2013 WORST HEDGES OF ALL TIME CALAMITY
Someone go back in time and bitch slap me for thinking that shorting oil and the euro into a summer global slowdown was a cool idea.
Rarely has someone been so right while at the exact same moment been so completely wrong.
Thank God for 30%+ cash positions…
Let’s Talk About Something Else
Sure I could sit here and gloat, now that oil inventories have ticked higher at twice expectations and global demand forecasts have been torn up. I could, because I told you this wasn’t over, and because I mentioned explicitly that a one off inventory drawdown was more likely noise than anything substantive. Seems that oil actually didn’t have anywhere important to go, so it went back to storage.
I could do that; but I’m not going to.
I’m not going to gloat because that’s what the market wants. It wants to see me give off hearty guffaws so it can reverse higher in my face and make me look like a jackass. It wants to crush my reputation before it does what I know it will inevitably do, because that would hurt me the most. The market is a cruel mistress, like that.
So instead, let’s chat about the global demise of hedge funds.
It’s been riveting, watching the hedge fund structure almost totally impale itself over the last five years. On the face of it, hedge funds should be uncontestably preferable to other financial structures. They have more options at their disposal, and they’re comprised of money from wealthier, (allegedly) savvier investors. There should be no reason for the near total demise of the industry. Yet, here we are.
Why did this happen? Well, the fees are obvious; it’s difficult to outperform when you’re nabbing 2% of all assets under management, then scalping your clients for 20% of any gains in any year. That’s just ridiculous anyway, without your “sage” advice coming attached.
But I think the biggest single problem hedge funds have faced is a saturation of the field with morons.
The hedge fund structure on its own is solid. It’s ideal, even; you have a core group of successful men and women who come together to gain access to expanded options for their money. Under reputable oversight, that should always come out ahead. And the earlier pioneers of the approach did do very well. But like anything that’s popular, it eventually draws out the two bit hucksters and spectacularly untalented self-promoters, who work hand in hand to drive the reputation of the entire sector into the ground.
The 2/20 payment method needs to be looked at to clean the space up. As it stands, an adept marketing major with no special understanding of investing can sell themselves as life extending snake oil and, even if he or she does a God awful job, make a killing. 2% of assets is twice the pay you’d get heading a mutual fund, and these strumpets would never stand a chance of launching past the regulations and oversight that come with one of those. Who cares that the clients are losing their shirts? Sultry words and a nice smile can get them to bunker down for a few years at least, which is still a fat payoff.
The hedgies are in need of a good rain of fire to raise their Sodom and Gomorrah to the ground. Turn those cheap frauds to pillars of salt, and all of that. When the smoke clears, the real deals can set about restoring the reputation of what should be the preeminent investment platform in modern finance.
Biding My Time
Waiting for an oil market correction is a lot like watching toddlers playing with toys from the next age category up. The pieces are all there, and they’re having the time of their lives, but they sure as hell have no clue where anything goes.
Italian numbers were just abhorrent this morning. And the long assumed 8% growth rate of China has been humiliated. European recovery and Chinese domination were all cornerstones of the global growth theory. They have since been shattered, but like Wile E. Coyote, the market hasn’t quite worked out that things have changed.
The oil inventory number that got everyone excited last week can be explained away as a one off. Moving inventories around and offloading them to storage facilities. But there’s no doubt that oil demand continues to fall. ISM numbers, manufacturing, foreign economic GDP…it’s all telling the same story. There have been only a handoff of positive reads, and they’re being put on a pedestal, when they should be put under scrutiny.
I’ve seen this plenty of times before now. Oil prices stay elevated, ignoring the bad news, assuming that sooner or later something good will come along to set it all straight again. And the market ignored the news for months.
Then it implodes.
The losses never last long; just a few months. But the moves are fast and gargantuan.
So sit back and enjoy the game for a while. Play it if you want. I’m content to spend nine tenths of the time waiting for that one special moment when all the real money gets made. It’s coming – like gravity.
Not Done Yet
Overseas markets have continued to melt down unabated for weeks now. The Yen carry trade is dead and anyone caught in it has been trapped. And now numbers coming out of Europe continue to reinforce sustained recession with no exit strategy in sight.
The million barrel oil drawdown was confirmed by the Energy Department, which has so far kept crude prices elevated. But the summer demand will continue to slump shortly, reversing the pricing and exacerbating melancholy market sentiment into depression.
Oil futures are solidly in backwardation. Demand is slacking, as indicated by the ISM numbers and European country statistics. Throw on top of it all the energy revolution taking place in North America, and this summer sometime we’ll see a hemorrhage.
For the moment, I’m taking it two ways, as my long sell off and my “hedges” lose me money every single day. But EUO and SCO will prevail, into a summer selloff. I’ve been here before.
Afternoon Thought On The Little IMF Fiasco
It turns out the IMF, despite assuring depositors that it has never lost money placed with the institution, decided to sink what could be unrecoverable billions into an obviously overindebted country, breaking many of their own rules along the way, in the largest bailout of its kind ever.
The first red flag might have been that they were cutting billion dollar checks to a woman holding a Louis Vuitton…
My Hedges Are Failing Me
Per the course, some dipshit(s) is loading up on oil going into the teeth of the summer slowdown, keeping steady pressure on the contracts. Who exactly it is that thinks buying crude oil while inventories are undergoing surprise builds and PMI is missing expectations, I cannot say. All I know is that this is cliché.
The market is rolling over and some genius is trying to strip down my shield and use it for a wake board on a lake somewhere.
The euro is also hitting pressure around that 1.3 area. Look, Europe is inevitably at the heart of this slowdown. Their unemployment and economy issues are what is derailing China. Japan is front and center, but Europe is always lurking in the background.
If we slow down, there is zero chance that the euro can hold this strength.
On the positive side, CLP shook off analyst downgrades and lawyer harassment and rallied more today; mostly because it’s a good deal.
I don’t know what it is about the bar exam that turns people into sociopaths – I don’t want to know. The truth is, I actually hope these law firms piling on fiduciary inquiries succeed in getting MAA to pump up the offer, just to seal the deal. But when it’s all said and done, the lawyers pushing this harassment of CLP’s management should seek professional help.
