Mad Hedge Fund Trader

Hedge Funds Down in October - Hennessee Group

nds The hedge fund industry is still emerging from the ashes of 2008, but will inevitably grab a larger share of the investing public’s assets. Low interest rates and hero status made it way too easy for inexperienced, untested, and sometimes unscrupulous managers to raise new funds that charged management fees as high as 3%, with a 50% performance bonus. Behind every “liar loan” was a bond manager happy to soak it up through securitized Fannie Mae (FNM), Freddie Mac (FRE), or bank debt, shorting Treasuries against them, and then leveraging the 40 basis point spread 50 times to generate a highly marketable 20% annual gross return. Never mind the risks. It was easy money, as long as there were lots of liars- which mortgage brokers herded in by droves, and as long as spreads narrowed-which they did for most of the 21st century. By the beginning of 2008, assets under management soared to $2 trillion. The melt down that followed wiped out large numbers of funds, and raised gates for the survivors, making investors wonder if they would ever get their money back. Total assets plunged to $1 trillion in the blink of an eye through a combination of redemptions and market losses. The new era that is emerging will be populated with humbled and chastened managers offering more disclosure, lower fees, no gates, and thanks to Madoff, oodles of third party oversight. Their portfolios will have less leverage, be invested in more liquid securities, and bring in lower returns. But the new generation will also offer investors battle tested strategies that survived the 100 year flood. Bridgewater, with $37 billion in assets, is now the largest hedge fund, followed by JP Morgan with $36 billion, Paulson & Co. at $27 billion, DE Shaw showing $26 billion, and Soros still at a hefty $24 billion. Long track records and a Gucci cachet will assure that these will prosper. Fees will settle down to the 1%/20% range. For the rest of us this means more capital bunching up in the most successful trades, as we have already seen this year in financials, China, oil, copper, and the multitude of short dollar plays. It is also going to be much harder to get new fund launches off the ground.

Buffett Is Bullish but Unemployment Is High: Where Are We Headed?

bdr Ouch! Another 190,000 jobs went down the crapper in October, taking unemployment rate to a new 27 year high of 10.2%. Add in discouraged job seekers, and that puts the jobless rate at gut churning 17.5%, and over 20% in California. Along with yesterday’s stunning, gob smacking 9.5% increase in Q3 productivity, the figures point a giant arc spotlight on what is really happening in the economy. Companies are still firing workers en mass to boost profits. After getting blood from a stone, they are returning to the same rock for one more drop. I guess if I fire myself, the profitability of my business would go through the roof too, and maybe even my stock would rise. At least then, I would be rid of my oldest, most expensive, but least productive employee, who is the most difficult to get along with, maxes out his sick and vacation days, and wears the same clothes to work every day, even when there lipstick on the collar. But then who would write this daily letter? Maybe Cecelia, my cleaning lady would do it. She’s cheap. You don’t mind getting this letter in Spanish, do you? ¡Andale! This explains why when you go into Office Depot these days, there is only one minimum waged employee standing at the cash register, the hours on the phone I have to wait to get technical support from Dell, and the endless unmovable lines at Citibank. America’s service economy has become all about denying service to customers. The scary thing is, with companies firing their way to prosperity, what happens when we get another dip? My theory is that the US has entered an era of chronically high unemployment that is never going away, no matter what the government does. Goodbye USA, hello Germany!

On the Relationship Between Worker Productivity and Layoffs

mgy Ouch! Another 190,000 jobs went down the crapper in October, taking unemployment rate to a new 27 year high of 10.2%. Add in discouraged job seekers, and that puts the jobless rate at gut churning 17.5%, and over 20% in California. Along with yesterday’s stunning, gob smacking 9.5% increase in Q3 productivity, the figures point a giant arc spotlight on what is really happening in the economy. Companies are still firing workers en mass to boost profits. After getting blood from a stone, they are returning to the same rock for one more drop. I guess if I fire myself, the profitability of my business would go through the roof too, and maybe even my stock would rise. At least then, I would be rid of my oldest, most expensive, but least productive employee, who is the most difficult to get along with, maxes out his sick and vacation days, and wears the same clothes to work every day, even when there lipstick on the collar. But then who would write this daily letter? Maybe Cecelia, my cleaning lady would do it. She’s cheap. You don’t mind getting this letter in Spanish, do you? ¡Andale! This explains why when you go into Office Depot these days, there is only one minimum waged employee standing at the cash register, the hours on the phone I have to wait to get technical support from Dell, and the endless unmovable lines at Citibank. America’s service economy has become all about denying service to customers. The scary thing is, with companies firing their way to prosperity, what happens when we get another dip? My theory is that the US has entered an era of chronically high unemployment that is never going away, no matter what the government does. Goodbye USA, hello Germany!

