dead link...

works now

Wouldn't it be hi-motherfucking-llarious if China tried their so called 'nuculear option', yet when they tried to monetize their dollar holdings they were all in worthless shit pushed on them by our Banks.

Baa-Hah.

china holds >$400 billion of US treasury securities. it dwarfs the CDOs and CLOs by an order of magnitude

This is getting old. The dems want to destroy the MBS market by outlawing pre-pay penalties, shorts are hyperventilating saying that these CDOs are all crap, and some funds are imploding for no good reason.

The problem isn't CDOs or "fraudulently" turning lower rated debt into high quality debt through pooling - it's called insurance, and it works pretty well. Idiots that lever using short term, callable money and invest in medium to long term paper that will be illiquid if the marging is called - since the margin is being called because the assets are suddenly illiquid. This is just Brian Hunter all over again, without the giant salmon.

Stop helping people who are trying to destroy CDOs, just like you scorned the people who tried to outlaw futures during the Amaranth and Enron debacles.

I just wish Paulson, Bernanke and Greenspan would just wait for the music to stop before they try to get the three of themselves into the two remaining chairs.

When CDOs are outlawed only outlaws will have CDOs.

It's a load of bull.

Most CDOs and CLOs are bought by people who have no clue about measuring the real risks these instruments embed.

Cheers to all the money the CDO-selling banks made! I feel sorry for the buyers, but who says that life is fair?

Bulging Bracket: Don't be stupid the DEMs love CDOs Freddie and Fannie will soon be pumping mad sweet liquidity into the mortgage market....just like Oprah... You get a house, and you get a house, and you get a house... EVERYBODY GETS A HOUSE!

Bess:

I think the letter would go something like this. Hmmm,

Good News! We're up 240% in a very short period of time by making a good bet and using excessive amounts of leverage. While this is very fortunate for us, one wonders what would have happened if we had miss read the markets and the trade had gone bad with a similar amount of leverage. Maybe we're in the same position as Brian Hunter circa 2005 short natural gas with huge leverage and no risk control. Maybe this will just embolden us to take even larger highly levered risks and next year they will be mocking us on Dealbreaker.

With CDOs, one can securitize a lot of low grade debt into some high grade debt. This is not alchemy, nor is it fraud, it is a scientific innovation. Unfortunately, it WILL look like magic or fraud to the innumerate masses. What we need, I think, is standardization and exchange listing of CDOs ... that will put a dent in the pockets of bankers and "CDO managers" but it should be good for CDO end-users.

thats one helluva letter he pumped out.

Key part i think is that as he noted roughly 50% of borrowers (in CA) overstated their income by 50%+.

Let us not forget that this subprime sh!t is not solely the fault of the banks, but moreso that of these borrowers.

banks = originators, banks, cdos, 'wall street' blah blah

If anyone knows the make up of PBC $Assets please contact the US Treasury Department, they too would love to know.

Anal parlysis: Hillary promised to ban prepay penalties. That will make CDOs less stable, lower the creditworthiness of all MBSs, and increase mortgage interest rates. Yes the Dems want everyone to get a house, but by their interventionist, pro "activist", anti "capitalist" nature they will inadvertently screw the mortgage market and CDOs. These are the same people who "capped" CEO pay at $1M, accidentally causing executive compensation to balloon through the use of stock options that have a lower tax rate than income, aren't expenses according to GAAP, but ARE tax-deductible. All of their policies are focused on optics rather than effectiveness (no the Repubs aren't good, but they have better instincts and staffers, though that's really faint praise).

You're definitely right on the value of Hayman. Anyone that makes more than 40% in a year needs to liquidate their position and go to the beach. If I had any fund that was up 240% I'd fire the fund immediately and have a very serious and strenuous discussion with the advisors that suggested that investment.

I like how your "strenuous 'discussion'" involves Anal paralysis...

240 is a bit ridiculous, but tons of great funds return way more than 40% once or twice or even thrice a decade...

