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steven

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djrajio

djrajio

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Morgan Stanley $3.7 billion write down jablaaam! It will be astounding if Goldman doesn't suffer any significant writedowns.

There are several things at work at Goldman that they did well. One, is that they recognized the downturn in the mortgage market early and actually profited from market going south. Two, in many of their funds that had lost significant positions, they switched up their rhetoric and instead of telling their investors that they lost money, they told them that its an "opportunity to buy/put more money in". Hence, their losses for their Global Alpha funds were recovered by investors bailing them out. Third, Goldman is not a big player in CDOs and SIV ventures like Citigroup and Merrill, so their exposure wasn't as severe; topped w/ their "We're Goldman, we know what the fuck we're doing" attitude.

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peteyross

peteyross

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There are several things at work at Goldman that they did well. One, is that they recognized the downturn in the mortgage market early and actually profited from market going south. Two, in many of their funds that had lost significant positions, they switched up their rhetoric and instead of telling their investors that they lost money, they told them that its an "opportunity to buy/put more money in". Hence, their losses for their Global Alpha funds were recovered by investors bailing them out. Third, Goldman is not a big player in CDOs and SIV ventures like Citigroup and Merrill, so their exposure wasn't as severe; topped w/ their "We're Goldman, we know what the fuck we're doing" attitude.

Yeah Goldman was anemic on the CDO side which proved to be a good thing (ie, the opposite of Merrill). Their underwriting side was one of the worst on Wall St. I really don't know if they had a CDO prop desk though, which is where Morgan Stanley's losses are coming from now.

Not everything is rosey at Goldman though, through September the Global Alpha Fund was down 35% for the year (that's after injecting $2bln of their own money and $1bln they collected from investors).

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djrajio

djrajio

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Another Quant Liquidation Under Way?

Two days ago, we told you the there were widespread rumors that a large quant fund—possibly AQR Capital Management—might have run into some liquidity problems. Yesterday the post reported that the Greenwich-based hedge fund had scrapped its planned initial public offering after a dismal performance caused several large investors to pull their cash out of the fund. AQR hasn’t returned our calls. Time to move this story ahead despite the, uhm, lack of actual information.

Watching the markets move in the last few days—particularly with the heavy sell off in the NASDAQ—has many wondering if we’re witnessing yet another quant liquidation like we saw in late July and early August. It would make sense that if one or more funds was facing redemption notices from investors, we might see a sell-off of typical quant positions in order to raise cash. Last time around, stocks the quant funds tended to be long in plummeted, while their shorts rose. It is now part of the conventional wisdom that some of this was due to one or more quant funds liquidating both long and short positions.

So how are the heavily shorted stocks doing? Pretty good, as it turns out. Unless you are short them. Indymac BNCP, Nutrisystem, MGIC Investment CP, KB Home, MVRLP, Ryland Group, and CROCS Inc. are all up today despite the declines in the broader market. The Amex Broker Dealer index is up nearly 1.5%. With this many heavily shorted stocks rising together, it’s at least possible that some of the movement in the markets this week has been due to another quant liquidation.

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peteyross

peteyross

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actually if investors want to get out they dont have no choice

True, but most funds have a base of "captive money" as well as their own equity. By captive money, I mean relationship based investors that can't really leave the fund without severing a business relationship in the process. Also, the managers usually have some sort of gate that they can close if too much money leaves the fund at once. Many of these funds don't expect their "captive money" to redeem, but its beginning to happen now. Funds with liquidity usually try to have some of their investors subject to a lock-up period but in the end, your point is blunt and true. After several quarters of severe losses, these funds are starting to lose capital as fast as investors can get out.

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djrajio

djrajio

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Opening in Tokyo now.

Everyone is bracing for a shorts / covered calls.

As well as shorts in other financial stocks.

Treasurys should be a huge gainer, given the tightening in the repo market as well.

Shit's bananas right now....

<signing off from sufu>

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