NakedShorts

Robust, thorough due diligence is off

The Madoff Muckfest isn’t all about Nicola Horlick, although it might start to seem that way as the principal of London-based Bramdean Alternatives Ltd indulges in ever more inane attention-seeking antics. Most recently, as captured by Bronte Capital, an attack of the old “clean up the website before anybody notices we had some stuff up there that might make me even more of a laughing stock than I am already” gambit. 

(These images were edited to highlight the relevant change...the unexpurgated originals are linked below.)

BEFORE

 

AFTER

So, after days of provocation, a hard-earned Moron du Jour for Nicky. 

Nicola Horlick is a silly silly girl
by John Hempton
Bronte Capital Dec. 16 2008

Earlier on NakedShorts

Declensions, by the mouthy Ms Horlick
Dec. 15 2008

All Madoff coverage

SEC retires ‘Moron du Jour’ title

Panic-stricken regulator walking it back. Again.

So, after all today’s excitement, including this morning’s 5:56 am EDT press release, the following billet doux showed up at 3:45 pm EDT:

The commission staff is recommending to the commission a modification to its order prohibiting short selling in securities of specified financial firms.  This modification would extend, for the life of the order, the exemption for hedging activities by exchange and over-the-counter market makers in derivatives on the securities covered by the order.

The main impact of the recommendation, assuming its adoption, is that it will allow options and swap markets, and products such as the inverse and double inverse financial sector ETFs offered by ProShares and Rydex, to function in whatever manner it is that passes for normal in these barmy days. It also effectively guts the ban on short-selling the 799 financial stocks (see Pp 4-24) but...whatever.

Of course, it’s not the first time in little more than two months Cox’s Band of Ignorami have been forced into rapid retreat on attempts to strangle short-selling. The exact same thing happened after the announcement of its Jul. 15 emergency order which eliminated the naked short-selling of Phoney (FNM), Fraudy (FRE) and the listed primary dealers.

Statement of SEC Division of Trading and Markets

US Securities and Exchange Commission

Press release Sep. 19 2008

The fright of the chameleon

WSJ’s ‘Intelligent Investor’ and ETF paranoia

One of the sagest pieces of professional advice NakedShorts ever received came early in his career from an aging hack who, with his face as dark as a midday thunderstorm, glowered over the froth on his beer and muttered, “Everything you read in the newspaper is true, except the stuff you know something about.” All the more so in these Intertubed days, when Everyman with a pixel machine can be his very own fact factory, present company included.

And so to page B1 of The Wall Street Journal Saturday, where Jason Zweig’s Intelligent Investor column carries the headline ‘What to Do When Your Fancy ETF Goes R.I.P: After a Long Boom, A Bust Is Inevitable; What to Watch For.’ Gee, I wonder where this is going?

Sooner or later, Wall Street turns every good idea into a bad one. The exchange-traded fund was a good idea back in 1993: Create index funds that hold every security in a market worth owning, make the funds tradable like a stock, and keep costs and taxes low.

But here we are in 2008, and ETFs (plus their siblings, exchange-traded notes) are becoming a bad idea. With nearly 800 of the things, the proliferation has become a plague...

And then, after the Mark Hainesian rant about “many ETFs” being “so overspecialized that they make a pediatric endocrinologist seem like a family doctor who makes house calls,” not that Haines could summon up a word like endocrinologist, it goes downhill.

These, folks, are our leaders

If a country gets the government it deserves, the eponymous Duncan Hunter (R-Cal.), ranking member of the House Armed Services Committee, just broke from the large field of contenders seeking the role of Exhibit A.

Hunter’s staff contacted the embassy in N’Djamena, Chad, last week to see whether Hunter could distribute food at a [refugee camp housing some of the 230,000 to have fled the genocide in Darfur]. Hunter wanted to put together an outing to hunt wildebeest and distribute the meat to refugees.

So, the killjoy bureaucrats at State Department stepped in:

Regarding the Congressman’s desire to hunt wildebeest and distribute the cured meat to refugees, wildebeest are not present in Chad.

Hunter, however, has the entire situation entirely under control.

Hunter’s office called State on Thursday and said he had decided not to go and that he was looking instead at commercial hunting expeditions in Kenya, Tanzania and Southern Africa.

Rep. Moron is doubtless fantasizing about the tiger he’ll kill.