What you mean a 240% gain is bad? I guess a hedge fund managers just can't win. If you lose money, your investors are pissed off because they expect a free lunch on a silver platter every month. And if you make money, they're pissed off at you because they suspect that either you're using insane levels of leverage or you're just earning beta. But the hedge fund manager's incentive is to make as much money as possible as fast as possible, in order to book that performance fee. So what kind of idiot blames someone for doing his job "too well?" AS for the issue of taking unreasonable risks, everything is specified in a hedge fund's offering memorandum. The OM specifies how much leverage the fund manager will take, how big individual positions will be, etc, etc, etc. Either the OM is acceptable to you and you invest your money or you take your business elsewhere. Nobody can help you if you're buying things without reading the ingredients.

eric m - 240 and 40 are different mutherfucking ballparks.

AP and BB... why the hostility to strong performance? Hayman has a thesis about subprime and it sounds like they timed it just right... isn't that what they're supposed to do? It's not like they took the fund to vegas and put it all on black. When did anticipating market movements become something to be scorned - should they instead have aimed for a mediocre performance so as not to get everyone else jealous?

chris, i was responding to bulge bracket's comment, wherein he stated that managers who return > 40% should liquidate and go to the beach.

Anon 4:37: By your logic Brian Hunter is a genius. The problem is the Hedge Fund manager has a symmetric risk, or a call option on the performance of his fund while the LPs want to maximize total long term returns. That's why you want to invest with a manager who's got a significant amount of wealth in their fund. 240% return isn't necessarily bad but what does that data point tell you about the standard deviation of the asset values in the fund?

"With CDOs, one can securitize a lot of low grade debt into some high grade debt"

Are we trying to make a candy out of sh*t again (out of junk in this case)?

To create a high grade debt basket, one needs to offset innumerable risks of each individual junk constituent. CDOs were never meant to be remotely risk-free (otherwise, why sell them at less than a comparable-rating bond, as most CDOs were priced).

Anyway, apologies for this 20/20 hindsight. Best of luck to you guys if you hold this stuff with only a marketer's promise for a high-grade quality.

You can make a little candy out of a bunch of shit. But the shit that's left over is shittier than the original shit.

Comprendez?

"why quit at 40%?" "240% is great!" "why do you hate success?"

If you're up that much, you're really, really volatile and you could just as easily be Sowood as an all star. You should have a mark where you just take the rest of the year off, since you're infinitely more likely to take your performance to 20% for the year instead of 45% or 50% if you're already up 40%. I think there's an aphorism about bulls and bears making money but pigs getting slaughtered, but y'all are obviously far smarter than I am!

Turkey Hunter: They didn't take it to Vegas and put it on black. They went to Vinny the loanshark, borrowed 7x the value fo their house, went to Vegas and bet on 00.

Hayman Subprime Credit Strategies was up 107% in JULY and is up 305% YTD. Their flagship was up 60% in July and 149% YTD. I'd suggest that a 1284% run rate is somewhat unsustainable. They had already been up 50% over 6 months and then doubled their money in July. Take a lesson from Brian Hunter and don't try to repeat career peak heroics. Cashout, pay bonuses, take a few months vacation, then deleverage and work on new strategies in October/November.

I'd like to nominate Bulging Bracket for promotion out of the peanut gallery and into the ranks of DB contributing editor.

BB - Being conservative and taking profits rather than trying to ride out a winning strategy is fine - if that's your inclination.

Firing the fund and having a "strenuous discussion" with whoever recommended them to you based is another matter entirely... I mean WTF? as mentioned earlier, you know what you're getting into with an OM - if you don't like the vol, why invest with them in the first place?

If we assume any market strategy is a bet (and why not? there's no reason to assume Hayman's strategy has less logic than any other fund) then why not celebrate a win? i don't see them claiming to be anything other than well positioned for the current subprime mess.

We have no real idea of how how much leverage these guys use - or how much fat tail risk they have... so why are you comparing them with Brian Hunter and not John Arnold?

And before we know it, BB will have his own daily 5-minute feature with Bess, who will replace Erin on CNBC. I see where this is going...

TH - this is rather odd, having a 40%limit up being called "conservative". I'd call it "not wanting to become a verb on DB and in traders' bars around the world".

