More Beefer Antics

Yesterday the market cratered around 100 pts. in 45 minutes at the close. To whom can we ascribe such inane selling ? Beefers*, of course. [*Beefer = "big, evil fund defined as a hedge fund or mutual fund that trades very actively and has over $100 million in assets.] My guess is that the selloff was from liquidation of Galleon. The owner / leader of that group of hedge funds was arrested a couple days ago for insider trading. Hence, its investors all wanted to redeem their money. I suppose sell lists were sent out to the Street. The Street's principal traders probably shorted the stocks to front run the sales. And all that had to be done by the close. Wonderful.

These antics just cause the public to be a bit more disheartened by the market. Too much of this volatility occurred last year. The average Joe wanting to make an adjustment in his mutual fund gets flung hither and thither. Some days he's lucky, others unlucky. All for nothing. Beefer antics add zero value to the markets. All that vaunted talk of liquidity is sheer nonsense. The Street's proprietary traders suck that out in milliseconds and the beefers themselves cause bids to disappear and shorting raiders to emerge from the hiding places.

As for Galleon, there was some discussion a few days ago whether the government was proper in using wiretaps. Today's news reports make it clear that several informants gave the government plenty of probable cause for getting wiretap warrants. End of controversy.

The FT shows another example of the dumb rich in the "There's a sucker born every minute" Club. "John Meriwether, the hedge fund manager and arbitrageur behind Long-Term Capital Management, is in the process of setting up a new hedge fund – his third. The move comes barely three months after Mr Meriwether decided to close his second fund manager, JWM Partners, which was wound down after clients saw the value of their investments fall by more than 44 per cent over the course of the financial crisis. JWM Partners was set up soon after the collapse in 1998 of Mr Meriwether’s first – and most infamous – fund, LTCM, which triggered a wave of panic across the world’s markets ..."

Who in their right mind would invest money in that nonsense ? Two funds blown up and now a third try ? Sheesh ...

And think a bit ... every proprietary trading desk on the Street does the same thing with billions. And are they better than Meriwether ? Nope. All this is simply a scam - hucksterism at its worst. Get other people's money; speculate, get fees and bonuses and then blow up. The Street is littered with the carcasses of those for that past three decades.

But now the the web of swaps and derivatives, the big firms are linked. So blow ups will necessarily bring in the taxpayer again. Ban all this nonsense or require 100% cash or physical collateral for any net short positions in derivatives.

Actions

My Tuesday sales to take "sugar" on some call options were timely. Earnings are good, but this market needs some news to move higher, such as a big drop in unemployment claims or some better job numbers. I still think that will occur by year end (as I said a few months ago). If it does, S&P 1200 should be hit. I'll wait for now, but might re-buy some calls if prices get cheap on some interesting names.

Word of the Day

"Onomastic" - adjective [$10] a Mencken word;
"Onomastics" - noun, plural (treated as singular) [$10]
Onomastic means relating to names or nomenclature.
Onomastics means the study of the origin and formation of (especially personal) proper names.
Sentence (from Mencken, The American Language, page 553 bot. referring to the origin of "Podunk" as a colorful synonym for a very small town.
"Here Dr. ____ seems to have been in error, for an onomastic explorer, _______, reported in the Boston Herald for February 8, 1933, that he had discovered a veritable Podunk in Massachusetts, not far from Worcester."