The Dollar Coin: Two Sides of the Reserve Dollar

opm Will people pleeease stop incessantly nattering about the possibility of China dropping the dollar as a reserve currency? What else are they going to use? Monopoly money? Taiwanese dollars? Collectable postage stamps? At $2.3 trillion and rising fast, the Middle Kingdom’s reserves are so enormous that no other currency in the world could accommodate the switch, and no other security offers the necessary depth and liquidity but US Treasuries. China only needs to breathe on any other market for it to skyrocket, we have seen in the relatively Lilliputian commodity markets this year. And really, how likely is it that China embarks on radical new monetary policies that suddenly halves the earnings of it’s exporters, as well as its 30 year hoard of accumulated savings? The demise of the dollar has been predicted more often than the ditching of Microsoft’s Windows as the global PC operating system, and is just as likely. Hate the greenback as much as you like, but there just isn’t any other alternative. I have been hearing these arguments ever since the US went off the gold standard in 1971. First there was a perennial Arab threat to price crude in a basket of currencies. Gee, they never seem to complain when the buck is going up. Then there was the speculated emergence of the “Yen Block”, in the eighties, back when Japan was dominating international trade and the yen was bumping up against ¥80 to the dollar. Remember the book “Japan as Number One? What a laugh. Then we got all that European whining after the launch of the euro, when the weak dollar was every trader’s free lunch. Let’s face it, Europeans hate using someone else’s currency as the primary reserve instrument. Before the dollar, sterling was the de facto reserve currency, and was equally despised.

Unemployment Numbers Mean More Easy Money

yte Ouch! Another 190,000 jobs went down the crapper in October, taking unemployment rate to a new 27 year high of 10.2%. Add in discouraged job seekers, and that puts the jobless rate at gut churning 17.5%, and over 20% in California. Along with yesterday’s stunning, gob smacking 9.5% increase in Q3 productivity, the figures point a giant arc spotlight on what is really happening in the economy. Companies are still firing workers en mass to boost profits. After getting blood from a stone, they are returning to the same rock for one more drop. I guess if I fire myself, the profitability of my business would go through the roof too, and maybe even my stock would rise. At least then, I would be rid of my oldest, most expensive, but least productive employee, who is the most difficult to get along with, maxes out his sick and vacation days, and wears the same clothes to work every day, even when there lipstick on the collar. But then who would write this daily letter? Maybe Cecelia, my cleaning lady would do it. She’s cheap. You don’t mind getting this letter in Spanish, do you? ¡Andale! This explains why when you go into Office Depot these days, there is only one minimum waged employee standing at the cash register, the hours on the phone I have to wait to get technical support from Dell, and the endless unmovable lines at Citibank. America’s service economy has become all about denying service to customers. The scary thing is, with companies firing their way to prosperity, what happens when we get another dip? My theory is that the US has entered an era of chronically high unemployment that is never going away, no matter what the government does. Goodbye USA, hello Germany!

U.S. Job Growth Likely by December

vhu Ouch! Another 190,000 jobs went down the crapper in October, taking unemployment rate to a new 27 year high of 10.2%. Add in discouraged job seekers, and that puts the jobless rate at gut churning 17.5%, and over 20% in California. Along with yesterday’s stunning, gob smacking 9.5% increase in Q3 productivity, the figures point a giant arc spotlight on what is really happening in the economy. Companies are still firing workers en mass to boost profits. After getting blood from a stone, they are returning to the same rock for one more drop. I guess if I fire myself, the profitability of my business would go through the roof too, and maybe even my stock would rise. At least then, I would be rid of my oldest, most expensive, but least productive employee, who is the most difficult to get along with, maxes out his sick and vacation days, and wears the same clothes to work every day, even when there lipstick on the collar. But then who would write this daily letter? Maybe Cecelia, my cleaning lady would do it. She’s cheap. You don’t mind getting this letter in Spanish, do you? ¡Andale! This explains why when you go into Office Depot these days, there is only one minimum waged employee standing at the cash register, the hours on the phone I have to wait to get technical support from Dell, and the endless unmovable lines at Citibank. America’s service economy has become all about denying service to customers. The scary thing is, with companies firing their way to prosperity, what happens when we get another dip? My theory is that the US has entered an era of chronically high unemployment that is never going away, no matter what the government does. Goodbye USA, hello Germany!