And a Wildebeest in Every Pot
by Al Kamen
The Washington Post Jul. 23 2008

Washington’s finest's finest hour

Meet Bart Stupid. Moron du Jour

Rep. Bart Stupak (D. Mich.), chairman of the oversight and investigations subcommittee of the House energy and commerce committee, was the runaway winner of Friday’s Cretinous Congressman Derby. In a CNBC segment drawn to my attention by a kind reader, he:

• Several times malapropped the name of an infamous hedge fund, discussing ‘Aramanth’ instead of the better-known Amaranth. Fortunately, the conversation didn’t get into the individuals involved, Brain Hunter and Benedict Arnold.
• Delivered the following analysis of Aramanth’s failure:

“...And you saw last year with Aramanth. on natural gas trying to hoard the market on natural gas which led to a bust of the natural gas and left about $6 billion that Americans had to pay needlessly...” [Among the several factual errors in that statement, it was, of course, Amaranth’s investors who got whacked for $6 billion that was transferred, pretty much seamlessly, to the pockets of Arnold’s Centaurus Partners, JPMorgan and Ken Griffin’s Citadel.]

• Invented a whole new word: Liquity.

And provided much other unintentional comedy while arguing the essentially sound case that it’s long past time that the Incontinent Exchange (ICE) lost its regulatory arbitrage advantage and began playing on the level killing field. Or something like that.

The video evidence is over the jump, but, before you go, if you must, a burst of applause for Bart and his shiny new Moron du Jour.

Things I wanna know...*

A miscellany of market motivators

Head on over the jump for Monday’s order book:

1. Whatever does this mean?

2. GS cred downgraded to BS

3. Stat-arb shambles: What say you BGI?

4. John, come down off that ledge, please

5. Where do they find these people?

6. MinusFunds? Overpaid? Surely not

7. Was mythical bird averaging down?

8. Let’s hope it’s not a reformation

9. Tight-knit wool, near-blind eyes

10. More sincerest form of flattery

* From an idea by Todd Harrison

Bonfire of the Braincells

With a big assist from BuffoonVision

Covering hedge funds is difficult. Stipulated. Live TV is difficult. Stipulated. But it would be interesting to know what excuse “BusinessWeek writer” Roben Farzad has for the astonishing load of codswallop he talked about Jim Simons’ Renaissance hedge fund complex in a CBNC segment Friday, Aug. 10. And, for that matter, who decided that Farzad was even remotely qualified to discourse on the ‘Bonfire of the Hedges.’

Yes, it blows my mind that Renaissance and AQR were mentioned this morning. Renaissance Technologies you have to understand for your viewers this is the most rarified and exclusive of hedge funds. It’s closed to new investors, obviously. It’s invitation only. It charges the most exorbitant fee of any quant shop. Jim Simons is a hedge fund upper God and to see their name in conjunction with this distress is amazing because they are a quant disciplined fund with the smartest PhDs in the room and they’re supposed to be hedging, I mean, that’s what they do and in this case to be down 7 percent for the month and to be down for the year in an intensely competitive business where they’re charging in excess of 40 percent of gains, I mean that could just cook your goose.

So, before awarding Farzad his very own Moron du Jour, let’s head over the jump for the detailed citation.

Belated Insider Moron du Jour

[GRAPHIC ADDED Jul. 4 2007] Step forward, David A. Schwinger, former managing partner of the Washington DC office of alleged securities law practitioners Katten Muchin Roseman LLP. While interviewing a prospective recruit in late 2004, Schwinger learned that a company was about to be acquired. You know where this is going: imputed profits—$13,027; fines, interest and disgorgement—$40,000 more or less. Plus, of course, the “former” attached to his title at KMR. And the usual “without admitting or denying” farce.

Two things:

• Funnily enough, the news section of the website of The Law Offices of David Schwinger PLLC has yet to be updated with a link to the US Securities and Exchange press release.
• Given the corruption of the Justice Department under the current administration, one assumes that Schwinger’s role in offering employment to a former Bush 41 employee, as recently as Aug. 2006, explains why the Feds—in the midst of a major crackdown on insider trading in their dreams press releases—didn’t exercise a little discretionary deterrence by slipping jingly-jangly things round Schwinger’s doubtless remorseful wrists.

Sorry, David, a Moron du Jour is the limit of my regulatory powers. You’re very welcome.

SEC v. David A. Schwinger
US Securities and Exchange Commission
Litigation release Jun. 13 2007

[GRAPHIC ADDED: *Bows humbly* to the reader who pointed out the severe irony of the tagline ‘Intense simplicity’ on Schwinger’s disclosure deficient website.]

Podcast: Blankfein-Fool or fabulist?

Welcome to a special Sunday edition of Global Megabank NA’s Consistent Inconsistencies. Today, we’re talking about an interview with Goldman Sachs’ chairman Lloyd Blankfein, published in The Financial Times Friday:

Q: What lessons do you draw from the problems at the Bear Stearns hedge fund?

