Hedging Political Risk

The title of the post is what I hope the hedgies donating to the DNC are doing, but - alas I fear this is largely not true. There are a whole lot of BSDs walking around with no balls these days. Indeed, many young bankers and hedgies I've met are Democrats - brainwashed into guilt for being successful from their days in undergrad, and eager to do anything - including giving the pants off their ass (the shirt is already being ripped off by current bonus taxes) to feel good about themselves. Anything, but rationally think through the policies fronted by Democratic candidates and the DNC and - if they disagree with them (and if they don't, why are they in the business of "ripping off" Grandma Millie?) - take a stand for what they believe in.

clipped from www.finalternatives.com Over the past three election cycles, hedge fund managers and their colleagues have become some of the most important donors to Democrats and Democratic candidates. Of the more than $3 million in hedge fund cash given to presidential candidates last year, 75% went to Democrats. Party leadership is hoping to leverage this newfound strength with a New York fundraiser aimed specifically at hedge fund professionals. Even after last year’s aborted attempt by Democratic congressional leaders to more than double the tax rate paid by some in the alternative investment industry, hedge fund money continues to pour in “When people with high incomes, or who benefit from particularly low capital gains rates, support Democrats, it’s because they care about the posture of the United States abroad. They care about an utter lack of fiscal discipline. In other words, there is a set of issues that people care about that becomes more important than their marginal tax rate.”

Hillary thinks all hedgies are slackers like her Daughter

Not content with merely biting the hand that feeds, HillDog wants to amputate an arm and a leg from her surprisingly large following of financiers. Today she called out Wall Street bankers and hedgies as living a life of bespoke leisure, collecting fat fifty million paychecks and barely paying a pence in taxes (so why did my bonus, which accounts for 80% of my pay get taxed at 42% then?). Of course this is what Chameleon Clinton is preaching to the dirt-poor delegates of Ohio, and quite different from what she said while raising millions in her "native" New York.
Incidentally, how the fuck is that little ho (I mean that literally, not derogatory) Chelsea still on the payroll of Avenue Capital? First she dissed her employer's health care and now her mom is calling them all shysters and charlatans. Oh and before the campaign kicked into high gear Chelsea was slaving away at Starbucks. Actually - if Hillary is basing the hedgie lifestyle on her daughter's actions you can almost hardly blame her. Oh wait, but that's where all that experience should have come in...

clipped from blogs.abcnews.com Sen. Hillary Clinton took a swipe at her daughter's profession today at an economic roundtable discussion at a restaurant in Parma, Ohio, suggesting wealthy investment bankers and hedge fund managers on Wall Street aren't doing real 'work.' "We also have to reward work more," Clinton told a small group of Ohio residents today. "and by that, I mean, I have people in New York working on Wall Street as investment managers, as hedge fund executives. Under the tax code, they can pay a lower percentage of their income in taxes on $50 million dollars, than a teacher, or a nurse, or a truck driver in Parma pays on $50,000. That's very discouraging to people." The line about investment fund and hedge fund managers has been introduced into Clinton's talking points as she campaigns across the economically struggling state of Ohio.

Hova Called the Crash

Jay-Z called the crash way back in the summer on his duo with Rhianna, Umbrella, and urged his audience to start saving… if only they listened then maybe they wouldn't have to rely on the government and banks to bail their asses out. Incidentally I should have listened to HOV as well and added some more sector shorts, but I'm just not a Rhianna fan.

No clouds in my stones
Let it rain, I hydroplane into fame
Coming down with the Dow Jones
When the clouds come we gone
We roc-a-fella
We fly higher than weather in G5's or better
You know me, in anticipation for precipitation
Stacks chips for the rainy day

Maybe now that's he no longer CEO of the Def Jam he can start a hedge fund... After all Jigga was a commodities trader before he ever became a rap superstar (and showed his FX smarts by flashin Euros in his video for Roc Boys - as the greenback was tumbling quicker than Fiddy's career).
The coke prices up and down like it's Wall Street homes,
But this is worse than the Dow Jones your brains are now blown.

Why I'm short equity right now...

