Lemonjello's intermittent skullduggery

[lemonjello]

Bouncing right on schedule. Better than Amtrak.

[lemonjello]

Charlie Munger says

Does the hedge fund industry remind anyone of the dot.bomb bubble when EVERYONE wanted to work for a "new economy" dot.bomb? Not to mention the average return for risky hedge funds is closing in on market average. Welcome to the new new American economy. Have a nice day.

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MUNGER:"One unfortunate aspect of my practice is that I talk to a great many money managers who want to do better - do their function in life way better than other people do. I have very mixed feelings on this subject because I regard the amount of brainpower going into money management as a national scandal.

We have armies of people with advanced degrees in physics and math in various hedge funds and private-equity funds trying to outsmart the market. A lot of you older people in the room can remember when none of these people existed. There used to be very few people in the business, who were not very intelligent. This was a great help to me.

Now we have armies of very talented people working with great diligence to be the best they can be. I think this is good for the people in it because if you know enough about money management to be good at it, you will know a lot about life. That part is good.

But it's been carried to an extreme. I see prospectuses for businesses with 40-50 people with PhDs, and they have back tested systems and formulas and they want to raise $100 billion. [Reference to Jim Simons of Renaissance Technologies.] And they will take a very substantial override for providing this wonderful system. The guy who runs it has a wonderful investment record and his system is a lot of high mathematics and algorithms with data from the past."

...

"At Samsung, their engineers meet at 11pm. Our meetings of engineers (meaning our smartest citizens) are also at 11pm, but they're working on pricing derivatifves. I think it's crazy to have incentives that drive your most intelligent people into a very sophisticated gaming system."

[lemonjello]

Really Mad Money

BOOYAH!

Cramer's Action Alert portfolio is posting a -8.43% return, year to date.

http://crameralerts.blogspot.com/2006/06/cramer-portfolio-update_14.html#links

[lemonjello]

Hedge funds

Naz 100 / Qs - I'm expecting a bounce starting later this week or next week around Quadruple Witching. Ooooh, quadruple witching - scary. I can remember back when it was just Triple Witching.
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Here's some interesting commentary from James Altucher today at realmoney.com on hedge funds that have been in the put selling biz (lots of SOLD puts went big into loss positions after the recent down draft) -

"These funds, despite all the risk management in the world, are unwinding their positions at heavy losses while they get margin calls. It's not unusual to see them down 10-50% per month at this point. Many of these funds are going out of business. What happens then? Well, they have to buy back their puts, causing volatility to spike, and the S&P to artificially go down while the market absorbs all the put buying and hedging which occurs. When this phenomenon is over, I expect the market to roar back. I would be a buyer here, while these funds are liquidating."

[lemonjello]

My dog thinks he's very funny when he does that. What a sense of humor.

Hey Lem!... I think your dog and Rockin'Rob use the same Orthodontist....

[Lyehopper]

Hey Lem!... I think your dog and Rockin'Rob use the same Orthodontist....

[lemonjello]

I Am Amazing!!!!

Oh yeah, almost forgot...

I AM VERY BIG!!! BUT NOT OVERWEIGHT AT 11% BODY FAT!!!

SEND ME YOUR FINEST CHEEZE WHIZ AND RITZ CRACKERS!!!

http://www.mrmarketishuge.com/showth...4612#post54612
05-26-2006, 12:21 AM
Originally Posted by lemonjello
Naz 100 price targets

Bounce continues to 40 - 40.5 and then drops back to slightly below 37.5.

After that - trading range floating up and then hard screaming drop in late summer, early fall predicated on some news event(s).



Good trading folks.

[lemonjello]

good to go

http://www.mrmarketishuge.com/showthread.php?p=54612#post54612

05-26-2006, 12:21 AM
Originally Posted by lemonjello
Naz 100 price targets

Bounce continues to 40 - 40.5 and then drops back to slightly below 37.5.

After that - trading range floating up and then hard screaming drop in late summer, early fall predicated on some news event(s).



Good trading folks.

[Rob]

It's not an easy job. Interest rates have to rise in response to inflation to keep it in check. The rate of inflation is calculated directly from the CPI. But there was also a recent flattening or even inversion of the yield curve, which is generally seen as a harbinger of recession, which would indicate a need to halt or lower the fed rate. So which metric should be ignored? It's a tough call.

[lemonjello]

Hawkish Schmawkish

Feeling no confidence in Bernanke at this point.

How did that guy get his job?

[lemonjello]

Tick Tock

Not looking good -

Supersonic missles into the Straight of Hormuz anyone?
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Crude Oil Rises as Iran Says U.S. Risks Disrupting Shipments

June 5 (Bloomberg) -- Crude oil rose to the highest in three weeks after Iran's supreme leader said the U.S. risked disrupting oil shipments from the Persian Gulf region.

