The story of a hedge fund manager

Andrew Lahde was a California-based hedge fund manager who in 2007-08 earned some fame for achieving return rates in the vicinity of 1000% with his Lahde Capital, based in Santa Monica, California. He converted the asset under management from $ 2 billion to $20 billion in less than an year by correctly forecasting the sub prime crisis and shorting the affected banks.  The fund speculated on increases of U.S. subprime mortgage defaults. He earned a Bachelor's degree in Finance from Michigan State University and an MBA from the Anderson School of Business at the University of California Los Angeles.

In September 2008, at the peak of his career as a hedge fund manager, Lahde closed his fund. On October 17, he released an open good-bye letter to his investors, colleagues and press. Lahde criticized the harried life of the rich, and said that "Capitalism worked for two hundred years, but times change, and systems become corrupt." He suggested that George Soros "start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest". 

The main reason Ladhe closed his fund was that after years of trading he had found that the rarest commodity in the world is intelligence.  

I have pasted the open letter below. 

"  Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. 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 side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life — where I had to compete for spaces in universities and graduate schools, jobs and assets under management — with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.

Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant — marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.

With that I say good-bye and good luck.

All the best,

Andrew Lahde”

Do I still need to tell you why he is my new mentor ?? Please let me know if any of you are planning to start your own hedge fund :) 

2008 - The Year That Was

I think its human nature to look back around this time of the year and try to figure out what the fuck is wrong with the world, maybe make some new year resolutions. In an otherwise boring and sad year, a few bright spots stood out.

2008 will be remembered as the year of BARACK OBAMA, the man with the plan. He went from being in the tenth spot in the Democratic nomination race a year ago to being the president today and he did it all armed with nothing more than unwavering honesty, humility, faith and hope. He did it by preaching the ideas of Martin Luther King and Mahatma Gandhi, by writing the most immaculate and honest speeches and then delivering them with so much passion, he sometimes reminded me of Hitler. He was a completely unknown guy a year ago and the most unlikely candidate for president. The first few primaries felt like they were mere formalities before the nomination was given to Hilary Clinton. Then Obama got the opening he so desperately needed when Hilary farted in one of the primary debates when she was asked a serious question by the moderator, viewed by millions of people on live TV ( Yes !!! Farted !! http://in.youtube.com/watch?v=u0aedNpZeOw&feature=related ). Yes my friends, it all began with a FART . This was the first dent in Hilary's armor. The fart that resonated throughout the world and made OBAMA president. Even after he won the democratic nomination, people always felt that on election day he would lose because in a secret ballot the white man would never let the black man win. But his grandma's death a day before the election surely took care of this factor. The FART and the fact that his grandma died one day before the elections is proof that god wanted Obama to be president for the sake of mankind. Obama is the first politician in a long time to actually side with the people rather than special interest groups and lobbyists, he is not afraid to speak the truth and take on Big businesses like banks and oil. This is why I think Obama's biggest threat comes from within the US and not from outside. I hope, for the sake of mankind, that his story has a different ending than JFK.

2008 will be remembered as the year of the Beijing Olympics, the rise of China. The year Usain BOLT became the worlds fastest man and Micheal PHELPS became the worlds fastest fish. The images of a man thumping his chest 15 meters before the finish line in a 100 meter race and still managing to break the world record (The 9.7 seconds barrier) will live in our memories forever, so will this image of Phelps winning the butterfly from Cavic by 0.01 seconds( phelps is on left ) . India tripled the number of medals compared to the last few games :) Bindra won gold. Kudos to the boxing and wrestling Junta.

