28JAN09:
Q1-09 DOW: 8900
Q2-09 DOW: 7250
Q3-09 DOW: 5810
Q4-09 DOW: 3960
CITI NATIONALIZED
OBAMA GETS SICK 27AUG09:
Mini Crash 21SEP09 Predicted correctly:
Bailout=Bonuses
Demise of Bear Stearns
Demise of Lehman Bros.
Demise of AIG
Subprime would cause problems
Date of 2007 crash
CRAs were to blame
G20 riots were a party
Northern Rock run
Northern Rock Nationalization
HBOS and RBS demise
UBS really was Useless
Last Thursday the news broke and it hardly registered a blip on the news radar. Today we face financial meltdown of the hedge fund industry and the loss of tens of billions of dollars and the destruction of livelihoods. Yesterday I looked critically at the investors who had not read the prospectuses or carried proper due diligence. The problem with Madman Madoff's funds is you could only touch them by investing through feeder funds. These feeder funds were promoted by interested parties who put layers of fees on top and sold them as proper fund of funds.
Take the Fairfield Sentry fund. It has a proper Auditor - PWC, an administrator and a custodian - Citco. It is a BVI fund and is managed by a well known Investment Manager. So far, so good. Ok, the custodian only looks after 5% of the assets (the other 95% are looked after by Madoff) but unless you like reading small print it looks like fine.
The biographies of the managers are respectable, including Jeffrey Tucker who used to work as a lawyer for the SEC. The fund has a board including 2 directors located in risk adverse Switzerland. One of the directors is not paid which is strange but I guess he must be paid elsewhere. Thankfully, Goldman Sachs is a sub custodian although I think Refco must have been a misprint.
The Investment objective is "The Fund seeks to obtain capital appreciation of its assets principally through the utilization of a nontraditional options trading strategy described as "split strike conversion", to which the Fund allocates the predominant portion of its assets. This strategy has defined risk and profit parameters, which may be ascertained when a particular position is established ..." and sounds quite convincing.
I am not so sure about the Investment Restrictions including "e) no more than 10 percent of the Net Asset Value of the Fund may be invested in securities of countries where immediate repatriation rights are not available;" but I like the fact US citizens are excluded - "The Fund will require as a condition to the acceptance of a subscription that the subscriber represent and warrant that he has a net worth in excess of U.S. $1,000,000 and is not a U.S. person".
The 13 year track record averages in excess of 10% a year and its volatility is very low indeed. The fund has grown and subscriptions exceed redemptions so it must be a popular.
Excellent. So where did it go wrong? Well PWC have some explaining to do. It looks like they never validated the underlying investments. Madoff obviously just gave them the NAVs and they took them as red. Citco's care of duty is to look after the assets and it has done so. Shame it only looked after 5% but that is better than nothing. The manager should perhaps have carried out some proper due diligence on the underlying but then it made so much in fees it got a bit punch drunk.
So there you go. A sound investment run by people who didn't quite do their jobs. I take back all my negative posturing and instead tell you how I see it through a slew of crap cartoons and virals.
Thank you for the many emails and correcting me for not getting my facts fully straight. Hat tip to the person who sent me the OM - it was fascinating to read.
Book Update Work in the City of London? Today some more FINTAGS CRAP CARTOON books will be planted. Good luck.
Tremont Group Holdings Inc., a hedge- fund firm owned by OppenheimerFunds Inc., had $3.3 billion invested with Bernard Madoff, according to a person familiar with the matter.
Tremont's Rye Investment Management unit had $3.1 billion, virtually all of its assets, invested with Madoff, said the person, who declined to be identified because the information is private. Tremont had another $200 million invested through its fund of funds group, Tremont Capital Management
Fintag says The media are lovin' it. Who and how much is the game.
Tremont are an interesting case for they are real hard batards when it comes to due diligence. So what went wrong here? Its the IBM trade I am afraid - nobody got fired for buying IBM, they used to say. Madoff was the IBM of the fund market.
"...victimized by not just a person but a scheme and a complex process designed to deceive individuals and organizations, managers and analysts — including some of the largest, most sophisticated financial institutions in the world." Tremont newsletter via DealBook
BRITAIN FACES WORST RECESSION IN LIVING MEMORY, CABINET MINISTER TESSA JOWELL ADMITS
Tessa Jowell, the Olympics Minister, said the forthcoming downturn was expected to be "deeper than any that we have known".
The admission is the most pessimistic forecast so far issued by a Government minister. It raises the spectre of a recession lasting throughout 2009 and part of 2010 - worse than the recessions of the early 1990s and 1980s.
Fintag says What an insult. There are many people still alive who remember vividly the 1930's and the Second World War which wasn't much fun either. A case of Champagne socialists feeling the pinch eh?
