Hedge Funds + Subprime Collapse = Profits

September 4, 2007 | Leave a Comment

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An interesting story from Fxtraders.eu (subscription required) … Evidently, while some hedge funds focused on mortgage backed securities have suffered losses (that have been duly noted in the press) related to the decline in the sub-prime mortgages space, many hedge funds have also been able to generate profits as a result of its decline.  Well, I must admit that I don’t mind pointing out that we told you so.  Consider what we blogged on July 19th:

So why is HFL jumping on the bandwagon with commentary on the sub-prime issue?  Well, it’s all about low hanging fruit.  As we have seen in the past with excessively oversold markets (e.g., distressed in 2002 and converts 2004 and 2005), the smart money is ready and waiting to buy at the bottom and reap years of rewards while the mainstream sits on the sidelines and licks their wounds inflicted by painful forced liquidations.  Consider this HFL’s call out to all players with experience in the sub prime sector: now is the time to start thinking about ramping up your own sub-prime vulture funds!  Whether you’re a victim of a downsized prop desk or a shuttered hedge fund, now is your chance to strike gold.

 It certainly seems that some hedgies positioned themselves well and are now benefiting from the subprime collapse …

In what has been the best short sale theme since 2002, many hedge funds have greatly benefited from the collapse in sub-prime mortgages via their short exposure to mortgage lenders and sub-prime mortgage backed securities and indices. While some have focused on shorting mortgage lenders and buying credit default swaps (CDS) on specific mortgage backed bonds, others have elected to purchase CDS on indices of these securities (the ABX series), with most focused on those securities issued in 2006 under more relaxed lending standards.

Even with some hedgies profiting from the subprime mess, you probably won’t see the mainstream press write about it much — at least not for a few more weeks.  Fortunately, investors can be smarter as we reported in July …

There will, however, be no shortage of astute investors that understand the signs of an oversold market and smell the opportunity for huge profits. 

Amen.
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Hedge Fund Salaries and “Fairness”

August 30, 2007 | Leave a Comment

Dealbook reports on a couple of new studies that whine about hedge fund manager salaries being out of whack with the rest of the workers in the United States:

Last year, the top 20 hedge-fund and private-equity-fund managers earned more in 10 minutes than United States workers made the entire year, according to a report released Wednesday by two advocacy groups.

HFL says: Notice how these “advocacy” groups like to single out the top 20 hedge funds.  What about the other 8500 hedge funds out there?  Guess they don’t count.

According to the study, that dwarfs the discrepancy between chief executive officers and workers: Corporate chieftains, on average, earn about 365 times the average pay.

The Institute for Policy Studies is a nonprofit research group that promotes alternatives to the “corporate-driven approach to globalization.” United for a Fair Economy, based in Boston, “raises awareness that concentrated wealth and power undermine the economy” and corrupts democracy, according to its Web site.

HFL says: Let me clarify this for you … The Institute of Policy Studies and United for a Fair Economy are nothing more than socialist front groups determined to destroy the capitalist system.  Groups like this like to hide behind euphamisms.  It is always about promoting “fairness” and “preventing the corruption of democracy.”  But really its about taking your liberty and controlling how successful you can be.  No wonder they are out to get hedgies.

The study’s authors said top hedge fund managers are making more in a fraction of an hour than a typical worker makes in a year. According to the study, hedge-fund chiefs average $12.6 million a week, or $210,700 an hour based on a 60-hour week. That’s $35,100 every 10 minutes, compared with $29,500 a year for the average worker.

HFL says: Horror, the horror.  None of these nitwits can make over $35K per year.  No wonder their pissed off.  They want diamonds like Percy Walker has — Oh, but that would mean having to go out and earn it!  Nevermind.

Sarah Anderson, a director at the Institute for Policy Studies, supports a Congressional move to close the loophole allowing private investment managers to pay lower tax rates than ordinary Americans.

HFL says: Of course she does … because she’s a socialist.
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