Of course anyone can do what they like as long as they have the right agreement language. If you've read most OMs floating around, they have about as many restricitons as a PE LBO covenant document - i.e. 0. I'd fire the advisers because they're supposed to be going above and beyond the documentation and understand the day to day operations of the investments.

Running a fund like this is stupid. It's what Nick M did with Amaranth. Hayman's performance is what you get out of founding Microsoft or Google. The performance over time is dotcom bubble/Youtube level. Timing your thesis just right isn't a bloody strategy, it isn't repeatable, and it's criminally irresponsible.

The reasonable portfolio allocation to a fund as volatile as this is so tiny that it makes no sense for any investor to be involved in it, especially after fees. It's much more productive and enjoyable to take that level of your portfolio and go to Vegas or Monte Carlo. If you meet the minimums for Hayman's fund, you'll be treated VERY well in those casinos and enjoy your "investing experience" so much more than you would investing with a "short CDOs in Dallas" fund..

CS - I don't yell, so I dont qualify for CNBC.

BB you said

If you're up that much, you're really, really volatile and you could just as easily be Sowood as an all star.

taken by itself this statement is so wrong i would fire you on the spot.

it is plausible and expected for some funds to be up that much and not volitile

first you don't understand the definition of volitility and second you don't understand that there are many strategies where this could be expected

in context you may be right about hayman but as a generalization, what you said is just plain stupid

BB - Again, your assumption is that volatility is automatically the enemy. By all means regard it as unlikely to be sustainable in the long term but who said that Hayman expects to earn these results every month or even every year?

How on earth do you know enough about how the fund is run or how its invested to know that its investment strategy is "criminally irresponsible"?

And since when is market timing not part of investment strategy - you're kidding me right? That whole concept of cycles that everyone talks about - maybe you're familiar with it? Did it occur to you that timing might be an important part of it?

im just coming back to say i can;t believe what a dumbass BB is

ok. kisses

I take it from Bulging Bracket's alias and discourse that he is a banker, not a gun... Or maybe he's an "asset allocation consultant" ... Which is perfectly fine. But it's like being the guy who aims to get to first base with a punt or a walk, as opposed to the guy who aims for the home run. Both guys have a role to play on the street but it's worth noting that they are not the same person.

soros might be remembered differently, if at all, had his infamous pound/deutsch mark trade not worked out.

so, you find yourself in a fund that's up 3x on the year while lots of other market participants get their teeth kicked in? consider yourself lucky, take your gains and rebalance. sounds like diversification to me, not rocket science.

CCS - You know, you're right. Soros might be remembered differently if he'd been wrong... and Napolean might be remembered differently IF he'd skipped Waterloo, same with Custer and Little Big Horn... Hell my Aunt would be my Uncle IF she had balls.

Why the assumption that this is all luck and not some great credit market insight combined with a little good fortune?

Must it be blind luck if the rest of us didn't see it first or as well?

lancey - "in context you may be right about hayman but as a generalization, what you said is just plain stupid"

if we're talking about hayman as part of a portfolio, whether leverage/volatility/240% performance is good, bad, or indifferent depends on the overall investment strategy. *context* is exactly what you need to make those judgments.

Yeah, CCS. What are you going on about? Soros' trade against the European Exchange Rate Mechanism was as sure a thing as you can find in capital markets. It WAS a once in a lifetime opportunity, but that doesn't mean that you shouldn't seek out and exploit such opportunities when you can. Nor does it mean that you can compare it to (say) Brian Hunter's natural gas trade, which simply was not a high probability bet.

turkey-i don't see where i implied that either soros or hayman were luck related. what i said was that IF you're an investor in a fund that has exceptional performance in a difficult period for others, you should consider yourself lucky.

anon-regarding the soros trade, it's an example. it's a sure thing in hindsight. were it a sure thing at the time, the opportunity wouldn't have existed to the extent it did. brian hunter? huh? now what are YOU going on about?

Analysis: No fannie/freddie bailout. None. It's been said by OFHEO and now, this morning, by Bush 2x during his live press conference.