USSSSSAAAIIINNN BOLT

TOO FAST ,TOO FURIOUS

PHELPS - Probably saved by the middle finger

2008 will also be remembered as the year the Financial crisis began : Bear Sterns, Lehman brothers, Merrill Lynch, AIG, Fannie Mae , Freddie Mac, Citigroup. At one point it looked like the collapse would never end. No major bank in the world was spared. Major banking "Corporations" suddenly became financial "Institutions" that needed tax money to survive. Even Goldman Sachs declared a loss for the latest quarter. No one knows how long the US and European Manufacturing industry will survive. The world is facing the biggest financial crisis since the great depression. Unemployment was on the rise throughout the year so were corporate bankruptcies. 2008 was the worst year for stock markets around the world. The amount of wealth destroyed is unimaginable. On the Financial and Economic front ...all news was bad news in 2008. Over 150 years of history turned to dust. I hope 2009 is better in this respect but I'm not very optimistic.

All and all 2008 was a bad year with a few bright spots here and there. One more year of my life that I will never get back ......FUCK !!!

The World Monetary System !! PART - 2 of 2

I think the inequality in the world monetary system is quiet apparent. The system clearly reflected the beginning of Capitalism at the world stage after the second world war. This further led to the cold war because the Russians did not want the American dollar to rule the world. As we all know, they lost. 

I am not against Capitalism or Communism. In this case I take the "Middle" view.   Capitalism is a good idea, excellent in fact, when put in an envelope called Democracy.  Democracy - that granted everyone equal rights and freedoms. There is no democracy at the world stage. Countries are democracies but the world is not, as the assigning of quotas shows. 

Countries had to to grant their citizens equal rights ....but with whatever quota they were given. 

So equal rights in US and Europe meant - Free Health care, Unemployment pay ( very capitalistic !!), Free Education,  Pension Plans , Big Mortgages, Social Security. They had, they borrowed, they had more.

  

And equality in Africa meant- Maybe someday everyone will have water and electricity and polio drops !! They had not, they borrowed not and they had not !!

But things are not as hopeless as they may seem. Many Asian countries including India and China were able to attain rapid growth, thanks to Education and Infrastructure development. 

The US consumers total consumption per year is $ 9 trillion. China's consumers spend $ 1 trillion and Indians about $ 600 billion a year. This is mainly because Chindians have a higher savings rate. ( Chindians is an accepted word in Economics nomenclature  .... I know !! ... makes me wish I was a nigger !! )

The US can print cash and they have to pay about 1 -1.5 % interest on their bonds and countries like India have to pay 4 -5 % . So the US had access to a lot of liquidity. Which in fact led to  the whole credit-crunch and sub prime mess.

 People were given loans, who should not have been given loans. The lending rates were so low ...that it was always assumed that the percentage rise in price of the property would be much higher, hence the loan was always safe. The real estate brokers sold homes to people with absolutely no documents. These loans were called NINJA loans (No Income, No Job , Asset ). The brokers made these loans because they dint care if the loan would be paid back or not, they only had to hold the risk of the loan for a few days, till it was "securitized". Then these securities would rest with banks in their balance sheets. These derivatives were so complex...I'm sure they were some highly complex y= f(x) equation that Middle came up with when he was interning at Lehman. Then they were "sliced" and "diced", assigned arbitrary ratings by rating agencies and sold left and right . When the prices fell and the shit hit the fan, the ones who had created this crap were left holding most of it themselves . A dozen or so HUGE corporations collapsed or became "financial Institutions" that were deemed too big to fall, for the sake of Mankind. This is a whole different topic of debate and there have been many good articles on the subject. 

I don't know if the current credit crisis signals an opportunity for India and China and other Emerging countries to play a larger economic or political role in the world. But there certainly are signals from many countries that they want to negotiate a new world monetary system. The world monetary system is always changing...the introduction of Euro for example has given the governments of the world an alternative to dollar reserves. I think the current crisis certainly means that the role of the US will be diminished in the long term but I don't know how effectively and quickly India can increase its importance in the world stage. 

I hope Manmohan Singh is PM when/if the monetary system is "renegotiated". 

