Hedge Fund Wisdom

I recently finished Inside the House of Money by Steven Drobny. The book is a series of interviews with global macro strategy hedge fund managers. Global macro has many definitions as a read through Drobny’s book will show you, but one can think of it as the ability to invest in any market and instrument around the world. These are some interesting quotes and thoughts from the book. (There is a link to the book at the end of this post)    

Answering a question about missing “the trade [that] never would have happened” Christian Siva-Jothy says markets “are unbelievably slow to react to big events that there is no script for.” I like this quote because it reminded me of the ‘never sell in a panic’ and similar cliques; it explains that markets are driven by humans who exhibit irrational behavior, especially when surprised.

How often are we taught the lesson of ‘if it sounds too good’…Dr. John Porter reminds us why this occurs in finance and business time and again: “It’s funny how people are very reassured by numbers just because they’re numbers. They rarely look at where the numbers come from or how stable they might be.” It would be valuable to remember this lesson.

Some quick quotes for you…

If you’re right at the wrong time, you’re wrong.

-Yra Harris

Politicians throughout history have gotten things wrong turning a semicrisis into a crisis and then into a disaster.

            -Jim Rogers

A little education about short selling:

This quote explains how the return from shorting is maximized and that waiting for the downtrend to start is equally profitable. Scott Bessent said, “You made just as much shorting $100 million of Enron at $25 as you did shorting $100 million of Enron at $50. It’s better to have more conviction and do twice as much.”

And a little something for the GREED in us…

Anybody who knows how much he is worth does not have enough.

            -Jim Rogers

Inside the House of Money: Top Hedge Fund Traders on Profiting in the Global Markets

The Weekly Spot Rate

This week's spot rate is all about inflation. Friday I was listening to Bloomberg Radio's On The Economy where they interviewed Jagdish Bhagwati a professor at Columbia University. I greatly enjoyed Professor Bhagwati's description of the current food inflation problem. He says that with the lack in global food production and increased food inflation, in order to bring down food prices we need to increase production and "to provide new agricultural productivity. That means we've got to bite the bullet with all these worries about Frankenstein foods, because Frankenstein is only potential whereas the Grim Reaper is here and now." What Professor Bhagwati means is that we need to embrace the use of genetically modified foods (Frankenstein) to feed the world today, and not let the Grim Reaper (the dearth of food and rising prices) starve out our population; better save people with something that may or may not cause harm than knowingly let people die. I thought this way of viewing the problem was amusing and insightful, hope you do to. 

The Billion Prices Project is a project led by two MIT professors who are trying to capture daily inflation fluctuations. They are using a basket of millions of online products to determine what the inflation rate is in a variety of countries. It is worth noting that the United State's official inflation rate is significantly below that of the Billion Prices Project's. The link is posted below.

Have a great week. 

http://bpp.mit.edu/

Bank Information Website

I was just searching through Google and came across this website http://www.bankregdata.com/main.asp It is definitely worth a look, some great information available. I am not sure about the accuracy, but it would be a great starting point for any analysis. 

The Weekly Spot Rate

Alan Blinder the vice chairman of the Federal Reserve wrote a great article in the WSJ about the Carbon Tax idea. This struck me as a great way to implement a new tax, regardless of what it is. Blinder's plan is to approve the tax legislation and tier the tax up over time, but the part I really like is to start at a 0% tax rate. This is a great way, as Blinder point out, to allow business to see where rates will go in the long term and give them time to adjust. Below is a link to the article. 

Bloomberg Radio had an interview with Peter Schaffrik, head of Euro fixed income strategy for RBC capital markets in London, on February 7th, 2011. In this interview Schaffrik spoke about 2 kinds of inflation: internal and external. He defined internal inflation as economic overheating and external inflation as rising commodity prices. As can be seen, one form is controllable by the state and the other is not. I though that this was a great insight, as all too often we find people focusing on inflation, as they should, but they do not separate inflation into the controllable and non-controllable forms. Something to keep in mind when we think about inflation and deflation for that matter. 

The Carbon Tax Miracle Cure by Alan Blinder

http://online.wsj.com/article/SB10001424052748703893104576108610681576914.html