Sunday, October 19, 2008

Brilliant money manager says the privileged elite are stupid

You see his point when you look at what overvalued assets have just done to the financial system

Andrew Lahde, the hedge-fund manager who quit after posting an 870% gain last year, said farewell to clients in a letter that thanks stupid traders for making him rich and ends with a plea to legalize marijuana. Lahde, head of Santa Monica, California-based Lahde Capital Management, told investors last month he was returning their cash because the risk of using credit derivatives - his means of betting on the falling value of bonds and loans, including subprime mortgages - was too risky given the weakness of the banks he was trading with.

"I was in this game for money," Lahde, 37, wrote in a two-page letter in which he said he had come to hate the hedge-fund business. "The low-hanging fruit, i.e. idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government.

"All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other sides of my trades. God Bless America."

Lahde, who managed about $US80 million, told clients he'll be content to invest his own money, rather than taking cash from wealthy individuals and institutions and trying to amass a fortune worth hundreds of millions or even billions of dollars.

"I do not understand the legacy thing," he wrote. "Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life."

He said he'd spend his time repairing his health "as well as my entire life - where I had to compete for spaces at universities, and graduate schools, jobs and assets under management - with those who had all the advantages (rich parents) that I did not."

More here



It turns out that John McCain, who was widely mocked for saying that "the fundamentals of our economy are strong," was actually right. We're in a financial crisis, not an economic crisis. We're not entering a second Great Depression, says Casey B. Mulligan is a professor of economics at the University of Chicago. How do we know? Well, the economy outside the financial sector is healthier than it seems. One important indicator is the profitability of non-financial capital, what economists call the marginal product of capital:

* It's a measure of how much profit that each dollar of capital invested in the economy is producing during, say, a year.

* Some investments earn more than others, of course, but the marginal product of capital is a composite of all of them -- a macroeconomic version of the price-to-earnings ratio followed in the financial markets.

* When the profit per dollar of capital invested in the economy is higher than average, future rates of economic growth also tend to be above average.

* The same cannot be said about rates of return on the S.& P. 500, or any another measurement that commands attention on Wall Street.

Since World War II:

* The marginal product of capital, after taxes, has averaged 7 percent to 8 percent per year (in other words, each dollar of capital invested in the economy earns, on average, 7 cents to 8 cents annually).

* During 2007 and the first half of 2008, when the financial markets were already spooked by oil price spikes and housing price crashes, the marginal product was more than 10 percent per year, far above the historical average.

* The third-quarter earnings reports from some companies already suggest that America's non-financial companies are still making plenty of money.




Death duties dying in Taiwan: "The cabinet's plan, announced yesterday, is to convert the inheritance tax to a flat rate of 10% from the current 2%-50% range and increase the amount of inheritance exempt from any tax. The move would encourage more taxpayers to bring their savings and investments back onshore -- boosting domestic liquidity and consumption and generating employment in the high-paying wealth-management and investment-fund sectors. The plan also would increase the standard deduction on the personal income tax, effectively reducing household tax burdens."

Murdoch publications doing fine: "News Corporation chairman and chief executive officer Rupert Murdoch has expressed tremendous confidence in the media giant's future and its ability to weather the global financial crisis. Addressing the annual meeting of News Corp's stockholders overnight in New York, Mr Murdoch was expected to say the company would most certainly be tested by the current economic turmoil. But he said the company would remain faithful to its core mission that had served it well for more than 50 years. "And as long as we do, we will do what we do best: Connecting people all over the world, creating choice where none exists, informing with a purpose, challenging with a mission, taking on established competitors, and always reinventing ourselves while judiciously investing for the long term," Mr Murdoch said. In advance remarks of his speech, Mr Murdoch told stockholders that News Corp had reported its sixth consecutive year of record earnings." [Political balance pays off]

French bank loses a billion: "French bank Caisse d'Epargne lost 600 million euros ($1 billion) in a derivatives trading "incident" during last week's market turmoil, the company said today. The dramatic loss suffered by the mutual bank, one of France's biggest and generally regarded as a safe haven for cautious small savers, was the latest blow to confidence in a sector already ravaged by the credit crunch. Finance Minister Christine Lagarde ordered France's banking commission to conduct an immediate audit of the bank's trading activity, while stressing that there was no risk of the bank failing. News of the loss came in the same week as directors of Caisse d'Epargne approved plans to merge it with another company, Banque Populaire, and become France's second-largest retail bank. "Because of the extreme volatility in the markets and the stock market crash of the week of October 6, the Caisse d'Epargne group underwent a major incident in the derivatives market," the statement said."

Who are the villains of the mortgage mess?: "In this current mess, one problem is identifying the heroes and villains in Congress. Many analysts conveniently dodge this question and instead make the rather novel claim that the turmoil in financial markets somehow is the result of deregulation. Yet the financial services industry is probably the most heavily regulated sector of the American economy, saddled with hundreds of laws, thousands of regulations and a plethora of government agencies. If red tape were the answer, this problem never would have happened."

Community Reinvestment Act: The risk of unintended consequences: "As policymakers consider ways to address the current mortgage crisis, it is important to evaluate new proposals with an eye toward their future effects on the economy. The unintended consequences of government programs can have far-reaching economic and social effects. It's important to keep in mind that government intervention played a central role in creating and elevating the current crisis: Interest rate manipulation, tax code loopholes, and 'smart growth' land-use policies all contributed to artificially inflating home prices and shifting investment counter to real demand."


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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)


1 comment:

Robert said...

Andrew Lahde isn't the only one who has noticed the privileged elites tend to be stupid. A financial analyst I have followed for nearly a decade mentioned once we don't have to worry about a permanent aristocracy in America, since most of those "trust fund babies" are financial idiots who will burn through their entire trust fund during their lifetimes and move down the social ladder, and others will get that money and become rich in their place. Then the cycle tends to shift to the children of THOSE newly rich families, and so on.