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Quitting While They’re Behind: Some Hedge Funds are Throwing in the Towel

via economist.com

THE past few years have been “as miserable as I can remember”, says Johnny Boyer of Boyer Allen Investment Management, a British hedge fund focused on Asia. The fund, which looked after $1.9 billion at its peak, faced the prospect of spending the next few years trying to claw its way back to pre-crisis asset levels. Instead the founders decided to shut the fund and give investors their money back.

Others have also had enough. “I’ve been doing this for 15 years and I’ve never seen as many people give up as in the last three months,” says Luke Ellis of Man Group, a large listed fund. This trend is distinct from the round of closures in 2008. Then, managers were hit by investors’ redemptions and had no choice but to close; today many are electing to walk away.

For some managers, the markets have become too stressful. Running a hedge fund today is “three times as much work for a third of the fun,” says one. But many are motivated by economics. Hedge funds typically get paid a 2% management fee on assets to cover expenses and a 20% performance fee on the returns they achieve for investors. Most funds do not earn performance fees unless they outperform their peak level or “high-water mark”. At the end of 2011, 67% of hedge funds were below their high-water marks, according to Credit Suisse, and 13% have not earned a performance fee since 2007 or earlier.

Funds can survive off a management fee for a couple of years, but four is a long time to go hungry. Most managers were banking on a recovery in 2011 but the average hedge fund slid by 5.2%—much worse than the S&P 500, which returned 2%. Poor performance is causing changes in the way the industry markets itself (see article). It also means many funds will have to wait even longer to earn a performance fee again. According to Morgan Stanley, 18% of hedge funds are more than 20% below their high-water marks.

 

 

Smaller funds have been more likely to close than their larger peers. That’s partly because it used to be possible to run a hedge fund with $75m under management. Today funds need at least double that amount because administrative and compliance costs are higher than ever. Larger funds also depend less on performance fees because their management fees bring in so much cash. John Paulson, a hedge-fund giant whose flagship fund was clobbered last year, has pledged to make up investors’ losses but his fund is so large that he can easily afford to carry on. That risks distorting the original point of hedge funds—that they are small, limber operations which come and go often (see chart).

For investors, it is generally a good thing if underperforming managers are returning cash and not milking them for fees. But others worry that high-water marks could skew funds’ investing decisions. Managers who have not earned a performance fee in years could take bolder bets to get back into the black. Leverage levels have been creeping up. Some may prefer to go out with a bang, not a whimper.

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Green Mountain Option Bets Raise Eyebrows

Green Mountain put volume surges before Starbucks news

* Green Mountain downside March puts heavily traded

* Trading in Starbucks $52.50 strike calls stand out

By Doris Frankel

March 9 (Reuters) – A heavy burst of bearish option action in Green Mountain Coffee Roasters Inc in the hours before Starbucks announced plans to launch a single-cup coffee and espresso brewer has raised eyebrows among some option market participants.

Green Mountain’s Keurig machines are the No. 1 single-cup brewers in the United States. Starbucks Corp, the world’s biggest coffee chain, provides coffee refills for Keurig machines under a partnership with Green Mountain and its announcement late on Thursday was seen as a competitive threat to its partner.

Option bets on a big move up in Starbucks shares and on a sharp drop in Green Mountain stock preceded the news.

“The level of aggressiveness that traders early on Thursday came for Green Mountain March downside puts was very suspicious,” said Alan Thompson, options market maker at Timber Hill, a division of Interactive Brokers Group. “It raised our eyebrows.”

The put buying in Green Mountain “was off the charts into last night’s announcement,” said Jon Najarian, a co-founder of online brokerage TradeMonster in Chicago, who also noticed very strong buying of upside calls in Starbucks on Wednesday.

“We expect that the regulators will take a deeper look at both Starbucks and Green Mountain ahead of (Thursday) night’s announcement,” Najarian said.

The U.S. Securities and Exchange Commission, which looks into unusual stock and options activity, declined to comment.

Read the rest here.

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If Nothing Changes…THEN NOTHING CHANGES

[youtube://http://www.youtube.com/watch?v=t3j_lyTrtG0 450 300] [youtube://http://www.youtbe.com/watch?v=lbTCOxwRAWg 450 300]

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Rumor: Apple to unveil 8GB iPad 2 alongside ‘iPad 3’ on March 7

Taiwanese industry publication DigiTimes reported on Thursday that, according to sources within Apple’s “upstream supply chain,” the iPad maker will release the smaller capacity iPad 2 in order to cover a wider price range within the tablet market and fight off threats from upcoming Windows 8-based tablets.

