Hedge Funds Get BushwhackedBy Andrew Serwer
What a bummer! Why? Well, the Dow was UP 124 points at
one point, then the bond market closed and BOOM, stocks
fell. (i.e., the games ended). And so the Dow fell 45
points, to 7782. So much for the rally (you foolish
things!). An interesting point: The NASDAQ held up!!!!
Hooray! It climbed 17, to 1592. And there was even
some strength in the poor miserable Russell!! Here's
what we've been following today:
HEDGE FUNDS.... Okay, let's take this one from the top.
Market mayhem reeked some SERIOUS havoc on these funds:
You wouldn't believe what I have been through gettingthese stories. Man!
OMEGA ADVISORS.... You know these guys? Mega-hedge fund
run by Leon Cooperman, big cheese, formerly of Goldman
Sachs. You may have heard they are in trouble. HERE is
the scoop. Talked to Lee, and frankly it wasn't pretty.
(He so NASTY!) Okay, Coop WAS up 12% for the year, was
doin' fine. Then he got hit in the U.S., just like the
rest of us in July in August. But, to be fair, he
actually did better than the rest of us. But, he GOT
CREAMED in emerging market equities and bonds. Now, Lee
says he is down over 10%. Lee got very hot talking to
me on the phone, telling me reporters were out of
control. (Oh yeah, it's all my fault!) Telling me to
invest a million in his fund or chill, etc. Okay, after
the emerging markets fiasco, Lee told me that he dinged
the guys in that group. "We parted ways because I
didn't feel they were prudent in the risk management
part of the business." Yeah baby! Zapped 'em! FIRED.
Just like I told YOU, Lee. So what's up with Omega?
It's whole, but an excellent source tells me Lee needs
to get back to 12% before he gets paid. There is a
possibility that Lee shuts this fund down and returns
money to investors. Start all over again. But Lee saidhe would never do that.
LONG TERM CAPITAL MANAGEMENT.... Okay the letter! Have
you heard? First of all, Long Term Capital is the black
box hedge fund run by Jon Meriwether in Greenwich,
CT--he was the BSD at Salomon Bros, the boss of the
bond business there. He sent out a letter to clients on
Wednesday that is an INCREDIBLE cry for help!!!!
Incredible. I won't do it chapter and verse because it
will be all over tomorrow. But, let me just say one
big time trader I know who saw the letter said there
is a very good chance this firm is dead!!!! Why?
Because they are down 52% for the year. And they are
leveraged. And they are BEGGING for money. I happen to
know that they just asked one of the biggest hedge fund
managers in the world for a billion dollars today and
he said, "Thanks, but that's really not our thing."
Click. Also it looks like the employees will have to
work for FREE for a year or so which is, uh, unlikely.
Also, the letter said they returned $2.7 billion in cap
on 1/1/98. My understanding is they were essentially
forcing out the little guys--who were of course pissed
off they were pushed out of the fund--so the principals
could have more return. (Hee, hee, hee, little guys
happy now!!!) Sooooo, what kicked the sit out of LTCM?
My understanding is swap spreads. What are they?
Basically these were, go long corporate bonds and short
Treasuries. In August 1998. Oh. My. God. FREAKING
KILLED!! So LTCM was down 44% for the month of August!!
Believe me: this fund/company could be toast!!!! The
other point is, I don't think these trades are
completely unwound yet!! In other words that 52% could
get WORSE!!!!! Check this out: "...invest [now] in
LTCM with special terms relating to fees." Yeah RIGHT!
Moral: You can be too smart. Or, never trust a blackbox! |