The U.S. could ``seriously endanger energy flow in the region'' by acting against Iran, Ayatollah Ali Khamenei said yesterday. Iran, the fourth-biggest oil producer, borders the Strait of Hormuz. About 17 million barrels a day is transported through the waterway. Countries along the Gulf produce 27 percent of the world's oil, according to the U.S. Energy Department.
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Oops, looks like a bumpy landing folks. Assume the position.
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Bernanke Says Inflation Increases Are `Unwelcome Developments'

June 5 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said recent increases in measures of inflation ``are unwelcome'' and he will ensure the trend isn't sustained.

The Fed chief also told the American Bankers Association that the U.S. economy ``is entering a period of transition'' and the ``anticipated moderation of economic growth seems now to be under way.''

[lemonjello]

Be afraid. Be very afraid.

Active Trader Update
Hedge Fund Industry's Dirty Little Secret
By Doug Kass
Street Insight Contributor

6/1/2006 12:36 PM EDT
URL: http://www.thestreet.com/p/markets/a.../10289140.html

Many are trying to understand or explain the synchronized decline in stocks, bonds and commodities in May. My explanation: It is the hedge fund industry's dirty little secret.

A long time ago, hedge funds were predicated on superior stock picking.

But in the intervening time, as hedge funds grew in size and quantity, it became increasingly difficult to differentiate investment performance by picking superior equities. As the pools of capital attracted to the hedge fund business multiplied geometrically, the industry morphed away from stock-picking and became a leveraged pool of capital. (Long-Term Capital begot others.)

After all, funding a longer-term asset yielding 5% with shorter-term liabilities costing 3% was a no-brainer, and so was funding a market rising exponentially, vis-a-vis cheap debt. The only question was how that spread would be multiplied by additional debt/leverage.

When the Federal Reserve and the world's central banks virtually gave away capital during the easing phase, taking interest rates to historically low levels, hedge funds (and capital) struggled to reach excess returns because many trades became crowded and risk premiums were taken out of emerging markets, junk bonds and even commodities.

The contraction in junk-bond yields to historically low levels (based on a long economic boom), the strength in emerging markets (with economic growth well above world-trendline levels) and the parabolic move in commodities (China and emerging-market demand was believed to be unending) were justified by commentators and analysts.

It was, after all, a new era yet again! But as investors learned in May, it created a false sense of security.

A vicious cycle was created as the appetite for risk turned into its own bubble. Generally speaking, investors (especially of the fund-of-funds kind) cared little about how returns were generated. Rather, they focused solely on the level of the returns that were generated.

And hedge funds complied by stacking cheap debt upon their equity bases in all sorts of carry trades (funding longer-dated assets with shorter-term liabilities). Many hedge funds even stretched reason by selling tons of volatility -- after volatility had fallen to record low levels.

Then, almost overnight, return on capital (appetite for risk) was replaced by concerns regarding return of capital (risk aversion), as uncertainty relating to the Federal Reserve's actions, coupled with tightening around the world, created a panic in the hedge fund's crowded carry trade and the bubble was pricked.

Once the weakest investors starting selling -- at the margin -- similarly correlated asset classes began to drop. It is noteworthy that the May panic was not accompanied by any fundamental change or, as in the past, a financial crisis, but by the perception of a change in liquidity.

Many (myself included) have cautioned that the growth and size of the hedge fund industry represents a significant bubble-like market risk.

I have repeatedly written that bubbles are almost always based on the same set of conditions:

1. Debt is plentiful.
2. Debt is cheap.
3. The egregious use of leverage becomes commonplace and accepted.
4. A new and growing asset class raises asset prices.

The above circumstances led to the Internet stock bubble in the late 1990s, to the real-estate bubble in 2003-2005 -- and, as we shall soon find out -- the bubble in hedge funds (and their appetite for risk).

I would now add the explosion in hedge funds, and the risks to their disintermediation, to my secular market concerns.

Caveat emptor.

[Rob]

Fear

But you wanna see fear? And I mean REAL FEAR. This is a chart of the VXO during the crash of 1987.

Stop it, Jello! You're frightening me!

[spikefader]

Good post.

[lemonjello]

I won't be answering my phone during the crash

Are too many people expecting a plummet this summer for it to happen?

Here's an interesting link to a VIX chart from the 87 crash from minyanville.com ->
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http://www.minyanville.com/assets/File/sg407545.gif

For anyone with a weak stomach, you may not want to look at the chart in this Buzz - Bennet Sedacca - 11:36 AM

I remember October 1987 well. All too well. With only 6 years under my belt, I felt smart, but now seasoned. Well crashed will season. No, I am not calling for a crash, just a sharp correction.

But you wanna see fear? And I mean REAL FEAR. This is a chart of the VXO during the crash of 1987. Was relatively benign a week or two before that horrid event, but look what happened once the fear machine got rolling. In VIX terms, it actually got to 250.

What else happened? Dealers wouldn’t answer their phones or honor bids. Spu’s would routinely trade 20 and 30 handles BELOW cash and that was when the S&P was at 300. Not trying to scare anyone here, just trying to bring some clarity to what many feel can happen if the wheels of fear get rolling……