Many days we sit here wondering how we escaped the Matrix. Life is so much easier being spoon fed inside the Matrix where butterflies and unicorns reign. Unfortunately, after our escape we live in the dirty, cold world outside of mothership Kool Aid. We spend these days wondering if indeed we are just the crazy man on the park bench, mumbling to ourselves much as we did in 2007 as the market raced to all time highs. Since the market is all knowing and Oracle like in nature, the implication was our lonely warnings (only joined by a few others who escaped the Matrix) were simply permabear groans. Eventually we were proven correct and discovered it was not us mumbling on the park bench in incomprehensible wordings, but in fact the majority. The same majority whose track record is now being ignored ... because they offer the same soothing words. Like a blind squirrel the punditry will eventually be found correct; but for those who have listened to them - their pocketbooks will have been decimated.

It's a very lonely existence outside the Matrix - only a small band of misfits exist out here. I was glad to see in this Bloomberg article that some of the great minds - including legendary hedge fund manager Paul Tudor Jones - are out here on the run, with us. Much as we have said this is just one big long epic recession only interspersed by paper printing prosperity [May 19, 2009: Paper Printing Prosperity Defined] to create a fake recovery, so are some others. It will be labeled as a double dip recession when in reality it should be labeled, steal from our grandchildren fake recovery. If we are going to be mumbling incoherent thoughts of doom and gloom on a park bench with trench coat and brown whiskey bottle in hand, we don't mind this company. If you wish to remain attached to the machine, please stop reading here and I'll leave you with words you hear daily on infotainment financial TeeVee: the water is fine, come on in, Ben Bernanke has fixed it, your financial American idols have saved you for yourselves again, rejoice.

Remember, all I am offering is the truth - nothing more.


For the rest of you - carry on:

  • Paul Tudor Jones, the billionaire hedge-fund manager who outperformed peers last year, is wagering that Goldman Sachs Group Inc. and Morgan Stanley got it wrong in declaring the start of an economic recovery.
  • Jones’s Tudor Investment Corp., Clarium Capital Management LLC and Horseman Capital Management Ltd. are taking a bearish stand as U.S. stock and bond prices rise, saying that record government spending may be forestalling another slowdown and market selloff. The firms oversee a combined $15 billion in so- called macro funds, which seek to profit from economic trends by trading stocks, bonds, currencies and commodities.
  • “If we have a recovery at all, it isn’t sustainable,” Kevin Harrington, managing director at Clarium, said in an interview at the firm’s New York offices. “This is more likely a ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later.”
  • Tudor, the Greenwich, Connecticut-based firm started by Jones in the early 1980s, told clients in an Aug. 3 letter that the stock market’s climb was a “bear-market rally.” Weak growth in household income was among the reasons to be dubious about the rebound’s chances of survival, Tudor said.

Ah, sounds like these could be ripped from the pages of Fund my Mutual Fund

  • A focus on misleading indicators is driving markets, macro managers say.
  • Clarium watches the unemployment rate that accounts for discouraged job applicants and those working part-time because they can’t find full-time positions, Harrington said. July joblessness with those adjustments was 16 percent, according to the Department of Labor, rather than the more widely reported 9.4 percent.
  • The housing data isn’t as rosy as some see it, Harrington said. As existing U.S. home sales rose 7.2 percent in July from the previous month, distressed deals including foreclosures accounted for 31 percent of transactions, according to the National Association of Realtors, a Chicago-based trade group.
  • High unemployment, lower wages and potential missteps by policymakers around the globe may stifle economic growth in 2010, Tudor said.
  • Macro managers are examining China for hints on how to place currency and commodities bets. Tudor said the country’s spending spree on raw materials inflated commodity prices and weakened the U.S. dollar. A government mandate forcing banks to make about $1 trillion in loans during this year’s first half is spurring short-term growth that may not last, according to Clarium.

How are they positioned?

  • Clarium, which oversees about $2 billion, is positioned for an equity bear market through investments in the U.S. dollar, Harrington said. Falling stock prices will strengthen the currency by forcing leveraged investors to sell equities to pay down the dollar-denominated debt they used to finance those trades, he said.
  • Horseman, with $4.1 billion under management out of London, was investing in long-term U.S. Treasury bonds. The firm believes interest rates will stay low for longer than the market expects, benefiting the asset class. “Despite every effort by government in North America and Europe to avoid deflation,” Horseman wrote, “the current numbers suggest they are losing the battle.”

This was the play in latter 2008 and the first few months of 2009. Will we repeat?

And this is the root of our angst almost each day... we did not solve or learn a thing from this episode - which is amazing in and of itself. It makes you ask what does it take for our leadership to ever admit the flaws in our systems and that our financial oligarchs run the country?

  • Macro managers’ pessimism is fueled in part by the U.S. government’s response to last year’s financial crisis, which they say fails to address the root cause. Banks still hold hard- to-sell assets on their balance sheets, the managers said.
  • “Some critical initiatives have been cut short,” Tudor said. “As a result, toxic assets remain on balance sheets and credit growth is likely to be subdued for a long period.”

Instead of REAL solutions we just changed accounting rules and said everything is fine now.

  • The Financial Accounting Standards Board voted in April to relax fair-value accounting rules. The change to mark-to-market accounting allowed companies to use “significant” judgment in gauging prices of some investments on their books, including mortgage-backed securities that plunged with the housing market.
  • Banks are reporting better earnings because they haven’t been forced to account for their losses yet, Clarium’s Harrington said.

Just don't you dare whisper that the U.S. is like Japan. The fact we have repeated all the same steps but in steroid like nature is no reason to wipe us with that stain. We don't have zombies - we have fine institutions that can rally 100s of percent (hi AIG! hi Lehman! hi Fannie) on the back of the taxpayer propping up corporate (financial) America as any good taxpayer should do.

  • “We haven’t fixed the problem,” he said. “We’ve just slowed down the official recognition of it.”

By sticking to their guns, 2 of the 3 funds cited in the story have suffered for the year... unlike them, while I have heavy disdain for Kool Aid, I recognize its powers and our idol worship (oh Ben, you are so powerful and awesome - thank you for saving us from the problems you and Alan created in the first place) Remember my policy - the market is not about reality; it is about perception of reality. The problem is knowing then perception and reality merge - when it does it turns into very violent episodes as we saw the past few years.

  • Clarium, whose assets were mostly in fixed income, dropped 6 percent this year through June. Horseman’s fund slid 16.3 percent. Tudor’s BVI Global Fund Ltd. returned 11 percent.

But the group of 3 far outperformed the industry and the greater markets in 2008...

  • The funds held up in 2008 amid the industry’s record 19 percent loss. Horseman’s Global Fund USD, which focuses on stocks, made HSBC’s private bank list of top 20 performers by gaining 31 percent. Tudor’s and Clarium’s funds fell 4.5 percent.

Anyhow - welcome to the club fellas, Nassim will bring you a cup of tea as we sit on the bench discussing what is going on for those who enjoy the blue pill. [Aug 13, 2009: The Parallel Reality: Nassim Taleb and Elizabeth Warren]