Michael Covel: News & Info.

David Faber has been reporting today that Goldman Sachs and all “other” top hedge funds are 75%-100% done delevering their stat arb funds. Does anyone really believe some of the best hedge funds on the planet are really doing exactly what is being reported? Is the news that very successful hedge funds are now “delevered” supposed to pacify or make the average guy feel comfortable?

The Hedge Fund Implode-O-Meter tracks the hedge fund implosion.

Interesting reading…

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Dear Renaissance Investor,

As promised in my July letter, posted today on the RIEF website, I want to share some thoughts on August-to-date performance in order to provide perspective on a most unusual period.

RIEF results through July 31 were below expectations, but not extraordinarily so. I’ve previously stated that the low volatility Basic System, to which our predictions are added, was not in sync with the market during much of this period. Nonetheless, we remain confident that over time the Basic System will match the return of the S&P and, enhanced by our predictive signals, should exceed it. Since we do not attempt to track this or any other index there will be periods of positive and negative relative returns.

August (down 8.7% through today) is a different story. The culprit is not the Basic System but our predictive overlay. While we believe we have an excellent set of predictive signals, some of these are undoubtedly shared by a number of long/short hedge funds. For one reason or another many of these funds have not been doing well, and certain factors have caused them to liquidate positions. In addition to poor performance these factors may include losses in credit securities, excessive risk, margin calls and others. All of this may not influence the direction of the overall market, but it may certainly alter the relationships of stocks to each other in a dramatic way. Given the undoubted partial overlap of our portfolios, these liquidations have had a negative impact on RIEF.

Other examples of such liquidations are the meltdown of risk arbitrage positions in the October 1987 crash, the forced liquidation of junk bonds around 1990 and the collapse of European bonds in 1994. Some of these were in the midst of a bear market, some not.

Such events tend to occur extremely infrequently. We cannot predict the duration of the current environment, but usually such behavior causes first pain and then opportunity. While we may hedge out some market risk, our basic plan is to stay the course and, as conditions revert to the norm, we anticipate the possibility of an attractive opportunity for RIEF. Our firm remains strong, and although Medallion has experienced some losses in August, it is solidly profitable year-to-date.

We are confident in our approach, and we urge you to contact our staff should you have any questions.

Sincerely,
Jim Simons

I caught a nice excerpt from a Money Magazine article:

Am I acting on reason or emotion? While at my gym last week, I was watching one of the cable TV financial shows as the market was in the midst of a steep decline. Based on the frenzied rapid-fire report of the correspondent on the trading floor, you could easily get the impression that you’d better quickly dump your stocks before you get caught in a bloodbath. Of course, just weeks before, the same show was so upbeat when the market was hitting new highs that you could have gotten the impression you were an idiot if you didn’t take out a home equity loan and plow the proceeds into the market. All of which is to say that you’ve got to be careful about getting caught up in undue pessimism during bad times and irrational exuberance when things are going swimmingly. It’s almost always a mistake to invest in the heat of the moment. Better to step back, calm down a bit, even let a day or two go by and then make sure that you’re making a decision that reflects a long-term strategy, not some passing passion.

Forget for a moment “strategy”, the author’s overall philosophical stance is on target.

From the AP today comes the headline “Wall Street Bounces on Fed Decision” along with this blurb:

Wall Street searched for direction Tuesday after the Federal Reserve disappointed investors by maintaining inflation fighting as its highest priority although credit has become tighter for consumers and businesses.

Questions:

1. Up 1/4 of 1% is a bounce?
2. How did Wall Street search for this “direction”?
3. Did the Fed disappoint all investors?

I understand the need to say “something”, but am I the only person who finds it funny that 26-year-old writers feed millions of people every day dribble than says absolutely nothing?

I was turned onto a website today called ‘Money on Loan from God‘. It’s pitch:

If you have money invested in mutual funds, a 401(k), or other stocks and bonds, you are likely profiting from companies who distribute pornography, are helping to advance the gay & lesbian political agenda, or are a part of the abortion industry and you don’t even realize it! Now, you can do something about it. If you are tired of the roller coaster ride of the stock market, but unsatisfied with bank interest rates, you may benefit from considering alternative investments which have no stock market risk, but offer attractive potential returns. If you are asking “Why hasn’t my stock broker, or financial advisor told me about these issues?”, Money On Loan From God will give you the answers you need to develop a financial plan that attempts to not only meet your financial goals, but reflect your personal faith and values at the same time.

If you plan on placing a moral litmus test on all of your investments, you are chasing fool’s gold.

Barry Ritholtz offers some insights on Cramer’s call for the Fed to cut. Here is a clip worth watching all the way through:

Barry Bonds has now tied Hank Aaron with 755 career home runs. The lead story, however, is not Bond’s achievement, but his steroid use. I have a question: when did steroid use become something new? I remember being a sophomore in high school in 1984. There were clearly many in my high school “juiced”. It wasn’t even a debate. So if steroids were abused back in 1984 within my high school athletic world, is someone going to try and convince me that the use of steroids in pro football and baseball only started in the nineties? Look, it sounds like Bonds is an arrogant jerk. He took steroids. But why is everyone conveniently ignoring all of the other pro athletes over the last 25 years who have made steroids part of their breakfast of champions? The dirty little secret is that most sports over the last 25 years have been injected with steroids. Please rip Bonds. He deserves it, but so does everyone else.

Note: To all non-baseball people, Bonds swing did not come from steroids. There are plenty of bloated muscle freaks who could never swing a bat. That is not a Bonds defense, just reality.

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