And Bernanke Didn't Think Unemployment Would Reach 10%

uts Ouch! Another 190,000 jobs went down the crapper in October, taking unemployment rate to a new 27 year high of 10.2%. Add in discouraged job seekers, and that puts the jobless rate at gut churning 17.5%, and over 20% in California. Along with yesterday’s stunning, gob smacking 9.5% increase in Q3 productivity, the figures point a giant arc spotlight on what is really happening in the economy. Companies are still firing workers en mass to boost profits. After getting blood from a stone, they are returning to the same rock for one more drop. I guess if I fire myself, the profitability of my business would go through the roof too, and maybe even my stock would rise. At least then, I would be rid of my oldest, most expensive, but least productive employee, who is the most difficult to get along with, maxes out his sick and vacation days, and wears the same clothes to work every day, even when there lipstick on the collar. But then who would write this daily letter? Maybe Cecelia, my cleaning lady would do it. She’s cheap. You don’t mind getting this letter in Spanish, do you? ¡Andale! This explains why when you go into Office Depot these days, there is only one minimum waged employee standing at the cash register, the hours on the phone I have to wait to get technical support from Dell, and the endless unmovable lines at Citibank. America’s service economy has become all about denying service to customers. The scary thing is, with companies firing their way to prosperity, what happens when we get another dip? My theory is that the US has entered an era of chronically high unemployment that is never going away, no matter what the government does. Goodbye USA, hello Germany!

Employment Lags the Stock Market

cgi Ouch! Another 190,000 jobs went down the crapper in October, taking unemployment rate to a new 27 year high of 10.2%. Add in discouraged job seekers, and that puts the jobless rate at gut churning 17.5%, and over 20% in California. Along with yesterday’s stunning, gob smacking 9.5% increase in Q3 productivity, the figures point a giant arc spotlight on what is really happening in the economy. Companies are still firing workers en mass to boost profits. After getting blood from a stone, they are returning to the same rock for one more drop. I guess if I fire myself, the profitability of my business would go through the roof too, and maybe even my stock would rise. At least then, I would be rid of my oldest, most expensive, but least productive employee, who is the most difficult to get along with, maxes out his sick and vacation days, and wears the same clothes to work every day, even when there lipstick on the collar. But then who would write this daily letter? Maybe Cecelia, my cleaning lady would do it. She’s cheap. You don’t mind getting this letter in Spanish, do you? ¡Andale! This explains why when you go into Office Depot these days, there is only one minimum waged employee standing at the cash register, the hours on the phone I have to wait to get technical support from Dell, and the endless unmovable lines at Citibank. America’s service economy has become all about denying service to customers. The scary thing is, with companies firing their way to prosperity, what happens when we get another dip? My theory is that the US has entered an era of chronically high unemployment that is never going away, no matter what the government does. Goodbye USA, hello Germany!

Q3 GDP: Obviously Fictional

ngs Ouch! Another 190,000 jobs went down the crapper in October, taking unemployment rate to a new 27 year high of 10.2%. Add in discouraged job seekers, and that puts the jobless rate at gut churning 17.5%, and over 20% in California. Along with yesterday’s stunning, gob smacking 9.5% increase in Q3 productivity, the figures point a giant arc spotlight on what is really happening in the economy. Companies are still firing workers en mass to boost profits. After getting blood from a stone, they are returning to the same rock for one more drop. I guess if I fire myself, the profitability of my business would go through the roof too, and maybe even my stock would rise. At least then, I would be rid of my oldest, most expensive, but least productive employee, who is the most difficult to get along with, maxes out his sick and vacation days, and wears the same clothes to work every day, even when there lipstick on the collar. But then who would write this daily letter? Maybe Cecelia, my cleaning lady would do it. She’s cheap. You don’t mind getting this letter in Spanish, do you? ¡Andale! This explains why when you go into Office Depot these days, there is only one minimum waged employee standing at the cash register, the hours on the phone I have to wait to get technical support from Dell, and the endless unmovable lines at Citibank. America’s service economy has become all about denying service to customers. The scary thing is, with companies firing their way to prosperity, what happens when we get another dip? My theory is that the US has entered an era of chronically high unemployment that is never going away, no matter what the government does. Goodbye USA, hello Germany!

