Gary's Note: O Hedge Fund Manager, where is thy glory? For that matter, where are thy funds? I wasn't going to kick those fallen financial heroes when they were down…but then I started talking to Adrian Ash. After we got done laughing, I decided to share the joke with the rest of you. Send all questions and comments to gary@whiskeyandgunpowder.com. Whiskey & Gunpowder
— John Steinbeck, Of Mice and Men (1937) Alpha used to be what hedge-fund managers promised their clients. Better still, portable alpha — defined in the easy bed-time reading of finance MBAs as the "generation of excess return over a benchmark while maintaining the desired asset allocation to traditional market exposures" — offered to meet and beat whatever returns everyone else was making, thus proving the manager's genius and justifying his infamous fees. ~~~~~~~~~~~~~Special~~~~~~~~~~~~~ Get Gold Cheap… Before It Takes Off Again Gold is giving you another chance to get in for the inevitable ride up at a bargain. Here's how to get it at a discount and multiply those gains. Click here to read more… ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ One-and-twenty? Two-and-thirty? By early 2006, SAC Capital Advisors (minimum investment, $25 million) were rumored to be charging 3% of client assets each year, plus 35% of their gains. Come Oct. 2007, and almost two months after the credit bubble began gushing air "some of the industry's most exclusive hedge funds charge a performance as high as 50%," said Reuters. Now add the cost of audits, account administration, and even trader bonuses, reported LJH Global Investments, a Florida-based adviser, and those annual fees — win or lose — could rise by another 3.5%. Here's hoping all that alpha was worth the price. But now? With credit lines shut down at the investment banks? With margin calls hiked so high that — here in London at least — the money held by brokers, exchanges and clearing houses has risen to 43% of the U.K.'s entire cash deposits, up from the 10-year average of 26%...? Might as well climb into your denim dungarees now, and start watching that blackboard for a shot at getting a work card to buck barley bags. Because whatever the Great Inflation of money and credit did for world trade between 1997 and 2008, it's clearly ended with a deflationary slump for Mayfair and Connecticut's finest. "Hedge funds worldwide shrank by 9% to $1.56 trillion last month," reports Bloomberg, "the lowest level in two years, after investors withdrew cash and stock markets declined. "Investors pulled $40 billion from hedge funds in October, according to Chicago-based Hedge Fund Research Inc., while market losses cut industry assets by $115 billion." On a returns-to-investment basis, hedge funds lost their clients 6% last month, taking the year-to-date loss to 16%, says HFRI. Oh sure, that still means they're delivering alpha over and above the stock market...now down by nearly one-half to an 11-year low on the S&P index. But only one-in-six wealthy investors now believes hedge funds can offer "strong returns" in the current environment, said a survey this week from the Association of Investment Companies (AIC). ~~~~~~~~~~~~~Special~~~~~~~~~~~~~ The End of Cheap Oil You wouldn't think so. After all, oil prices just plummeted… But the fundamentals are clear as day. Oil is destined to get a lot more expensive. It's going to change life in the U.S. and the world…forever…but you can protect yourself and prosper… Click here to take advantage of oil's temporarily lower prices. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Maybe making money — once easy, now hard — is just going to prove so tough, applying PhD mathematics and leverage will only make things worse. Maybe the hedgies should start seeking alfalfa instead. "The great universities find that when their outstanding economic teachers are called into the business arena, the result is pitiful not only for business but for the teachers," wrote Robert L. Smitley in his Popular Financial Delusions, four years before John Steinbeck would damn generations of high-school students to dust-bowl misery with Of Mice and Men. "It seems to be almost impossible to strike a happy medium," Smitley went on, writing when $1 was worth $20 in today's money, "the way [these] $3,500 boys accepted $30,000 a year jobs with the Investment Trusts back in 1928 and 1929 and found themselves earning a pittance as hack writers in 1933...writing daily columns forecasting the stock prices and estimating the wheat crop." There are some...ummm...hacks, of course, who missed out on this bubble's $600,000-a-year jobs. And after scribbling our daily columns and forecasting precisely this blow-up in complex, over-paid finance, no doubt irony has got a special treat in store for us, too...flooding the market for financial hacks with over-qualified wannabes desperate to work. Still, at least a few of us already own gold. In a world shorn of credit, leverage and PhD finance, a lump of dumb metal may well prove worth having. Regards, P.S.: If you'd like to buy a few lumps of that dumb metal and store it safely offshore, then visit me at BullionVault. Gary's Endnote: You probably won't end up digging ditches, seeking alfalfa and bucking bags of barley shoulder-to-shoulder with former hedge fund stars…but you still may want to click here… just in case… |
Whiskey & Gunpowder Special Reports New "Backlash" Set to Rocket Oil Past $150...and Send Gas Soaring to Over $6 per Gallon The 10 Shocking Reasons for China's Pollution Problem Geothermal Energy: Investment in the Future Here's One Coal Stock That's Set to Skyrocket Investing in Exchange Traded Funds The Real Story Behind the True Gold Bull Market If someone forwarded you this copy, please look here to start your own subscription. Wanna let us know what you thought of today's issue? Now you can... click on this link. Whiskey & Gunpowder is a free e-mail service brought to you by a team of rebellious brigands. If you have not already done so, please click here to confirm your subscription. This will help us ensure you get every Whiskey & Gunpowder without interruption. Are you having trouble receiving your Whiskey & Gunpowder? You can ensure its arrival in your mailbox here. Please note: we sent this e-mail to finan4@finanmart.com because you subscribed to this service. To end your Whiskey & Gunpowder e-mail subscription, click here. Nothing in this e-mail should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice.We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of a printed-only publication prior to following an initial recommendation. Any investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. © 2008 Agora Financial, LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the World Wide Web), in whole or in part, is strictly prohibited without the express written permission of Agora Financial, LLC. 808 Saint Paul Street, Baltimore MD 21202. |