The credit crisis is in danger of making us blasé about enormous sums of money. Even so, the scale of the losses from the apparent fraud carried out by Bernard Madoff is breathtaking.
The US authorities say that he has confessed to losing $50 billion (£33 billion) of investors' money through a long-running scam, equivalent to more than £100 for every man, woman and child in the US. If true, it would make Mr Madoff the biggest fraudster ever.
Fintag says This has to be the last, surely. I don't think I could live through another 2008. Let us hope 2009 is really boring.
The Securities and Exchange Commission, a once-proud agency with an impressive history as Wall Street's top cop, finds itself increasingly conducting autopsies of leading financial institutions after failing, in the first instance, to perform adequate biopsies.
The latest black eye for the commission came when inspectors and agency lawyers missed a series of red flags at Bernard L. Madoff Investment Securities. If it had checked out the warnings, the commission might well have discovered years ago that the firm was concealing its losses by using billions of dollars from some investors to pay others.
Fintag says I spoke to the FSA yesterday. They are looking at carrying out a themed visit, as they call them, following rumors that I am writing a blog under a false name and enjoy spreading rumors. We chatted but they don't laugh much. So I asked them if they could carry out an SEC type investigation and thought that was funny.
Poor old SEC. Useless. Spineless. Lawyer lovin'. Obama will surely be scrapping the SEC? All he needs to do is got to fsa.gov.uk where the FSA have kindly produced their thousand page handbook, rename it and use it regulate the financial institutions in the USA.
Investors will have access to prime forestry real estate initially in the US southeast though a hedge fund managed by Westbury Capital Partners. Trilogy Green Forest Fund (TGF) is a Cayman Islands-domiciled, open-ended fund, which will launch in January and have its first closing in March 2009.
The fund already has committed assets of over $200 million. It will be aimed primarily at institutional investors and private banks and has a pre-identified pipeline of more than $1 billion. The fund is aiming to generate annualised returns of at least 10%.
Fintag says Phew! A sense of normality. When was the last time we heard some good news. A fund launch. Good luck ...
For this and other amazing-in-hindsight statements, click on the image below for a video of Bernard Madoff (and others) speaking at a conference in October 2007 on the “Future of the Stock Market.”
Not-to-be missed gems include Justin Fox asking Madoff, “so, how exactly do you make money”?
Fintag says Sorry to the text visionists, but if want to hear the liar and crook in action you have to watch this on You Tube.
Bloomberg reported Friday that, according to unnamed 'people familiar with the matter', a New York trading desk run by Deutsche Bank credit-trader Boaz Weinstein has suffered a $1bn trading loss. And the final loss may end up even larger as the German bank unwinds the positions.
Cynics point out that news of the trading loss leaked on the day that attention was focused on Bernard Madoff and that alleged $50bn trading fraud. (What's another $1bn loss over at Deutsche compared to that ?)
Fintag says Only a billion? Good to see the risk managers were awake - as usual. Maybe they are ex SocGen?
ACHIEVEMENT AWARDS 2008 - AUSTRALIA AND NEW ZEALAND
The latest UK inflation figures are expected to show another sharp drop in the rate for November.
Economics predict that inflation, as measured by the government's preferred Consumer Prices Index, will have fallen from 4.5% in October to 3.9% or less.
Fintag says And ...?
32 comments
Top Cat said ...
I was quite close to an eerily similar case to Madoff in HK - the Charles Schmitt Associates (alleged) fraud. Look it up - very similar, set up a fund of funds business, get some dodgy feeder funds, pump them with leverage, and then use related parties as custodians of those feeders. Charles Schmitt was even a chairman of a US stock exchange I think, like Madoff, the similarities are striking
16 Dec 08 - 07:56 gmt
newbie said ...
"The Fund will require as a condition to the acceptance of a subscription that the subscriber represent and warrant that he..is not a U.S. person."
OK, but if it went bad, then the effect would be to screw the rest of the world, leaving US persons untouched.
Interesting.
16 Dec 08 - 08:12 gmt
Red Squirrel said ...
That's a totally irrelevant issue - lots of funds are specifically not available to US citizens due to regulatory and tax issues. Doesn't mean anything at all
16 Dec 08 - 08:28 gmt
cockyspiv said ...
And today i will be removing all my funds from the large spanish bank and putting them under the mattress. Will they name this type of fraud as "doing a Madoff", similar to "doing a Ponzi"? I will be rummaging around City bookshops inbetween banks today
16 Dec 08 - 08:52 gmt
MsR said ...
What Tessa Jowell really means is "I'm stuck with these stupid f**king Olympics that are going to bankrupt London. Time to pass the blame."
16 Dec 08 - 08:58 gmt
anonymous said ...