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Revealed: US Plans to Charge Assange (video)

“UNITED STATES prosecutors have drawn up secret charges against the WikiLeaks founder, Julian Assange, according to a confidential email obtained from the private US intelligence company Stratfor.

In an internal email to Stratfor analysts on January 26 last year, the vice-president of intelligence, Fred Burton, responded to a media report concerning US investigations targeting WikiLeaks with the comment: ”We have a sealed indictment on Assange.”

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Wikileaks Emails Indicate Stratfor Discovered Israel Already Destroyed Iran’s Nuclear Facilities

Source

Growing concerns over Iran’s nuclear facilities may prove to be all for naught. Officials from the global intelligence company Stratfor allegedly discussed that Israel may have already destroyed the Iranian nuclear facility, according to one of the emails released by Wikileaks Monday.

“In one of the over five million emails leaked, the conversation centered on Israeli Defense Minister Ehud Barak praising the news of deadly munitions blasts at a base of Iran’s elite Revolutionary Guards.

“I think this is a diversion. The Israelis already destroyed all the Iranian nuclear infrastructure on the ground weeks ago,” one intelligence official wrote in an email dated November 14, 2011. “The current ‘let’s bomb Iran’ campaign was ordered by the EU leaders to divert the public attention from their at home financial problems. It plays also well for the US since Pakistan, Russia and N. Korea are mentioned in the report. ”

One other Stratfor official allegedly indicated a similar finding.

“Israeli commandos in collaboration with Kurd forces destroyed few underground facilities mainly used for the Iranian defense and nuclear research projects,” he wrote on November 13, 2011. “Even if the Israelis have the capabilities and are ready to attack by air, sea and land, there is no need to attack the nuclear program at this point after the commandos destroyed a significant part of it.”

Stratfor released a statement on Mondaycondemning the leaks.

“This is a deplorable, unfortunate – and illegal – breach of privacy,” the company said. “Some of the emails may be forged or altered to include inaccuracies; some may be authentic. We will not validate either.”

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U.S. Intelligence Reports Suggest Al-Qaeda & Iran are Teaming Up For an Attack on the U.S. or London

“LONDON — Iran and al Qaeda’s core leadership under Ayman al Zawahiri have established an operational relationship amid fears the terror group is planning an attack against the West.

There are concerns such an attack, possibly targeting the London Olympics later this year, would be in revenge for the killing of Osama bin Laden by the US last year.

A’JAD LOADS ‘HOMEMADE’ NUCLEAR FUEL RODS, IRAN TV SHOWS

Intelligence sources said Iran has been supplying al Qaeda with training in the use of advanced explosives, “some funding and a safe haven” as part of a deal first worked out in 2009 which has now led to “operational capacity.”

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GASPARINO EXCLUSIVE: Regulators May Expand Definition of Insider Trading

via FoxBusiness.com

Securities and Exchange Commission Headquarters 01
Reuters

Remarks recently delivered by a senior enforcement official at the Securities and Exchange Commission suggest that securities regulators are now looking to expand their definition of what constitutes insider trading and others types of securities fraud, the FOX Business Network has learned.

The remarks were made by David Rosenfeld, associate regional director and co-head of enforcement in the SEC’s New York office, at a conference earlier this month. The comments have the legal advisers at big Wall Street firms and hedge funds scrambling to determine if their clients have been routinely violating insider trading laws as well as Regulation FD, which prohibits companies from selectively disclosing corporate information to only a handful of market participants, according to three partners at major law firms who were in attendance.

“Based on what he said it seems like the SEC is expanding the definition of insider trading and other violations,” said a senior partner at a major law firm who requested anonymity because he has cases before the commission.

SEC spokesman Jon Nester said some of Rosenfeld’s remarks have been taken out of context.

“He was basically telling people to be careful,” Nester said.

But many of the attendees interviewed by the FOX Business Network disagree, saying Rosenfeld was interpreting routine communications between investors, analysts and corporate officials as illegal because inside information could be disclosed.

“David was frankly shocked that  some of this stuff was going on, which in turn shocked me,” said another attendee who is a partner at a major law firm. “You talk to your institutional investors as a regular course of business, and I can tell you from talking to people at the SEC, David is not alone at the commission holding these views.”

