Thursday, March 13, 2008
The word of the day is "rout." The dollar is being routed, equities are being routed, and ominously, hedge funds are being routed as well. On the latter front, news is not terribly good; in addition to the recent collapse of Peloton, Carlyle Capital has imploded after those cruel, cruel prime brokers didn't look the other way on margin calls, and Drake Capital appears to be going the same way.
At this juncture, there's really not much excuse for hedge fund managers to maintain excessive leverage, unless the securities they hold are absolutely unsaleable. And if the securities they hold are unsaleable, then gee....did they really make all that money to begin with over the last few years? Although it's obviously too late for holders of many funds, it is still worth investors considering whether the funds they own invest in liquid securities; if not, they should probably try to get out if there is still time.
Global investors in US securities appear to be folowing the same advice, and if you look closely at the fine print on the SEC website, you can just about see the disclaimer "Will the last investor to leave America please turn out the lights?" (After all, we must all be concerned with green issues these days.)
USD/JPY is now at its lowest level in more than a dozen years and has broken the psychologically vital 100 level as Macro Man types this. To call this move "irritating" is the understatement of the year; having been a yen bull for the last several months, Macro Man has seen USD/JPY collapse just a week or two before he starts his new job. Naturally, it would have been pretty satisfying to have captured this with his first trade in the new shop; now, he is going to face the difficult choice of selling dollars at levels close to his initial targetes, or (gasp) going the other way and playing for a bounce. The latter course of action is fraught with psychological peril (do you really want to lose money going against your convictions?), so it looks like Macro Man will styart off on the sidelines while "his" trade makes money for other people. Ugh.
Of course, it's not all about the yen; the EUR has one again reached new all time highs, prompting a bit more muttering from Europeans. Of course, George W. Bush has made some comments as well, noting that the dollar's collapse was not "good tidings" for the strong dollar policy. Of course, if you looked away, you almost couldn't see the smirk on his face. When the history of the early Noughties is written, the strong dollar policy will go into a bin with "I will not be divisive" and "We have won the war". Macro Man trusts readers can form their own conclusions as to what the title of the bin would be.
And so, Macro Man sits at home, literally days away from starting his new job, and sees one of his high conviction trades play out before his eyes. Grrrrrr. That's almost as irritating as being forced to take a driving test after 20 years of accident- and ticket- free driving, which is how Macro Man will spend his afternoon. Wish him luck, as he's going to need it; it's bloody difficult to shake the driving habits of more than half a lifetime and drive like a grandmother, parallel park with two hands, etc. If he fails, maybe he should move back to the States; at the rate the dollar's going, he'll be able to buy half of California with the proceeds from selling his '98 Golf.