Friday, November 30, 2007

Hedge fund games

Some will ask, why are the hedge funds so concerned about keeping prices down? Because they engage in mark to myth accounting also, but they only do that at the end of the quarter.

Let me explain.

The swap positions, and shorting of the ABX, sub-primes, and derivative position values are not clearly defined. In a scary market, their marks won't be challenged. And that's nice if you are a short, and up huge.

You take the mark, book the profit on the phantom trade, when you could never cover your position at that price. And you take the 20% incentive fee. Nice work if you can get it.

Let me give you an example. Did you notice how Ambac Financial (ABK 27.73) traded today? That's the insurer, on Wednesday that William Ackman of Pershing Capital said he would personally make $400 million on if it goes bankrupt. The stock hit 30 today, and is still up over $4. Anyone calculate the value of that swap?

Now amplify that by all the "smart" hedge funds that are short. And now you know why the financials ramp, and they ramp huge.


jgoodie said...

Here’s something to be skeptical about. NewsVisual reported that there’s an effort afoot to jump on a bandwagon that was created by MySpace and Facebook by Circuit City, which just launched its own social networking site, called CityCenter. They want to offer customers a portal for talking about products and exchanging feedback about purchases. It’s really just a mega-scheme to make more money.

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