market folly

We're going to try out our hedge fund news summary style post again as readers seemed to like it last time. Except this time around, we'll focus not only on hedge funds but on prominent market strategists and gurus as well. In our previous shotgun hedge fund update, we touched on the latest from George Soros, Och Ziff, Taleb, and a few others. And now here's your daily double shot of hedge fund & market tequila:


Hedge Funds in general saw returns of 9.73% for the year as of around the end of June. This is on track to their best annual start since way back in 1999.

George Soros (Soros Fund Management): Legendary investor and former Quantum Fund manager George Soros was recently out saying that he thinks the US will see a "stop-go" economy for some time. Eventually, he feels fears of inflation will hike interest rates up and as a result, economic growth will suffer. He went on to say that, "The idea of self-correcting markets is a misconception. You cannot prevent bubbles from forming but prevent them from self-reinforcement." Apparently (unbeknownst to us at least), Soros went back into retirement earlier this year after the whirlwind of 2008. If he really is 'retired' again, then we wonder why he is gracing us with his typical dose of (realistic) cynicism. We'll have to find out more in this regard, as this is the first we've heard of it. We have previously covered Soros' holdings in our hedge fund portfolio tracking series.


Bill Gross (PIMCO): 'Mr. Bonds' over at PIMCO is out with his July 2009 outlook and in it he touches on a fact that many seem to have brushed off the market action as their eyes glaze over with 'hope' (whatever that word means). Gross says,

"I was impressed this weekend by an article in the Op-Ed section of The New York Times by staff writer Bob Herbert. “No Recovery in Sight” was the heading and his opening sentence asked, 'How do you put together a consumer economy that works when the consumers are out of work?' That is really all one needs to ask when divining our economy’s future fortune. Unless an optimist can prescribe how to put Humpty Dumpty back together again and shuffle him/her back to work then there can be no return to an 'old normal.' As unemployment approaches 10%, what is less well publicized is that the number of 'underutilized' workers in the U.S. has increased dramatically from 15 to 30 million. Those without jobs, as well as those individuals who only work part-time and have become discouraged and stopped looking, total 30 MILLION people. The number is staggering. Commonsensically, one has to know that many or most of these are untrained for the demands of a green-oriented, goods-producing future economy. Imagine a welding rod in the hands of an investment banker or mortgage broker and you’ll understand the implications quicker than any economist using an econometric model."

He also touched on a phrase we found a bit amusing. Instead of investors typically feasting on asset appreciations and going "Bon Appétit," they are now starving and are going “Non Appétit.” You gotta love silly old Bill with his crazy phrases. We read his outlooks because it makes for good reading, but we kind of gave up on ole Bill a long while ago. Simply put, he thinks that while greed is gone for now, it will certainly be back. You can read his full July outlook here.


Dwight Anderson (Ospraie Funds): This name should ring a bell for Market Folly readers for two reasons. Firstly, because his Ospraie fund blew up and we covered that back in September of 2008. Secondly, you will recall that Anderson was coming back in May and starting two new hedge funds. Well, we're back merely to report that Anderson's new funds went live last month with around $100 million. His new equity fund is focused on companies that are related to commodities and resources while his new commodity fund will invest in the various derivatives related to that asset class. Watch out, the 'bird of prey' is back in the game and they are in-it-to-win-it.


John Meriwether (LTCM, now JWM): Sticking with the hedge fund opening/closure meme, we're happy (?) to report that John Meriwether is shutting down yet another hedge fund. This is really starting to get ridiculous. For those of you unaware, John Meriwether was the founder of Long-Term Capital Management which imploded back in the 1990's and caused a huge ordeal. It was somewhat shocking to see him able to start another fund after such a blowup, but it happened. Yet, we have come full circle again and see that Meriwether's main fund at JWM Partners will be shutting down after it lost 44% between September 2007 and February 2009. Ouch. Oh, and double ouch for the fact that he's shutting down yet another firm. Will this guy ever learn? And, more importantly... will investors ever learn?!


David Rosenberg (Gluskin Sheff & Associates): The notorious market strategist was out with his usual market talk at his new outfit, Gluskin Sheff & Associates. However, he specifically focused on corporate bonds versus equities which intrigued us. He writes, "The comparable yield in the equity market, depending on whether one uses reported or operating P/E multiples on forward or trailing earnings, is little better than 6½%. So corporate debt still trumps stocks. And what this 200 basis point ‘yield gap’ is telling you is that either corporate bond prices will need to rally more down the road or we need to start seeing corporate earnings growth recover sharply enough to pull those multiples down to more attractive levels."