Tomorrow we'll see if Bernanke has any balls.
If he admits that the 75bps emergency cut was too extreme, given that the MLK market volatility resulted in a big part from SocGen's seppuku as they surrendered to losses in a way only the French could (by immediately liquidating all their massive "fraudulent" positions and flooding the market instead of doing it gradually like any normal trading house would), he will cut rates 25bps. Of course this is still 100bps for the month, which sets us up nicely for stagflation in the near future, and 50bps more than the market originally estimated for January.
Nevertheless, even after every last financier, from BSD to Broker, had their chance to laugh at SocGen's Krevieling stupidity the market is still demanding a 50bps cut. Thus if Helicopter Ben continues playing limbo to the market's benchmark nothing will change (maybe a 2-3% intraday spike at most), but if he shows some backbone and cuts 25 the markets will tumble.
That's why I'm short SPH8 with an ATM straddle to hedge the vol (and compound profit) . Tomorrow should be fun.

Update: So ball less Bernanke cuts 50bps. Like I said - short intraday spike to unwind the call from the straddle and keep the put for free. All in all, nothing lost (except the credibility of the Fed).

Update 2: So even a fiddy ain't enough for the markets, as SPX finished down a percent. Good news for me though - I sold all three parts (call, put, future) in the money before market close. This turned out to be a pretty great trade, after all.

The "Real" PR from the Dirty Bear

BEAR STEARNS NAMES ALAN D. SCHWARTZ CHIEF EXECUTIVE OFFICER, SUCCEEDING JAMES “JOINT” CAYNE, WHO REMAINS CHAIRMAN

New York, New York — January 8, 2008 — The Bear Stearns Companies Inc. (NYSE:BSC) announced today that James E. Cayne has informed the board of directors of his desire to step down as chief executive officer, effective immediately after he finishes this phat blunt. While Mr. Cayne will retire from the firm, he will stay on as chairman of the bong and will be succeeded as chief executive officer by Bear Stearns president Alan D. Schwartz.

"Jimmy has much to be proud of -- under his leadership Bear Stearns has grown substantially over the past 15 years, with revenues increasing to $7 billion from $2 billion. We can’t say for sure that any of this actually happened because of Jimmy’s leadership, but he was in his office for at least half of those 15 years, so maybe it did." said Vincent Tese, Bear Stearns lead independent director. "This was mainly his decision, and we are very pleased that he has agreed to stay actively involved in the business as chairman of the bong. We can never find the good shit ourselves."

Mr. Cayne, commented, "I am elated and, frankly, surprised that the board has continued confidence in me" he said. "Leading Bear Stearns and its wonderfully talented people has been one of the great joys in my life for nearly 15 years. I’ve never had the chance to play bridge and smoke with such talented people, or play so much golf – not that it helped my handicap." Cayne added that he would remain in the same office, come to work as many days as he used to as CEO and work the same number of hours as before. [not making that one up from - see Bloomberg]

"I am dubiously honored to have the opportunity to lead one of Wall Street's great franchises," said Alan D. Schwartz, president of Bear Stearns. "Bear Stearns has a bright future now that the smoke has cleared. Our franchise is crack-rock solid thanks to Jimmy's leadership, so I have much work to do. We had a strong capital position before our market cap halved last year, a unique culture that rewards absenteeism and casual drug use, and great talent throughout the organization – especially the 4^th floor men’s room."

Alan D. Schwartz joined Bear Stearns in 1976. He became executive vice president and head of the Investment Banking Division in 1985. Mr. Schwartz was named president and co-chief operating officer in June 2001 and sole president in August of 2007 after Mr. Cayne fired Warren Spector since he was the only senior executive actually at the office during the firm’s meltdown. "Jimmy Cayne is a Wall Street legend, he’s practically the Cheech and Chong of the Street. I've learned a lot from him in the 30 years we have been friends and partners here at Bear Stearns – especially while in the 4^th floor men’s room, and I am pleased we will be able to continue our relationship." Mr. Schwartz said.

Communism in NYC

NYC Commies are giving SF Hippies a run for our honest and hard-earned money.