Rosenfeld’s remarks carry weight because his office brought one of the most high-profile insider trading cases in recent history by charging former Galleon Group chief Raj Rajaratnam with violating civil insider trading laws. In addition to the SEC’s civil case, Rajaratnam was convicted of criminal insider trading charges and has been sentenced to a lengthy prison term.

Rosenfeld made his comments at a Feb 2 conference sponsored by the Directors Roundtable Institute, titled “A New Era of Federal Prosecutions: Challenges for Main Street and Wall Street.” He appeared on the panel with five top Wall Street attorneys to discuss the current crackdown on insider trading and how regulators are broadly enforcing other securities laws. About 300 people attended, many of them senior partners at major law firms, or senior legal officials at big banks.

Rosenfeld first raised eyebrows with remarks involving how companies disclose information to investors and analysts, said one person who was in attendance. This person said Rosenfeld said he was “surprised” that Wall Street analysts and companies they cover have private conversations after earnings calls, where corporations broadly distribute their quarterly results.

Rosenfeld indicated that these private communications could violate Regulation FD, this person said, even though analysts routinely call corporate executives to get additional color and clarification on earnings; such practices have been considered legal in the past, legal experts say.

In addition, Rosenfeld called “troubling” other activities that are commonplace in the securities business, such as one-on-one meetings between analysts and corporate officials during so-called “analyst days” where companies discuss corporate issues with analysts and investors. Rosenfeld said these meetings could also violate rule FD and insider trading laws, according to another person who was in attendance.

Another controversial aspect of Rosenfeld’s remarks came during a discussion involving so-called expert networks, which provide hedge funds and other large investors with industry-specific information and data.

Expert networks — which employ corporate executive with detailed knowledge of companies and industries such as health care and technology –have been the target of the current insider trading crackdown for allegedly providing material, non-public information to their hedge fund clients.

Rosenfeld suggested that no corporate executive should ever work with an expert network even though these outfits have long provided broad industry insight and other data that don’t violate securities laws, said one of the attendees.

“Rosenfeld said the government’s view is that no employees should be talking to expert networks even though hedge funds and public firms have been using expert networks legally for years,” said the attendee said.

Nester said in terms of the expert networks, Rosenfeld was suggesting that “he couldn’t see why corporate executives would want to talk to these networks.” As for the other issues, Rosenfeld was pointing out how Rule FD violations might occur through one-on-one meetings, not making a blanket statement that they are in of themselves problematic, Nester said.

Columbia law school professor John Coffee said that the SEC may be simply showing “an excessive level of suspiciousness.”

“I think Rosenfeld is saying that we are nervous about what companies are telling analysts when analysts make calls directly to the company after earnings calls,” Coffee said. “But it’s unrealistic to say that stuff is surprising because of the obvious need to get more information and clarification.”

Read more: http://trade.cc/alxvixzz1mU0UsEVD

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Chile; The Land of Opportunity & American Dreams

“One of the local papers here in Chile ran an interesting story a few days ago about the number of young Spanish immigrants coming to Chile in search of work.

Fed up with the ridiculously high unemployment rate in Spain, and tired of being shut out of every single opportunity imaginable, a handful of intrepid young souls is starting to look for greener pastures abroad. And increasingly, that journey is bringing them to Chile.

The report, published in El Mostrador[Spanish-language], profiles several young people who’ve left Spain’s roughly 50% youth unemployment rate. Stymied by the lackluster prospects in Europe, and the even worse prospects (and visa challenges) in the US, they’ve set their sights on Latin America.

Most found success in Chile’s rapidly growing economy where skilled, energetic young people are in demand. For some, the opportunities here in Chile were so plentiful when they arrived that they encouraged their friends and families back home in Spain to hop a flight and make a change for the better.

Like America of the past, Chile is a country that’s friendly to productive, responsible,  hard-working people. It’s very easy to obtain a residency visa and work permit– all you need is a work contract from just about any local company, and you’re entitled to what’s called a “sujeto a contrato” visa.

This particular visa is renewed after one year. After the second year of continuous employment, you’re entitled to permanent residency. Three years later, you can apply for naturalization and a Chilean passport, as long as you meet minimum time-in-country requirements.

Best of all, you don’t even need a lawyer. Compared to what I’ve seen in Europe and North America, the red tape involved in the Chilean immigration process is minimal; local companies in Chile have tremendous latitude in hiring foreign workers without the government getting involved….”