Anyway in conclusion, I think the Entire concept of money is flawed. There is no point on putting a cap on the wealth of the world and then dividing it disproportionately. Yes, there is a cap on the total money because even though the money supply is always increasing, inflation ensures that the value of money is always eroding at a certain rate which keeps wealth constant and people senselessly  going about the Rat race. In fact a big part of the slowdown in the US can be attributed to the higher number of educated adults in Asia who are a cheap source of labour, both in the Services and the Manufacturing Sector , as a consequence, the virtual collapse of the US Auto Industry (both due to credit crunch and losing to low cost Asian rivals ) .

 Almost all manufacturing jobs ( Factory Jobs) could be lost to technology and automation ( Robots ) in 30-40 years, the technology will exist . Thanks to excessive automation, Mankind has lost many jobs to computer programs. A company's point of contact today is the Internet website and everything can be done online.The only thing that motivates corporations is profit. The term "Corporate Responsibility" is clearly a paradox.  Excess food is destroyed by producers to drive up food prices and hence profit. How can this be allowed in a world where people die of hunger.

So my point is ... The current monetary system will lead to a situation where many human beings will lose their sources of Income and their lives,  as there will be less and less jobs because of Man vs Technology. Right now we are in the phase of Man vs Man, because it is one country over another trying to divide wealth. 

In this scenario, it is the duty of the world leaders to define a minimum level of equality for the whole world, for every person. In my opinion at least food, clean water, electricity, primary education and basic health care must be provided to everyone in the world. It is possible. But does Mankind have the will and the Integrity to provide basic equality to everyone in the world ?? Judging from 2000 years of human history, I think Not . 

http://in.youtube.com/watch?v=NT-2fenmLnc

Zeitgeist ...awesome documentary

The World Monetary System !! PART - 1 of 2

I have spent countless nights researching Money and the origins of wealth. Most people take the world monetary system for granted. They think of Money as something that has always existed and something that will always exist. Here are some facts that make you think......

1) World's richest 1% own 40% of all wealth

2) Poorest 50% of world's adults own just 1% of the wealth

3) Richest 10 % account for 90 % of the world's wealth

4) Only 3% of all money in the world exists as cash.....97% of it exists as 1s and 0s in computers across banks. 

 

You don't have to be a very intelligent man to understand that there is something deeply wrong with the system. I have always believed that to understand something you need to go back to the basics. Question the underlying concept. 

We know that at some point in time we moved from the barter system to hard currency, coins and then notes. In order to understand the present monetary system, we need to go back to July 1944. I assume this to be the point when the modern monetary policy was put into effect. This is not some arbitrary date, but the time when the world money system, as we know it today, was put in place. 

The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent nation-states.

Preparing to rebuild the international economic system as World War II was still raging, 730 delegates from all 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire, United States, for the United Nations Monetary and Financial Conference. The delegates deliberated upon and signed the Bretton Woods Agreements during the first three weeks of July 1944.  

Setting up a system of rules, institutions, and procedures to regulate the international monetary system, the planners at Bretton Woods established the International Bank for Reconstruction and Development (IBRD) (now one of five institutions in the World Bank Group) and the International Monetary Fund (IMF). These organizations became operational in 1945 after a sufficient number of countries had ratified the agreement.

The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value—plus or minus one percent—in terms of gold and the ability of the IMF to bridge temporary imbalances of payments. In the face of increasing strain, the system collapsed in 1971, following the United States' suspension of convertibility from dollars to gold. This created the unique situation whereby the United States dollar became the "reserve currency" for the nation-states which had signed the agreement.

I copied the 2 paragraphs above from WIKI :) 

You can read the whole history if you are interested in Economics. Its extremely interesting, I can tell u that. 

In 1945, the world was very different from what it is today. The economy of Europe was destroyed because of the first world war, the great depression and the second world war. Most Asian and African countries were still colonies fighting for freedom. They had nothing....Nothing! No money, no rights and no power to negotiate. The only country that emerged relatively unscathed was the USA. 

