Here we go again. Deja vu all over again. [Hehe, a fine aphorism of Yogi Berra!]
BNP hedge funds stop redemptions since the fund can't value the illiquid MBS slices, even though they re Aaa/AAA. No surprise, who really knows what's in some little slice of some trust holding who knows what? Why would anyone expect liquidity is that? Madness. Mass delusion.
Quant funds are in trouble. I read that "unexpected" events not remotely probable under "statistical" probability models are causing losses. Gee, what a surprise! I've written about that before. I learned almost 30 years ago from Fischer Black that the markets had "outlier" events that can't be modeled with statistical distributions. More greed at work to get those fees. We're seeing the fear now - what will be under the next rock that's picked up?
Goldman Global Alpha Fund down 8% in July. Hmmm. That' possible - my Alpha fund lost about 16% from the July peak to August 1. But I dropped from +51% to +35%, still OK ytd. The geniuses at Goldman at down 16% for the year. And the smart "rich" are paying them big fees for that? Sheesh. Gullible fools.
Some commercial paper issuers have illiquid MBS in their portfolios. Sheesh. How stupid is that?
Was all Wall Street under a mass delusion that beefers and derivatives provide wonderful liquidity in everything? I heard quite often - that beefers are GREAT since they provide liquidity. And that derivatives are GREAT since they provide liquidity. This sounds like a version of the greater fool theory. They were/are all in the same crappy paper and when anything happens unforeseen, like running out of rocket fuel at the frat mixer, they all head for the exits at once. Sayonnara liquidity - that fantasy of beeferdom.
Hmm - another "I told you so" seems appropriate, here and in another forum I posted much on last year and before.
PS: "hehe" is my Beavis & Butthead style chuckle :-))) hehe hehe hehehe, he said "butt"! :-)))
PPS: still using time diversification on adding o the big cap fins. Those were solidly green yesterday, but I figure that at some time until late October, I'll get a good entry for the last half. I think I'll make 30%+ on these investments over the next year. Uhhhh that's the "plan".
P^3S: Those little slices of MBS really were designed to be held to maturity in a diversified portfolio, not traded like stocks. But being originally based on high quality FNMA and Freddie Mac MBS or GMNA securities, Wall Street geniuses applied the math to much more complex underlying securities and sold them the same way. I guess no one really thought how they would figure out what's really there is they wanted to sell. Dumb!
P^4S: Since when do hedge funds give money back on demand? Those are sounding more & more like non-bank banks every time something new comes out. If it looks like a bank it should be regulated like a bank. Ditto re looking like a mutual fund. A hedge fund should have limited redemption demands. This just shows more & more that hedge funds are way, way over the line and need serious regulations to prevent them from causing big problems.