Monday, May 04, 2009

Jesus Chrysler

Today's must read post comes from AQR's Cliff Asness, courtesy of ZeroHedge. Asness is responding to President Obama's populist soundbite a few days ago, regarding the greed of some hedge funds in the Chrysler Bankruptcy negotiations:

Obama: "While many stakeholders made sacrifices and worked constructively, I have to tell you some did not," the president said. "In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices, and they would have to make none."
and then

Asness: "Let’s be clear, it is the job and obligation of all investment managers, including hedge fund managers, to get their clients the most return they can. They are allowed to be charitable with their own money, and many are spectacularly so, but if they give away their clients’ money to share in the “sacrifice”, they are stealing. Clients of hedge funds include, among others, pension funds of all kinds of workers, unionized and not. The managers have a fiduciary obligation to look after their clients’ money as best they can, not to support the President, nor to oppose him, nor otherwise advance their personal political views. That’s how the system works. If you hired an investment professional and he could preserve more of your money in a financial disaster, but instead he decided to spend it on the UAW so you could “share in the sacrifice”, you would not be happy."

Asness's entire letter is well worth the read.

I also enjoyed Howard Lindzon's piece on the "inconceivable rally" we've seen in the equity markets over the last several weeks. Lindzon takes an introspective look at what it's like being bearish during a massive rally, and comes to the age old conclusion "don't fight the tape," although he doesn't say it as such.

I sympathize with Lindzon's view, as I'm also bearish - I don't believe hope can replace money as the purchasing asset for the U.S. Consumer, who is, as Lindzon notes, "tapped out." Still, apart from a bearish options trade I put on a month ago, I have resisted adding to my short positions, as I learned long ago not to fight the tape. In the words of John Mayard Keynes: "The market can stay irrational longer than you can stay solvent."


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