All Bets Are Off

Citigroup did not deliver the medicine people were looking for; where are the job cuts, Charlie? We are covering some shorts and taking a few lumps on the long side, such is life in the jungle. Back to the drawing board.

Are you rolling the dice or looking for an edge?

To make consistent absolute returns it is necessary either to have an advantage or identify someone else with one. An edge does not eliminate the possibility of small, manageable losses but it does mean persistent and predictable performance.

By definition there is no edge in beta and it is not very reliable over less than multi-decade time frames. Short only equity seems to be working quite well so far in 2008 and stock indices in many major developed markets have erased most gains from last year. The S&P 500 is now around 1400 just as it was 12 months ago and in January 2000. Investors don't seem to have received much equity risk premium or been compensated for the volatility despite what the economics textbooks say but then stocks can't read. It could be worse; in Jan 1988 the Japanese Nikkei was at 24,000 and now, 20 years on, it is at 14,000. Prudence mandates acknowledging the possibility of an extended bear market and constructing a portfolio that can grow without the benefit of beta. It just snowed in Baghdad; unlikely things can and do happen. Buy a snowplow even if you have never seen snow. Hedge Fund Blog

Everyone is going to sit on their hands waiting for the VIX to move to 30 or GLD to print $1,000. There is no reason to love this market but we find it hard to hate after the declines. We will hold the August lows? Somebody knows the answer, but they are smarter than me and keeping it a secret:

Strategies make money out of and between assets. But in implementing a strategy a fund must either have a wide protective moat of a talent-based barrier to entry or keep it secret. Many things in the public domain did NOT work last year but is that surprising? The Dogs of Dow, the January effect, the “Magic formula” of value investing are too well known to work anymore. Those arbs, among others, are gone. I hope for the sake of the long only crowd that the “First 5 days in January” effect is NOT predictive for 2008. However I would be pleasantly surprised if the Dow and Nikkei don’t dip below 10,000 sometime this year.

Veryan Allen always tells me something I did not know; this time around it is that Gold made its inflation adjusted high 600 years ago. Does your database go back that far?

Meanwhile, Citigroup has about 45 cents to go before it hits a new low. Short selling the rumor worked, but buying the disappointing news might not. Vikram brought a butter knife to a gunfight. Where is the backbone?

His baby steps remind us of Bernanke’s rate cutting, and the verdict is in. Perhaps the Barrons Roundtable was correct; our shopping list is getting longer but there is little reason to pull the trigger.

Investing, trading or gambling?
Hedge Fund Blog
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No Position

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