- One of the most powerful US hedge fund managers believes that the industry is in “first innings of a washout” after a string of disastrous market calls inflicted steep losses on many funds…
The first quarter was “one of the most catastrophic periods of hedge fund performance that we can remember since the inception of this fund,” in December 1996, Mr Loeb said. “There is no doubt that we are in the first innings of a washout in hedge funds and certain strategies.”
Relevant The money quote: Someday, financial people will realize that they can't actually print vast amounts of money, but a lot of innocent bystanders (e.g. CalPERS investors) are going to bleed until that day comes.“Why do people believe it?” asked David Maris, an analyst at Wells Fargo. “They follow Valeant because they want to follow it. They want to believe they have found a new way to make money in pharmaceuticals without investing in new drugs — it sounds like a magic money box.”
Well, they have (had?) a good thing going. This part was funny to me: In short, he was upset because the Fed's influence has driven out the effect of fundamentals. I am not a terribly savvy investor, but it is clear to me that the market is currently not being driven by economic activity. I mean, the ECB is actually resorting to buying junk bonds because negative interest rates and printing money are not enough. That does not make for a healthy economy. Look at the last 10 years for the NASDAQ: It went from 1200 in 2009 to 5200 in 2015. In six years it more than quadrupled in value. You feelin that? Probably not. This is what happens when central banks pull out all the stops. That is not a market index, that is a credit meter. 'So many people' were rational to second guess the Fed's every twitch, because that is where the money has been coming from. It's not like this market is propped up by all the money the middle class was socking away once they got rehired and back to work.A colleague met with a partner in an activist fund who he estimates is worth a minimum of $75 million. Not huge by hedge fund standards but not shabby either. He was angry because in his view, the hedge fund game was over, in part due to the growing investor revolt over fees, and in part due to the Fed making it impossible for hedge funds generally to do anything right (as in so many people are trying to second-guess the Fed’s every twitch that it’s virtually impossible to trade the market well even when you have decent fundamental takes).
Fuckin'A. I mean, I ducked out of Sun Edison having only lost about $20. I knew it was a horrorshow. I did not know it had destroyed three billion in value. And I had no idea what a pigfuck Valeant was. I mean, you can't avoid the headlines. But HOW THE FUCK does a company that does 8 billion in revenue, and under a billion in profit, rack up THIRTY ONE BILLION DOLLARS in debt? Particularly when an investigation of their offerings turns up a stone crapton of generics that have been around for decades? I mean, their money makers appear to be cortaid and ativan. You're right, though, about the money quote. I follow Theranos much too closely because my wife hates Quest Diagnostics and Lab Corps with a blinding passion and we'd love to see someone disrupt the fuck out of that market. But all they really had was a college dropout in a Steve Jobs sweater and a $9b valuation. She's gotten 7 times as much money as Barry Minkow and he actually cleaned carpets. Time put it pretty nicely:
I want the hedge fund model to fade into the dust as much as the next guy, but the downside is that while the hedge fund guys lose their 2/20, the investors get buttfucked. We're in for some short term pain. But hopefully (and I mean I'm hoping against all reason) this is the leading edge of a general paring down of the finance sector, which is so hypertrophied that none of us can wrap our heads around it. This line of thinking has infected the minds of every CFO in America, while we forget that America didn't get rich by managing equities. Unfortunately, we probably need another melt down for these reasons. Crisis 1 apparently wasn't painful enough to overcome the finance inertia. Crisis 2 might be, although I fear now that the Tea Baggers are the de facto power in DC that the cure will almost assuredly be worse than the disease. President Cruz and his Goldman exec wife I'm sure could come up with some really creative "solutions" to what ails us. My fear is that we have a nuclear bomb dropped on the banks right around mid-August, which gives Trump's it's-all-the-Mexicans'-fault message just enough of a bump to propel him into office. I'm probably reading too much into it. Probably.
Oh, trust me I know. This was written by a friend's husband. (actually, I may post that) I think a lot of the smart money has already pulled in. Pulled into where, that's the problem- real estate is overvalued. Venture capital is overvalued. Bonds are near zero. It's kind of what you'd expect when a man who spent his career studying the depression was willing to drop money out of helicopters to prevent a liquidity trap. And I think that we have no more helicopters to fly.but the downside is that while the hedge fund guys lose their 2/20, the investors get buttfucked.