Comments on naked capitalism: Hedge Funds: "It's a bloodbath"

I don't like deleting comments, but the one expung...

2008-03-30T20:48:00.000-04:00

I don't like deleting comments, but the one expunged was an excessively long rant (the substance wasn't terrible, truth be told) that was made on six separate posts. I haven't published a formal policy re comments, but if in doubt, look here and here to get an idea of what will get your comment deleted. Multiple listings of the same content is one of them.

Running a hedge fund is the best deal in the world...

2008-03-30T18:22:00.000-04:00

Running a hedge fund is the best deal in the world. 2 and 20 and you get to play with other people's money.

But investing in a hedge fund? Pure stupidity. The only possible valid reason for a hedge fund is that it allows you to go short, a unique feature absent of mutual funds due to over-regulation. But most of these funds weren't even short funds. They were equity long, or, even more absurdly, they were long a bunch of bonds, collecting the yield spread, somehow convinced there was no risk in that spread.

The guys who got paid got lucky. The trades were stupid from the get-go.

I also find the use of the word "victim" by any of these guys to be appalling. Perhaps the investors could classify for that term, but the traders. Gimme a break.

What I find interesting is that people still have ...

2008-03-30T09:28:00.000-04:00

What I find interesting is that people still have the rather quaint idea that the "markets" are independent and free. It is my sense that the markets are completely synthetic and gyrating around as a result of hedge fund and investment bank ownership and trading.

All they need do to goose the market is launch another ETF. Seems to work every time.

"The current crisis will quickly show the pretende...

2008-03-30T09:15:00.000-04:00

"The current crisis will quickly show the pretenders and leave behind those that are genuine hedge funds?"

P.T Barnum knew decades ago that there would always be a market for scam artists. Being rich doesn't mean your not a sucker.

Please correct me if I'm wrong, but aren't we ordi...

2008-03-30T08:09:00.000-04:00

Please correct me if I'm wrong, but aren't we ordinary
schmucks limited to margin requirements of 50%, or
a 2 to 1 ratio of asset value to initial cash? Isn't one
of the great attractions of hedge funds the knowledge that they are allowed to lever way beyond those limits
the "little people" must live with? Didn't the clients
of hedge funds understand that it was exactly that leverage which was responsible for their outsized returns. And did they fail to notice that the quarterly redemption request rules rather closely
resembled the check-out notice at the ROACH MOTEL?

Vlade, Ibn Khaldun observed that it took four gene...

2008-03-30T06:22:00.000-04:00

Vlade, Ibn Khaldun observed that it took four generations from creation to dissolution. The one your missing is the first one, that actually accumulated the 'wealth' to protect in the first place. But, yeah.

hahahahahaha "I thought volatility was what hed...

2008-03-30T06:16:00.000-04:00

*hahahahahaha* "I thought volatility was what hedge funds lived for." *HAHAHAHAHAHA* Look, Mr Well-heeled Schmuck, none of these 'speculation funds' have ever, EVER been put to the test in hard-down and dirty market conditions. You knew that when you gave them your dough. Now, it is obvious that you allowed yourself the fantasty that these self-declared alpha predators 'worked for you,' that is that you had been invited to share a place with them on the 'above market return' gravy train and not as a menu item because, well, you're special. They were especially bright for knowing how to beat the game, and that made you, well _extra_ special for getting them to work for you. That worked for you, I'll bet. You were there, brother, for your dough. Which they took to speculate with. For a fat man's fee, and a rake off. _You_ worked for _them_ because they were 'working' you. Every dime in profits they, purportedly, earned for you is gone, and you will be lucky to get back half your principal.

"Does that work for you?" *HAHOHAHOHAHOHAHO!*

The usual story - first people in the industry wer...

2008-03-30T06:04:00.000-04:00

The usual story - first people in the industry were good, even exceptional. The next generation was more lucky and arrogant than good, and the current generation is just arrogant.
A curse of any (originally) new and successfull idea (first HF was a wealth-protection fund founded in 1947 IIRC)

The most remarkable feature here is HUBRIS: "I'd b...

2008-03-30T02:11:00.000-04:00

The most remarkable feature here is HUBRIS: "I'd be in trouble but it'll never happen."

F*ck me plenty!

Didn't ANY of these guys read the chapter about Larry Hite in Market Wizards? Hite was legendary for is risk/return ratio precisely because, like the seasoned alpha wolf of the clan, he respected RISK.

Why would any rational human being invest in somet...

2008-03-30T00:51:00.000-04:00

Why would any rational human being invest in something that is highly leveraged, illiquid and non-transparent? It is investing on pure faith to enhance one's own self-image (sense of status).

I think there will be a massive run on the entire hedge fund complex.

Any excess returns that hedge funds have previously earned are usually the result of leverage (which are not employed by regular mutual funds). Hedge fund investors are paying a 20% performance fee for the privilege of having someone employ leverage on their assets (which they could have done themselves). That on top of being potentially subject to being cut off from withdrawals. Really smart move.