Wednesday, September 03, 2008
Ouch. Macro Man evidently forgot to mention one more milestone beginning in yesterday's post. September 1 marked the beginning of hunting season in the UK for various avian species, including patridge, duck, goose, wood cock and plover.
On the basis of today's evidence, we can add three more species that are getting shot down, some in spectacular fashion:
1) Ospraie (sic). For the past few years, this commodity fund has been known for all the right reasons: it's been in a hot market and delivered great performance. This morning, it's in the headlines for the wrong reasons: after dropping more than 25% last month (and 38% from its peak), Ospraie's flagship fund is shuttering its doors.
Macro Man has two observations. Ospraie has said that they hope to return 40% of its assets to investors by the end of the month, another 40% by the end of the year, and the remaining 20% within three years. Clearly, the fund's holdings haven't exactly been uber-liquid. And if there's one lesson that we all should have learned over the past year, it's that there is real value in market liquidity.
Meanwhile, this is yet another example of the maxim that when it rains, it pours. Holder of 20% of the Ospraie management company (which is worth a tad less today than it was a few days ago) is.......Lehman Brothers! Lehman, incidentally, reports Q3 earnings in a couple of weeks. The anticipation of bad news is one of the reasons that Macro Man has started to scale back into equity shorts; he started buying FTSE downside yesterday.
2) Kiwi. The flightless bird has landed with a thud, shedding 6.5% against the USD over the past couple of weeks. The NZD has been Macro Man's own personal hell over the past month; he's been bearish, has been short, and yet contrived not to make any money because of some of the option structures that he's put in place (and the bad spot trades he's done against those structures.)
This provides an object lesson in the importance of security/strategy selection, and that this game isn't just about getting the macro view view right. Usually, calling the market the right way is enough to ensure some degree of profitability, with the choice of strategy simply dictating different shades of profit or loss. Occasionally, however, choosing the wrong strategy can completely eradicate the benefit of calling the market correctly. Sadly, NZD has been a case in point for Macro Man (though at least his short gamma nightmare is now over.)
3) Pink flamingos. It looks like the pink flamingos of consensus positioning (which Macro Man wrote about a few months ago) are coming under fire once again. Exhibit A is the rouble basket trade, which has gone badly wrong again this morning after squeezing during Macro Man's August holiday. It's a pretty consensus trade with a high-conviction buy-in; 30.10 has been seen as something of a no-fly zone that will spur further short-covering in the event of a close near current levels.
While Macro Man suffered on this one last month, he at least had the sense to get out when he could and sleep easy. In this kind of market, if someone says that they aim to screw you over....you'd have to think that they have a decent chance of succeeding.
On a lighter note, Macro Man observed with interest that the Korean Military Fund is considering joining KDB in taking a stake in Lehman. Should they prove successful, Macro Man can envisage how the culture of "The Bruddahs" might change.
He can just imagine the scenes outside of Lehman's Canary Wharf offices when the trading desks file into work under the new Korean ownership; it'll probably look so0mething like the image above. The good news is that Lehman would likely fare better in times of distress; observe how they're all kitted out with the appropriate hardware to go hunting!