A: That it is very dangerous to be in very concentrated positions.

And now over to Matt Stichnoth, at Bankstocks.com. Matt, I believe you had a comment?

Incorrect! The reason Bear’s mortgage-backed fund imploded isn’t that it held concentrated positions—the fund invested in CDOs, for goodness sake, which come pre-diversified. Rather, the problem has to do with leverage. This is what happens when there’s a hiccup in a market that you’re levered up in by 15 to 1. Blankfein must not have understood the question...

Thanks Matt. Excuse me. This just in: something about grevious bodily harm, and the next time Tom wants to load up some more FMD at Goldman. (Nervous chuckle). I’m sure they’re just kidding. Now we’re pleased to welcome back NakedShorts. Naked?

Well, Matt got filled mostly on the bid—probably for the last time, hahahaha—but he left an order hanging out there: Goldman Sachs’ balance sheet is levered up 25-times or so. Blankfein understood the question perfectly—he’s no fool!—but didn’t want to embarrass Bear by saying the fund just wasn’t levered up enough. And nobody’s going to call Lloyd out on a little thing like Porkie of the Week—which took some doing this week! Hell, he might never come back, or cut off access to the “people familiar with the situation” who ladle out scoop from Goldman’s dish dish.

Porkie? I'm not familiar with that.

Cockney rhyming slang. Pork pie. Lie.

So let me be clear here. You’re calling Blankfein a liar?

Of course! It’s in the job description! It’s a principles-based world, and the principle is keep the dream alive, man! And never ever do anything that would get drekk marked to the real world!

Well, thanks Naked. (Nervous chuckle). And that’s today’s special Sunday edition of Global Megabank NA’s Consistent Inconsistencies. Be sure to join us Tuesday, when we’ll be covering Bare (ph.) Sterns (ph.) in the Caribbean! And now back to the studio...

View from the Top
by Chrystia Freeland and David Wighton
The Financial Times Jun. 22 2007

Bankstock.com’s Daily Weblog
Jun. 22 2007

Someone cut him a check, please

Senator Chuck Grassley (R-Iowa) is obviously not getting his share of the hedge fund political contribution largesse blowing about the streets of Washington DC. That appears to be the most logical, not to mention substantive, explanation for his decision yesterday to attach an amendment to homeland security legislation requiring hedge funds to register with the US Securities and Exchange Commission.

Grassley goes after hedge funds (again)
by Liz Moyer
Forbes May 15 2007
(and all over the place).

Hedge funds ramp up Washington activism
by Marcy Gordon
Associated Press (via Yahoo! News) May 11 2007

Breaking news!

Bob O'Brien reports inverse ETFs flying in market plunge. Also notes poor performance in recent market run-up.

(From an idea by Adam).

Step forward, Daniel Krueger

It’s been a while since NakedShorts’ awarded a Moron du Jour – so many nominees, so little time – but Daniel Krueger, of Owl Creek Asset Management, is a winner for an inelegant analogy while whining that, the law notwithstanding, a dozen or so hedge funds playing hedge fund games in the Northwest Airlines bankruptcy shouldn’t have to publicly disclose details of their trading in the airline’s stock:

“Just as car dealers do not disclose to customers their actual acquisition cost of their cars, and builders do not disclose to potential home buyers their actual cost to build homes, we do not disclose to potential counterparties our basis in our investments,” Krueger said, in court papers.

US Bankruptcy Court judge Allan Gropper hit Krueger et al with the ugly stick: Hedge funds “do not advance their position when they compare themselves to car or real-estate salesmen.”

Exactly. The funds have until Wednesday, Mar. 14, to disclose their trades. Cranky flight attendants, the world’s oldest bag of trail mix, and a 16-hour layover at NRT - “Your incoming aircraft died of old age” - after the jump.

Bait and switch

Hi Greg,
Ken Griffin of Citadel turned Amaranth Advisor’s disastrous $6 billion loss into a gain for his own investors, but the wily Canadian energy trader Brian Hunter didn’t fare as well in MarketWatch’s annual review today of the year’s winners and losers in business and finance [blah blah blah] To schedule an interview, please contact [blah blah blah]

Wow. Way cool. Hang on. Who do I get to interview? Griffin? Hunter?

It’d be with the reporter who wrote the roundup.

Quel surprise. At the risk of being even more Grinch-like than usual, NakedShorts would respectfully direct Dow Jones’ penny-pinchers to the general neighborhood of its public relations operatives. And, just while we’re on the subject, which of Hunter’s actions qualify as ‘wily’?

