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Thursday, December 13, 2007

The Fed Is A Joke

These guys are making it up as they go along. One day it's "let's cut the fed funds rate & discount rate". The next day is..."let's get together all the world central banks and add liquidity". Each new policy announcement is getting more desperate. There are so many hybrid CDOs, SIVs, and random derivatives out there that are illiquid right now that no one knows what they have their hands on anymore. Warren Buffett is right. They are financial weapons of mass destruction. Pretty soon one day this stock market is going to be down 20 to 30% in one day. Mark it down. You couldn't pay me to be long the stock market right now. It's a disaster waiting to happen.

Here is a funny column by Mark Gilbert of Bloomberg that sums up what an annual letter to hedge fund clients might look like. an excerpt...
Dear investor, we'd like to update you on this year's performance of our hedge fund, Short-Term Capital Mismanagement LLP.

Actually, we'd prefer not to. We'd rather disappear. We read somewhere that Panama is a really nice place to retire to, but our lawyer says that would be a bad idea. So here goes.

This has been without doubt the most turbulent period we have experienced in our 15 minutes of multistrategy, multiasset- class, Bentley-driving hedge-fund manager fame.

Our Widows & Orphans Enhanced Money-Market Fund is under investigation by the Federal Trade Commission. It seems our use of the word ``enhanced'' is deemed incompatible with ``real sorry we gambled that dollar you gave us for safekeeping on collateralized-debt obligations and ended up losing a cent or seven. Or 20. We're not entirely sure yet.''

Our Structured Investment Vehicle has burst its tires and looks like it was designed by a teenager on acid after seeing one too many documentaries about Frank Gehry. Our off-balance sheet conduits have maxed out their MasterCards and every time we try to value them, we are reminded that some things in life really are priceless. Our only investment that made money in December was our long position in Led Zeppelin concert tickets.

Nevertheless, we are proud, nay, ecstatic, nay, absolutely flabbergasted to report that our fund is still sashaying on the dance floor, which looks less and less like a ballroom and more like the aftermath of a frat party.


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