Iknowwhatyoudidtoday: Stock Making Money

It appears Paolo Pellegrini, the brains behind Paulson & Co. most profitable trade, is coming back... as a quant. As we reported in August, the billionaire manager's former fund - PSQR - had decided to return all capital to investors citing "challenging market conditions." It only took Paolo 3 months to realize that money is no longer to be made in a macro world dominated by central bank infighting, in which a schizophrenic market goes up or down by several percentage points on a daily basis depending on what word feels out of place in any given central banker's speech, and instead will focus on "quantitative disciplines" along the lines of DE Shaw and RenTec. And why not: the only ones left making money in this market are momentum chasing strategies which have millisecond frontrunning arbitrage over the rest of what is left of the heard. As to the visionary's current market views, his mantra is "don't fight the Fed" even as he sees bond trading at ridiculously high levels, although with a caveat: "of course you don’t want to fight the Fed, until the Fed loses control which is what happened obviously in the sub-prime and financial crisis. That is very difficult, though, to predict." As we predicted earlier in the year not only are macro funds soon going to be extinct but the same fate lies in store for the traditional long/short 130/30 group. Very soon every fund will need to have their own quant/HFT group (SAC has already quietly amassed almost 20 HFT pods) just to be able to attract outside investors. After all why else is the woefully underpaid SEC admitting it has no idea how to fix the market now entirely dominated by HFT, and will merely extend its completely worthless "circuit breaker" model for another three months, then another three months, and so on.

Some other observations from Paolo Pellegrini's interview during today's Hedge Fund congress:

“I think that this year essentially I was concerned about the unresolved issue of what I call a demand deficit. The United States is still over ¼ of world GDP and world demand. Europe is another 25% plus. So you can’t have a situation where all of a sudden you lose these streams of demand that was generated by increasing leverage over time and not have some consequences. It was interesting today there was some piece about Iceland and the fact that Iceland, after all—after being a disaster story early on because it took some difficult steps and did not try to bail out a failed private banking sector—is now in effect doing better than Ireland, which instead used something that is much more similar to the American approach and now they are going to have to pay for that. [a topic we discussed here."

"My concern was that the demand deficit would come into play. It seems that we are going through a very determined effort by the Federal Reserve to target asset prices. It seems to be some of the conclusion from various conferences and others—Goldman Sachs came up with a view that the level of the stock market is the best level of the financial condition. So if you look at that and then you see, what are we going to do—we can buy bonds, we can’t buy stocks, so we buy enough bonds so that the stock market reaches some sort of an acceptable level. To me all of that is the reality and it’s difficult to fight the reality. Everybody says, ‘Don’t fight the Fed.’ Of course you don’t want to fight the Fed, until the Fed loses control which is what happened obviously in the sub-prime and financial crisis. That is very difficult, though, to predict. In terms of the way I manage my portfolio at this point, and it’s really part of why I thought it was important to take a break in terms of managing outside money, is that I’ve gone from a situation where I was suggesting that I would be able to profit from high levels of volatility and large market moves, to one where I say this is a very difficult situation—let’s try to figure out a strategy to figure out the real purchasing power of my capital.”

Pellegrini also commented on his current strategy, “I’m stepping back, I’m trying to put together a more stable team, focusing on more quantitative types of disciplines, I admire a number of investors: DE Shaw and RenTec are obviously interesting examples. I think that there is so much arbitrary input in the investment process at this point, given all of the regulatory and central bank actions, that it is difficult to have a linear process of thinking about the world and how to make money. It’s sort of more complicated than that—there is a lot of unpredictable externality from decisions that are a combination of personal ideology of different players and political realities of different points of time.”

Full clip:

One of the Fed's more arrogant former apparatchiks (of the "100% confidence" interval) Larry Meyer, currently at expert network Macroeconomic Advisors which is used by the likes of Pimco to get inside information on what the Fed will do at its upcoming meetings, appeared on CNBC earlier and attempted to school David Einhorn on "Economics 101." What ensued was yet another confirmation that these Ph.D's (a term we always use in the most pejorative, NC-17 context possible) who destroyed the world, have absolutely no idea what the hell they talk about, and make up bullshit scenarios on the fly. Luckily, it has gotten to a point where every incremental statement catches them in one lie or another. It has become grotesquely comic to watch their faces (as in Bernanke of 60 Minutes infamy) squirm as they realize that the end of the system they created and subsequently destroyed, is near.

A selection of Einhorn's questions:

"Part of the issue with the deflation is companies improve the quality of their products, so last month the PPI went down because we had a new car year, and they sold you a better car for the same price. Now why is it the Federal feel like you need to have a policy response to auto companies making better cars and selling them to you at the same price? Why do we need to drive up the cost of energy, and food, and cotton, to offset that?"
"I think if you drive up food and energy prices, which you don't count in the core PPI or CPI, I think if you don't count those things in the inflation, you may miss the inflation, and if people have to spend more money on food and energy, they have less money to buy other things, and that could prove to be a net reduction in economic activity..."

And while he is unable to respond to any of these (or other) all Meyer can do is assume the claim that easy monetary policy stimulates aggregate demand as factual, where Einhorn put the smackdown: "I think you can argue that, because we have gotten to the point where the transmission method is broken. You are trying to create a wealth effect which is another asset-based economy thing, it's very questionable whether higher stock prices cause lots of incremental demand, and you have the cost of food and energy which are real things that people have to pay for. And if you have to pay $3, $4 or $5 for gas, you have less money to go out to eat." Meyer's response once again: is nothing less than derisive laughter with no facts to support his claims whatsoever... except for falling back to Econ 101... which of course is not a science.

Lastly, Einhorn says: "I am worried about a bubble in corn and oil." The response - blame it all on China. "Commodity prices will go up but it's driven because Asia and China have adopted US monetary policy which is crazy for them. Absolutely crazy. And we can't do anything about that." And confirming our long-established theory that the Fed is doing nothing less than punishing the American people in order to get China to blink we hear the following from the entrenched demagogue: "That's no reason why we should keep interest rates higher, to benefit China and Asia, and prevent bubbles there, they have to do it themselves. Look in the mirror if you want to know whose problem this is."

So true: so let's create hyperinflation in the US, in the hope that Beijing will finally unpeg. It's official: the Fed is willing to sacrifice its people in order to win an intercontinental pissing match of a flawed and dying economic theory.

As for Larry, we are confident he will survive long after his entire life is proven to have been a hollow defense of a failed ideology: after all he is one of those "fly on the wall" Fed consultants who gets paid by the PIMCOs of the world to leak inside monetary information to the highest bidder. We would love to know: now that the Gerson Lehrman model is over, when will the true leak of critical inside information: companies such as Macroeconomic Advisors finally see either a subpoena by the AG or an FBI raid... After all what they do is identical to what all those other expert networks do day in and out. Only this time the stakes are that much higher (and the pool of beneficiaries that much, ahem Bill Gross, smaller).

bench craft company scam

Thursday, December 9, 2010

Stock Making Money

No comments:

Post a Comment