Dark Alley MoFos Bloodied By Deep Knife Wound
I have interchangeably used certain terms to describe the broad group of Riskloves who have set up incentive programs for themselves in which to gamble with other people’s money, right up to the point of a cliff dive. One group of course are hedge funds. Within the hedge fund complex is a subset of funds who use computer “intelligence” and “models” to drive trading decisions. These are generally called quants or Alpha funds and I’ve also used the term “Robotrader”. In a recent podcast I created a new Winterism to describe them, “MoFos”. In the podcast I suggested that Bears trading against these Boyz was akin to going into a dark alley for a knife fight with MoFos who don’t give a damn about what happens to themselves or others.
I believe both MoFos, and until about a month ago Wile E Coyotes (private equity capital), have been dominating market action this year. Wile E Coyotes were turned back about at the point of the initial market peak on July 19. But MoFos until this week have stayed very active. In fact I have been incredulous and astonished to observe trading action in the last several weeks as MoFos would drive indexes sharply higher right in the face of the rapidly collapsing credit conditions that we have been keenly aware of for many months. Now we are getting clues as to why that was happening, and it is just as I’ve long suspected, right out of bad science fiction. Read this article carefully word by word, don’t just scan:
`If the conditions change, the models don’t work as planned,'’ said Luis Rodriguez, head of risk management for New York-based Manhattan Family Office LLC, which invests money on behalf of an undisclosed wealthy family. Hedge funds’ quantitative, or “quant,'’ models have been confounded by wider credit spreads stemming from losses in the subprime loan market.
In otherwords these MoFo quant models are clueless about real shifts going on around them beyond say Sigma 1 or 2 events. As such MoFos behave in a highly unstable, erratic manner, like an ancient drugged Berserker (who wore bear pelts by the way) attacking you straight on. MoFos using Bufo toad skin, about says it all.
The injection of bufotenine from Bufo marinus toad skin into humans was shown to produce similar symptoms to the “Berserker” descriptions. These findings, first examined by Howard Fabing in 1956, were later linked to the induction of zombie characteristics by ethnobotanists in 1983.
Obviously once MoFos/Berserkers are removed from the scene of the knife fight, then market conditions behave much more rationally. The new bear market will continue to be challenged by Bulls, but I suspect that the wild computerized MoFo influence will really fade now. Rational Bulls who actually have money to invest, and I don’t really think many do, will carefully buy bases, dips, and support levels, not chase after 200 point rallies. Therefore the look of the emerging bear market will be much different, as MoFo Robotrader funds face redemptions, criticism, disfavor and even new regulation.
Keep in mind that there may be lingering effects from these MoFos because actually having money with hedge funds is like being trapped in cockroach hotels, it’s hard to check out. There is also a 45 day lag between mid month redemption notices (July 15th) and actually getting cockroach hotel money returned (month end: August 31). If there is one redeeming quality to all this, is that the little man is typically not in these hotels, it’s almost exclusively rich plutocratic ass holes who reside there. As losses pile up for Cockroach Hotel plutocrats look for the end of One Trick Pony and a much more muted high end economy. The good news could be some inflation relief for normal people once these losses get more severe.
We saw a good example of what trading with diminished MoFos might look like. When the Fed injected excess liquidity into the system before trading this morning the S&P futures only rebounded from down 16 to down 12, and back to down 14. With MoFos active we could have seen a bounce all the way to positive on such an injection. So it would seem MoFo is lying in the alley with a deep knife wound to the torso. Bears should watch closely for telltale signs of a liver wound first though, because if it’s only intestinal, MoFo will drag his sorry ass back up and try to fight again. Aaron Krowne has a new hedge fund Implode-O-Meter out that tracks these knife wounds.
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