Call of the day

Step forward, Bear Stearns analyst Saul Martinez who – in a brilliant display of contrarian bravado – last night cut Scottish Re (SCT) from peer perform to underperform. SCT dropped a mere 75% Monday after announcing a profit warning, the resignation of its chief executive officer, and getting a mention in The Wall Street Journal in the context of whether or not famille Wyly adequately met its obligations to the Internal Revenue Service.

Likely to have been caught in the slump, according to the not always entirely reliable Yahoo! Finance, citing Mar. 31 filings: Fidelity, with five million shares, including 1.94 million in its Balanced Fund; Leon Cooperman’s Omega Advisors, with 1.56 million shares; and Bruce Kovner’s Caxton Associates, with 1.3 million shares. Not that in any of those cases would the SCT plummet move the big needle more than a millimeter, if that.

Links after the jump.

Moron du jour

It’s been a while, so step forward Demetrios Anifantis, former client relationship manager at Camelback Research Alliance Inc – now Gradient Analytics - sometime 60 Minutes star, and prominent figure in suits alleging collaboration between Gradient and hedge funds in driving down the price of Overstock.com and Biovail:

The public companies that were subject to the type of conduct I describe in my testimony today numbered somewhere between 20 and 40 companies while I worked at Camelback. Among these were some well-known companies like Swift Transportation, Krispy Cream Donuts, Taser International, Overstock.com, Net Flicks and many more.

Seems like someone is nakedly short a spellchecker. Link to his testimony after the jump. If you must.

[UPDATED: Anifantis, and his puppeteers, are, in fact, much better morons than that. Nice catch, Herb].

A master of the bleeding obvious

Nobody’s certain of where the market’s going to go from here.

Bob Pisani, CNBC
Jun. 6 2006, 3:59 pm EDT

Lucky for him. Because if everybody did know where the market was going from here, Pisani would have to get a real job appropriate to his talents. Like standing outside La Guardia, yelling “Catch your planes here!” This, not to mention Roger’s pick-up from yesterday, with today’s …ahem… follow-through, indicates that Bob is on a roll. Make that a big fat bagel.

Sound investment advice du jour

How to Deal With the Fed's Hiking Impulse
Wall Street has collectively realized that the Federal Reserve could raise interest rates to 6.5% in an effort to cool speculation in hot markets, Jim Cramer told viewers of his Mad Money TV program Friday. The only way to avoid getting nailed as rates go up is to have a balanced diversified portfolio, he said. That way, if one sector gets crushed, your other stocks can offset its performance. [Emphasis added]

Just like they did in 2000-2002. Color this one maroon. Of course, if the Fed does raise rates to 6.5 percent in the reasonably foreseeable future, NakedShorts would respectfully submit the advice in this incredibly annoying sound clip.

[Source: TheStreet.com Before the Bell Weekend Edition email newsletter (not linkable)].

TheStreet-dot-Whatever

“Just because bonds are strictly for boring retirement money, that doesn't mean they can't make you some money, Jim Cramer says. The Treasury reintroduced the 30-year bond Thursday, and the way to make money off of its return is by buying CBOT, the nation's leading futures index. The 30-year futures contract will be traded to bet on interest rates, and CBOT makes money off of each trade, Cramer said.” [Emphasis added].

Exchange. Index. Whatever. Two things:

Stupid statements (PR division)

Contacted by Fortune, Millennium spokesman Thomas Daly said: “There was no fraud whatsoever.”

From Marcia Vickers' Nov. 2 2005 article Izzy Englander in SEC settlement talk, just a month before Millennium - without, of course, admitting or denying the charges - agreed to spit up $180 million in fines and disgorgement for its “fraudulent scheme” involving the market-timing and late-trading of mutual funds.

Derivative of accounting?

Introducing Annette Nazareth, who according to the normally reliable-enough Dow Jones Newswires told reporters after speaking at the Hispanic National Bar Association conference in Washington yesterday: “It is unclear at this point whether [the Refco collapse] will be viewed by policy makers as an accounting or derivatives issue.”

Now, unless there’s some double super-secret salient information that hasn’t come to light in the last 10 days or so, this is an A-C-C-O-U-N-T-I-N-G issue. And even if it did, as the evidence available to date suggests, begin back in 1998 with derivatives trades that behaved badly, the alleged sub-rosa internment of those losses is an A-C-C-O-U-N-T-I-N-G issue. Further, the proximate cause of the implosion, to whit, the migration pattern of a certain receivable, is an A-C-C-O-U-N-T-I-N-G issue. As in, undisclosed related party transaction. And for not knowing the difference: A Moron Du Jour for Annette.