private cell phone. I buy a new one every week, just for our conversations, and then toss it into the river when I’m done. What we’re doing probably isn’t illegal, but you can’t be too careful with regulators, especially near election time. It’s about the only time they actually give out vital signs.
‘This is big,’ Stanley says when I get back to him.
‘Aren’t they all?’ Rule Three: It doesn’t pay to get too excited. You lose control and before you know it you’ve bought the entire external debt of some African country you’ve never heard of, collateralized nine times over by a coffee crop that was never planted, let alone harvested.
‘HSBC.’
Slightly interested now. ‘Is this a conversation we should take offline?’ I ask. We have had plenty of profitable discussions in Starbucks.
‘No time buddy. Listen, they’re going down big time. Oh-six results are going to stink. My man says they have finally struck out on trailer park loans, and there are big provisions in the numbers.’
Pause. Stanley is good at this. Build up, pause. I knew a girl like that once, but I didn’t pay her as much as I pay old Stan. I know what he is thinking, and he knows I know, and I know he knows I know, et cetera.
‘Do you have access to any inventory?’ I ask, taking the bait. If I decide to short HSBC, I would need to borrow the stock from somewhere – Stanley is hoping to oblige, no doubt.
‘Yards and yards. Give me the word and it’s yours.’
And here’s the thing, the unbelievable thing. I have an inside line from a good source. I have access to stock that I can short. I have no principles, scruples, morals or any of those other disabilities that stop otherwise talented traders from fulfilling their potential. But something says no. And when that happens, there’s only one thing to do – play it by the book.
‘I’ll have to take it to Bengt,’ I say. It’s the kiss of death to any deal. Bengt Hammar is our very own Doctor No. Apart from being so anally retentive he needs weekly colonic irrigation, he’s a damn fine credit and risk man. We thought it would be good to have him on board. Six years on, he still has his uses.
Stanley gets it. ‘Call me if you change your mind,’ he says, then cancels the call.
If we had a compliance officer, he’d be proud of me.
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