Don't Believe Long-Term Oil Forecasts

bdc If you think oil is expensive here at $80, look again. The Department Energy chart below of US oil consumption per unit of output shows that, in fact, we are at a 40 year low in the price of crude. In other words, it takes half as much oil to produce a unit of GDP than it did in the late sixties, when 12 miles per gallon was considered reasonable, and only Lincoln Continentals got abused because they consumed a gluttonous six miles per gallon. This is the why current lofty prices are having a negligeable effect on a reviving economy. The other chart shows the price of oil in inflation adjusted terms. Again, we are at the high end of the range, but nowhere near the top. What’s the lesson in all of this? If the price of oil is not hurting now, then it will move a lot higher to where it does hurt big time. When the US gets back on track, and the emerging markets return to firing on all 12 cylinders, triple digit oil is a gimme, and new highs will easily be attainable. Then you can expect the current perfect correlation between rising stock and crude prices to shatter. Make sure you maintain exposure to the oil patch, either through majors like Chevron (CVX) (click here ), oil service companies like XTO Energy (XTO) (click here ), the Russian market ETF (RSX) (click here), or just the plain vanilla Oil Trust ETF (USO). If noting else, these names will help immunize your portfolio against the certainty of higher fuel prices. If you are wondering where the “W” recession might come from, this is it.

Jobs Situation Getting Worse for Full-Time Workers

bfe Ouch! Another 190,000 jobs went down the crapper in October, taking unemployment rate to a new 27 year high of 10.2%. Add in discouraged job seekers, and that puts the jobless rate at gut churning 17.5%, and over 20% in California. Along with yesterday’s stunning, gob smacking 9.5% increase in Q3 productivity, the figures point a giant arc spotlight on what is really happening in the economy. Companies are still firing workers en mass to boost profits. After getting blood from a stone they are returning to the same rock for one more drop. I guess if I fire myself, the profitability of my business would go through the roof too, and maybe even my stock would rise. At least then I would then be rid of my oldest, most expensive but least productive employee, who is the worst to get along with, max’s out his sick and vacation days, and wears the same clothes to work every day, even when there lipstick on the collar. But then who would write this daily letter? Maybe Cecelia, my cleaning lady, would do it. She’s cheap. You don’t mind getting this letter in Spanish, do you? ¡Andale! This explains why when you go into Office Depot these days, there is only one minimum waged employee standing at the cash register, the hours on the phone I have to wait to get technical support from Dell, and the endless unmovable lines at Citibank. America’s service economy has become all about denying service to customers. The scary thing is, with companies firing their way to prosperity, what happens when we get another dip? My theory is that the US has entered an era of chronically high employment that is never going away, no matter what the government does. Goodbye USA, hello Germany!

Three Ways to Trade the Black Stuff

bdf If you think oil is expensive here at $80, look again. The Department Energy chart below of US oil consumption per unit of output shows that, in fact, we are at a 40 year low in the price of crude. In other words, it takes half as much oil to produce a unit of GDP than it did in the late sixties, when 12 miles per gallon was considered reasonable, and only Lincoln Continentals got abused because they consumed a gluttonous six miles per gallon. This is the why current lofty prices are having a negligeable effect on a reviving economy. The other chart shows the price of oil in inflation adjusted terms. Again, we are at the high end of the range, but nowhere near the top. What’s the lesson in all of this? If the price of oil is not hurting now, then it will move a lot higher to where it does hurt big time. When the US gets back on track, and the emerging markets return to firing on all 12 cylinders, triple digit oil is a gimme, and new highs will easily be attainable. Then you can expect the current perfect correlation between rising stock and crude prices to shatter. Make sure you maintain exposure to the oil patch, either through majors like Chevron (CVX) (click here ), oil service companies like XTO Energy (XTO) (click here ), the Russian market ETF (RSX) (click here), or just the plain vanilla Oil Trust ETF (USO). If noting else, these names will help immunize your portfolio against the certainty of higher fuel prices. If you are wondering where the “W” recession might come from, this is it.