Overall, he thinks that stocks already have a ton of good news priced-in and sees a pullback to 800 on the S&P500. However, he would see that as a buying opportunity and thinks the March lows will hold. The trick here is dealing with an already massive rally in equities from the lows.


Morris Sachs, E.G. Fisher, and Rob Wahl: While these three names might not ring any bells right now, we're here to report that the three gentlemen above will be opening a new hedge fund focused on government bonds named 5:15 Capital Management. The traders have a background at Brevan Howard and RBS Greenwich so they definitely have the credentials. They are starting with around $60 million, with plans to grow it to around $100 million. This hedge fund is intriguing in that its name is derived from a song from the band The Who. The track "5:15" was featured on the album "Quadrophenia" and the founders say they chose the name because they all love the song and band in general.

And, in mocking the hedge fund names typically selected by managers, Sachs said "What are we going to do, try to find another name for the Greek god of money?" Personally, we think someone else out there should create a fund with a name that flat out mocks another hedge fund, to get a little rivalry going. Suggestion: maybe Tontine, due to the irony there. (Confused? See this post).

Fair play to the trio at 5:15 for this random, yet refreshing development. We can't wait to see other new names that pop up now... perhaps 'Enter Sandman Partners'? Or, maybe, in tribute to the king of pop, 'Beat It Capital.' Hmm... we won't hold our breath.


Assan Din: Sticking with the "new-hedge-funds-by-people-you've-probably-never-heard-of" theme, we see that Assan Din is also set to start his own hedge fund after trading for Lehman Brothers. His SaKa Capital will be seeded with $25-50 million and will start trading corporate bonds and derivatives in Singapore in September.


Byron Wien: Just a few days ago, we posted up Pequot Capital strategist Byron Wien's latest commentary. However, this time around he did not deliver his usual dialect regarding the markets. Instead, he took the time to reflect on the closing of the hedge fund firm he was a part of: Pequot Capital. If you haven't read it, we posted up Byron's thoughts here.


Boone Pickens: Although we usually just cover Pickens' hedge fund movements here on Market Folly, this news is still market related in a sense. Remember the "Pickens Plan" and his quest for alternative energy change in the United States? Yea, most people probably don't remember after all this time. To give you a quick refresher, Pickens was seeking the use of various alternatives to replace our dependency on oil and was in the process of building a massive Wind Turbine Farm across Texas.

Well, times are tough because he is suspending plans to build such a farm. While he will still spend $2-3 billion on smaller farms, the grand-daddy plan will have to wait. The delays (per Pickens) were cited to be the drop in natural gas prices and a lack of transmission lines... not to mention the vast slowdown alternative energy companies have seen and the financial turmoil that has affected Pickens as well. After all, when his hedge funds started tanking, he lost a lot of money. So, it looks like we'll have to wait even longer before we see the massive plot of propellers sprawled throughout Texas. This just goes to show how a nice drop in the price of oil (From $140 down to $60) can start to cripple the alternative energy sector. For those interested in Pickens' hedge fund, we recently covered his portfolio here.


Cliff Asness (AQR Capital Management): Yet again, we repeat ourselves: this is starting to get ridiculous. AQR is going to introduce even more "hedge-fund-style mutual funds" starting next month. This is all in a move to continue their expansion into mutual funds in addition to the hedge funds they run. Their AQR Diversified Arbitrage fund launched back in January and this time around they apparently have an arsenal of funds to unleash at the retail investing crowd.

But, then again, this is nothing new as we have seen literally a slew of similar investment vehicles already released. Thus far, we've seen: mutual funds imitating hedge funds, ETFs imitating hedge funds, and even more mutual funds pursuing hedge-like strategies, and then even more ETFs pursuing 'hedgefundesque' strategies. We've covered them all in detail before and we sincerely wonder if this fad will ever cease.

Instead of trying to match hedge fund performances by buying and shorting various index ETFs like those new vehicles do, why not just clone the hedge fund equity portfolios directly like we here at Market Folly have done? After all, with the help of Alphaclone, we've cloned our custom hedge fund portfolio that is seeing 27.9% annualized returns. And no, we're not even joking; check it out.



That wraps up this edition of our hedge fund shotgun round-up, so stay tuned for future updates. In the mean time, check out our previous update, our portfolio tracking series, as well as our most recent profile of Bill Ackman of Pershing Square Capital Management. Also, we would gladly welcome more feedback regarding these 'shotgun' style posts of recent hedge fund news. Hit the comments below or send us an email.