Before the agreement, the currencies of the world were valued or pegged against gold. Each country had its own gold reserves, their currency was guaranteed by gold and gold was the major unit of trade between countries in case they had a major trade deficit. 

As a consequence of the bretton woods agreement all the governments of the world transferred their gold reserves to the US. It still resides there today . About 70% of all gold ever mined in the world is in the US. Only the US dollar was now backed by gold  !!! And the world currencies pounds, francs, rupees etc etc were now backed by US dollars, making the US dollar the reserve currency of the world !!!! Later after this system failed in 1971, even the US dollar was not backed by gold. Essentially it is backed by nothing. If the US fails, so does the world. 

If you think this is not fraud enough....you haven't heard the worst of it !!

THE IMF 

The IMF was to be the world organization that would assist, finance (  lend at an interest ) to countries who had big trade deficits. 

The big question at the Bretton Woods conference with respect to the institution that would emerge as the IMF was the issue of future access to international liquidity and whether that source should be akin to a world central bank able to create new reserves at will or a more limited borrowing mechanism.

What emerged largely reflected U.S. preferences: a system of subscriptions and quotas embedded in the IMF, which itself was to be no more than a fixed pool of national currencies and gold subscribed by each country as opposed to a world central bank capable of creating money. The Fund was charged with managing various nations' trade deficits so that they would not produce currency devaluations.  

When joining the IMF, members were assigned "quotas" reflecting their relative economic power, and, as a sort of credit deposit, were obliged to pay a "subscription" of an amount commensurate to the quota. The subscription was to be paid 25% in gold or currency convertible into gold (effectively the dollar, which was the only currency then still directly gold convertible for central banks) and 75% in the member's own currency.

In the event of a deficit in the current account, Fund members, when short of reserves, would be able to borrow foreign currency in amounts determined by the size of its quota. In other words, the higher the country's contribution was, the higher the sum of money it could borrow from the IMF.The countries issued bonds and they got cash.

Now if the inequality of this system is not immediately apparent to you , you are not intelligent enough to view this blog...please stop reading !!

Now lets talk about the Quotas :)  If you think quotas for SC/ST etc are wrong. This is a completely different type of quota. It is like giving quotas to the upper class which is even dumber.....

Lets talk numbers :)

USA - 17% 

UK -  5 %

France - 5 %

Japan - 6.13 %

Germany - 6 %

Italy - 3.25 % 

China -  3.72 %

Saudi Arabia - 3.21 %

Canada - 3 %

Russia - 2.74 %

Pot Smoking Netherlands - 2.38 %

Belgium- 2.12 %

India - 1.91 %

Switzerland - 1.6 %

Australia - 1.5 % 

Mexico- 1.45 %

Spain - 1.4 %

Brazil - 1.4 %

Argentina - 1 %

Pakistan - 0.5%

Keep in mind that these quotas are the latest and have been arrived upon by successive iterations every 5 -10 years. The Initial quotas of 1945, gave about 60% voting rights to G8 at that time. 

About 21 countries are indebted to the IMF since it was started. Those in debt include Brazil, Argentina, Chile, Pakistan, South Africa and most of Africa. 

I think the men who put the Monetary system of the world in place probably did it with the best of intentions, or maybe they were just plain evil. But the fact remains that this is the system we live in. They could never have fathomed the kind of world we live in today, the kind of technology that would exists. Think about it. We produce enough food every year to feed the whole world for a year and a half, yet people die of hunger. 

I think I have given you enough to think about and shed some light on the shady monetary system of the world. 

Will continue this post later :) 

I am posting references so u can make intelligent comments instead of some gen chutiyaps ....

http://www.guardian.co.uk/money/2006/dec/06/business.internationalnews

http://en.wikipedia.org/wiki/International_Monetary_Fund

http://www.imf.org/external/np/sec/memdir/members.htm

 http://en.wikipedia.org/wiki/Bretton_Woods_system