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.
Subscribe to:
Posts (Atom)