This has gotten beyond ridiculous and would be comical, except it shows the cretinism of today's youth trying to emulate their hippie parents from the 60s. Not in the sense of trying to take down the evil rich white man or stop a pointless war, but in the sense of rallying for causes they choose not to understand. Protesting against whatever is popular purely for that reason, and thinking they are doing the world a service through their "creativity" and "self-expression".
At least they're not calling Iraqi vets baby killers ...yet (but once PE money dies down from the credit crunch, who knows who they'll turn on next).

clipped from www.nytimes.com A Movie and Protesters Single Out Henry Kravis Bells will be ringing, and carolers will be greeting the Upper East Side neighbors of Henry Kravis this morning for a sidewalk screening of the first of a series of short films crusading against private equity firms. Directed by Robert Greenwald, the film starts by tallying Mr. Kravis’s income: “He made $450 million last year,” the narrator says, “which comes out to $1.3 million per day, or $51,369 per hour every hour of every day.” Then it immediately cuts to an interview with Margaret Konjevod, a nurse. What Mr. Kravis makes in an hour, “that’s what I make in a year, if I’m lucky,” she says. Today’s protest is the latest indication that the reaction against the wealth created by private equity funds has become part of a populist communist movement. [You know what we call it when you make everyone’s salary based on need rather than what the free markets deem equilibrium – yes, that’s right, Marxism. You want to really stick it to PE? Tell your pension funds not to invest in them. Sure, you'll forgo all the profits KKR and other firms gives to their investors, but your underdeveloped excuse for a conscience will seem Cristal clear to you while you're drinking 40s out of a dumpster after you retire, pun intended.] Some industry insiders may blanch at his attempt to simplify, or as he would say, “boil down” his message. In one voiceover, private equity is described as a firm that takes over “public companies using primarily borrowed money.” “To pay off this debt,” the film says, “they then sell off assets of the companies, fire thousands of workers and radically cut benefits of the remaining employees. It is the same product, in the same building, with the same customers as before.” Mr. Greenwald said he did not try to interview Mr. Kravis before releasing the film and had not consulted anyone in the industry. He said that he planned to reach out to Mr. Kravis and hoped that he would participate in future productions. He then suggested: “If you don’t participate, the story gets told without you.” [Right, first you smear people with your own un-researched and invented shit, and then, when they rightly choose not to associate with such skewed scum, you claim they're not "participating" - thus giving you a carte blanche to continue your fecal portrait. Michael Moorre better watch out - Greenwald has figured out your movie-magic secrets.]

Greene on the New Princes

My friend sent me this article today by the very lucid Robert Greene writing on Machiavelli (as he often does for a living) in the 21st century. I had to add my own two cents. I highly suggest you read the article first, and then my opinions on it.

clipped from www.powerseductionandwar.com Necessity governs the world. When you feel necessity biting at your heels, you are moved to respond in some way that is creative. It is either that or die. I must constantly create challenges for myself, find some way of feeling limited and pressured, never resting on what I have done in the past. Fortune rewards those who are bold; she is a woman. When I enter a negotiating situation, I always make sure I feel that I can walk away from an offer. Some want to rule, others to be ruled. In Machiavelli's world, people are not victims. Those who suffer under some form of tyranny inevitably have gotten the kind of government they want or deserve. They are unconsciously implicated in the process. No one, in Machiavelli's universe is some passive actor who is acted upon and injured.

Greene elaborates on a principle in his first section that I find absolutely critical in gaining, maintaining and expanding personal success – never feel complacent. If no outward challenges exist then create new ones to maintain your drive. To use the metaphor of a businessman as a shark – if you stop moving forward you die, thus one must find reasons to keep going. The fact that this lucid comparison has such negative connotation in our present society – where children are encouraged to rest on their insignificant laurels, where everyone is “special”, where capitalism is equated to fascism by the ignorant masses, speaks volumes to its laggard nature.

Greene’s discourse on boldness is also poignant, though this negotiating strategy is not novel. In displaying the will to walk away from a deal, a job, a trade, etc. you flex power over whoever sits in front of you. Of course should you find yourself facing another strong-willed individual on the other side of the table he may find this display arrogant, or worse – imminently dangerous to his position and thus seek to undercut you. Having a superior of weaker will than you is thus often useful, so long as you can stay self-motivated.

So far as peasants preferring to be ruled, that’s a sure fact that I’ve observed in depth while growing up in Russia. If more Americans understood this they would be able to see how Putin can govern Russia with a diamond-studded iron fist and still have tremendous support of the people. Ironically, our current complacent culture in America feels that it cannot allow itself to be lead and is thus causing itself tremendous pain and distress – but unwilling to chastise itself rather than its inept leaders and cause change the only way it can occur – through action and pragmatic self-betterment.