So does this Madoff saga spell the end to the hedge fund industry as we all know it?
16 Dec 08 - 09:22 gmt
13:45 said ...
no just hopefully the end of lazy due diligence, um so i suppose it does...
16 Dec 08 - 09:40 gmt
Finbar said ...
A book is planted. Waterstones. London Wall. Humor table. Hard back. Enjoy...
16 Dec 08 - 10:20 gmt
TC said ...
Hi Fin,
Do you do commissioned work? How does one or one's firm get in touch with you?
16 Dec 08 - 10:33 gmt
Sweet & Sour said ...
Don't worry it is written on whatever it is that they write it on up there that verily there will be "a day of reckoning" and the saviour will be tory boy Cameron who will ensure that misconduct in the City shall be punished by criminal sanctions and that he personally shall tip over the tables of the money changers...phew.... that's a relief
16 Dec 08 - 10:39 gmt
Finbar said ...
@TC - lol!
16 Dec 08 - 10:44 gmt
Jaa said ...
What about Waterstones in Leadenhall?
16 Dec 08 - 10:49 gmt
Ben said ...
Got to Waterstones at 10.55 after a sprint from Cannon St...already gone.;(
Good game though!
16 Dec 08 - 11:13 gmt
Finbar said ...
Leadenhall waterstones has a copy. Instructions above.
16 Dec 08 - 11:35 gmt
GalwayBoy said ...
Fin, your signature is almost as bad as mine. I couldnt believe it was still sitting there.
PS the cartoon on page 95 would appear to disclose a serious psychological problem ;)
16 Dec 08 - 11:40 gmt
Sweet & Sour said ...
Fincumpoop, Do you want to avalanche? Financial avalanche?
16 Dec 08 - 11:50 gmt
fitzcaraldo said ...
List of Madoff victims, unbelievable, check this out on www.finalternatives.com/node/6354
16 Dec 08 - 12:14 gmt
TC said ...
Thought as much. Never mind, we're still fans.
16 Dec 08 - 12:23 gmt
Chuffy said ...
Considering I have missed the city treasure hunt, anything heading SW? I still think you would have been better leaving it in the lamb instead of bookshop?
16 Dec 08 - 12:30 gmt
Boaster said ...
Was at the 5th Ave B&N yesterday at 8:30am and combed humor, business, even art, and no book. The place was pristine, not a book out of place. Obviously the staff has nothing better to do than straighten books and clean up as they're not selling anything. So likely they picked up your book in their sweep. In Gwich office today but the weather's not conducive to book hunting unless you'd like to offer a hint....
16 Dec 08 - 13:23 gmt
Finbar said ...
I believe my volunteer planted a book at the Hospital Thrift shop (if not then its in the only bookshop in town).
Someone has emailled me re the B&N book - it is in safe hands ...
16 Dec 08 - 14:13 gmt
Finbar said ...
I have a meeting with Morgan S**** this afternoon so will be planting a book in Canary Wharf. More to follow ...
16 Dec 08 - 14:15 gmt
anonymous said ...
is fin really a hedgie? bankers come to you not vice versa dear boy
16 Dec 08 - 14:34 gmt
Finbar said ...
@Anon: Bankers do indeed come to me. I have a "date" ...
16 Dec 08 - 14:37 gmt
Finbar said ...
Waterstones in Canary Wharf. Soft copy. In the Law section where the dummies guides to hedge funding are.
16 Dec 08 - 15:38 gmt
bored said ...
how about something for those of us around st pauls/fleet street? there's a waterstons on ludgate circus and another on high holborn
16 Dec 08 - 16:15 gmt
anonymous said ...
real shame your book doesn't include madoff saga. but great other wise thank you very much
16 Dec 08 - 16:26 gmt
Bart Simpson said ...
fin, why don't you take your date on a romantic weekend trip to paris, and while you're at it, plant a book, for your continental readership.
16 Dec 08 - 16:30 gmt
Finbar said ...
FINTAGS CRAP CARTOON - MORE OF THE SAME 2008 will be coming out to include December cartoons. I have a meeting to sack Goldmans later this week so St Pauls I will visit.
16 Dec 08 - 17:59 gmt
anonymous said ...
I was too late to London Wall / Copthorne Street
Farringdon / St Paul's next, please! There is an ex Books Etc that has become M&S on Cowcross street....
16 Dec 08 - 18:22 gmt
AthenaDelphi said ...
Lurking....learning....leaving.
17 Dec 08 - 03:27 gmt
anonymous said ...
The US Labor Department reported Tuesday that consumer prices fell 1.7 percent in November, surpassing the previous record decline of 1 percent set in October. The drop was the largest one-month decline dating to February 1947.
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