America's Overheated Printing Presses and Huge Debts Helping Drive Gold Higher

cdr ) I know what keeps Obama awake at night. Let’s say we spend our $2 trillion in stimulus and get a couple of quarters of weak growth. Then once the effects of the stimulus wear off, we slip back into a deep recession, setting up a classic “W.” Unemployment never does stop climbing. This happened to Roosevelt in the thirties. So congress passes another $2 trillion reflationary budget. Everybody gets wonderful new mass transit upgrades, alternative energy infrastructure, and bridges to nowhere. But with $4 trillion in spending packed into two years, inflation really takes off. The bond market collapses, the dollar tanks big time, gold goes ballistic to $5,000, and silver explodes to $50. Ben Bernanke has no choice but to engineer an interest rate spike, taking the Fed funds rate up to a Volkeresque 18%. Housing, having never recovered, drops by half again. This all happens in the 2012 election year. Obama is burned in effigy, a Mormon is elected president, and the Republicans, reinvigorated by new leadership, retake both houses of congress. We invade Iran. Crude hits $500. This is not exactly a low probability scenario. Remember Jimmy Carter? This is why junk bond yields are still stubbornly high at 12.5%, and credit default swaps live at lofty levels. Are the equity markets pricing in this possibility? No chance. The risk of Armageddon is still out there. Personally, I give it a one in three chance. Pass the Xanax.

Bond Expert: Friday Outlook

vgyb Ouch! Another 190,000 jobs went down the crapper in October, taking unemployment rate to a new 27 year high of 10.2%. Add in discouraged job seekers, and that puts the jobless rate at gut churning 17.5%, and over 20% in California. Along with yesterday’s stunning, gob smacking 9.5% increase in Q3 productivity, the figures point a giant arc spotlight on what is really happening in the economy. Companies are still firing workers en mass to boost profits. After getting blood from a stone they are returning to the same rock for one more drop. I guess if I fire myself, the profitability of my business would go through the roof too, and maybe even my stock would rise. At least then I would then be rid of my oldest, most expensive but least productive employee, who is the worst to get along with, max’s out his sick and vacation days, and wears the same clothes to work every day, even when there lipstick on the collar. But then who would write this daily letter? Maybe Cecelia, my cleaning lady, would do it. She’s cheap. This explains why when you go into Office Depot these days, there is only one minimum waged employee standing at the cash register, the hours on the phone I have to wait to get technical support from Dell, and the endless unmovable lines at Citibank. America’s service economy has become all about denying service to customers. The scary thing is, with companies firing their way to prosperity, what happens when we get another dip? My theory is that the US has entered an era of chronically high employment that is never going away, no matter what the government does. Goodbye USA, hello Germany!

Job Losses Worse than Expected

vhi Ouch! Another 190,000 jobs went down the crapper in October, taking unemployment rate to a new 27 year high of 10.2%. Add in discouraged job seekers, and that puts the jobless rate at gut churning 17.5%, and over 20% in California. Along with yesterday’s stunning, gob smacking 9.5% increase in Q3 productivity, the figures point a giant arc spotlight on what is really happening in the economy. Companies are still firing workers en mass to boost profits. After getting blood from a stone they are returning to the same rock for one more drop. I guess if I fire myself, the profitability of my business would go through the roof too, and maybe even my stock would rise. At least then I would then be rid of my oldest, most expensive but least productive employee, who is the worst to get along with, max’s out his sick and vacation days, and wears the same clothes to work every day, even when there lipstick on the collar. But then who would write this daily letter? Maybe Cecelia, my cleaning lady, would do it. She’s cheap. This explains why when you go into Office Depot these days, there is only one minimum waged employee standing at the cash register, the hours on the phone I have to wait to get technical support from Dell, and the endless unmovable lines at Citibank. America’s service economy has become all about denying service to customers. The scary thing is, with companies firing their way to prosperity, what happens when we get another dip? My theory is that the US has entered an era of chronically high employment that is never going away, no matter what the government does. Goodbye USA, hello Germany!