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NRA Official: Obama Wants to Outlaw Guns in 2nd Term

Sean Lengell

A top official with the National Rifle Association said Friday that President Obama will move to “destroy” gun rights and “erase” the Second Amendment if he is re-elected in November.

While delivering one of the liveliest and best-received speeches at the Conservative Political Action Conference in Washington, NRA Executive Vice President Wayne LaPierre said the president’s low-key approach to gun rights during his first term was “a “conspiracy to ensure re-election by lulling gun owners to sleep.”

“All that first term, lip service to gun owners is just part of a massive Obama conspiracy to deceive voters and hide his true intentions to destroy the Second Amendment during his second term,” he said.

“We see the president’s strategy crystal clear: Get re-elected and, with no more elections to worry about, get busy dismantling and destroying our firearms’ freedom, erase the Second Amendment from the Bill of Rights and excise it from the U.S. Constitution.”

Mr. LaPierre said the president’s two Supreme Court appointees — Sonia Sotomayor and Elena Kagan— are “two of the most rabid anti-gun justices in history.” He also accused Justice Ruth Bader Ginsburg of being a foe of gun rights.

And with the possibility of two or more Supreme Court justice positions opening during the next four years, the NRA official warned that gun ownership would be in jeopardy if Mr. Obama stays in office.

“If we get one more like those three, the Second Amendment is finished,” he said. “It’ll be the end of our freedom forever.”

Read the rest here.

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SHOCK: Ex-Red Sox Pitcher “Oil Can” Boyd was High on Cocaine 2/3 of the Time on Mound

via CBS BOSTON

BOSTON (CBS) – Former Red Sox pitcher Dennis “Oil Can” Boyd admitted on Wednesday that two-thirds of the time he was on the mound, he was under the influence of cocaine.

“Oh yeah, at every ballpark. There wasn’t one ballpark that I probably didn’t stay up all night, until four or five in the morning, and the same thing is still in your system,” Boyd told WBZ NewsRadio 1030’s Jonny Miller in Fort Myers, Fla. “It’s not like you have time to go do it while in the game, which I had done that.

“Some of the best games I’ve ever, ever pitched in the major leagues I stayed up all night; I’d say two-thirds of them,” said Boyd,  who spent eight of his 10 major league seasons with the Red Sox. “If I had went to bed, I would have won 150 ballgames in the time span that I played. I feel like my career was cut short for a lot of reasons, but I wasn’t doing anything that hundreds of ball players weren’t doing at the time; because that’s how I learned it.”

Despite that, Boyd said he has no regrets in his career that spanned from 1982 t0 1991.

“It was something that I had to deal with personally and I succumbed,” he said. “I lived through my life and I feel good about myself. I have no regrets about what I did or said about anything that I said or did. I’m a stand-up person and I came from a quality background of people.”

Boyd, who went 78-77 with 799 career strikeouts with the Red Sox, Expos and Rangers, said he received support from some teammates, but not all.

“All of them didn’t rally around me,” he explained. “All of them knew and the ones that cared came to me. The Dwight Evans and Bill Buckners… It was the veteran ball players. Some guys lived it… They knew what you were doing, and the only way they knew was they had to have tried it too.”

Boyd explained why he believes he got a worse reputation than some others.

“The reason I caught the deep end to it is because I’m black. The bottom line is the game carries a lot of bigotry, and that was an easy way for them to do it,” Boyd said. “If I wasn’t outspoken and a so-called a ‘proud black man,’ maybe I would have gotten the empathy and sympathy like other ballplayers got that I didn’t get; like Darryl Strawberry, Dwight Gooden, Steve Howe. I can name 50 people that got third and fourth chances all because they weren’t outspoken black individuals.”

Boyd said he was never asked to take a drug test during his playing days.

“I never had a drug test as long as I played baseball,” he said. “I was told that, yeah, if you don’t stop doing this we’re going to put you into rehab, and I told them (expletive) that (expletive).  I’m going to do what I have to do, I have to win ball games. We’ll talk about that in the offseason, right now I have to win ball games.”

The retired Red Sox pitcher has been busy as of late. His autobiography, “They Call Me Oil Can,” is scheduled for publication in June. In May, he will be filming his role as pitcher Satchel Paige in a major motion picture about Jackie Robinson, starring Harrison Ford as Branch Rickey, Richard Gere and Chadwick Boseman as Robinson.

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