This was a follow up article from 24 October also on Marketwatch.
Why do I present this information? Simple. I have read so many of these types of articles from companies that within 6 months are dead, gone, penny stocks or bailed out, it is not funny. Citidel is massive in the hedge fund world.
I predict and have been saying for some months now that we will experience a major hedge fund collapse soon. This will be larger than the collapse last year of the of $9 billion hedge fund Amaranth Advisors.
Back in 1998 Mr. Greenspan orchestrated a the bail out of Long Term Capital Management. He did this without government money. Instead he had a dozen or so banks pony up to $250 million each to re-capitalize the fund and allow its holdings to be sold off in an "orderly" fashion.
The interesting connection between LTCM failure and the statements by Citidel in the article from 24 October is this quote:
He (Ken Griffin) blamed most of the fund's losses on huge dislocations between cash securities like corporate bonds and related derivatives that Citadel and other firms use to hedge those positions.
This was exactly the cause of the collapse of LTCM. LTCM lost huge money primarily due to bets related to the Rubble. The Rubble collapsed in 1998 and Russia defaulted on debts. The key is these funds use sophisticated methods to "hedge" their investments (bets) for or against a security, currency, commodity or your grandmother's likelihood to die tomorrow or whatever else BS they can thrash around billions of dollars at to try and make a buck irrespective of the laws, lives or losses by any party willing to do business with these vultures.
Anyway, this "dislocation" Mr. Griffin talks about is exactly what number crunching mathematicians are completely unable to deal with. These guys leverage themselves to the hilt to rake out a few percentage points gain in their bets. They risk so much capital and borrowed money by use of hedging strategies that allow them to minimize risk while making high returns. However when their risk protection strategies break down they are screwed, literally. They can suddenly loose billions and often have no way to protect themselves other than to liquidate.
Well, as I have said before many times, when one is dealing with an "esoteric" market of highly complicated, unregulated "derivative products" and all hell breaks loose, whom in the hell are you going to "liquidate" to? Everyone else is playing the same game. There are no regulators, there are no authorities since these guys play in unregulated markets, there are no laws, rules, allegiances to nations, people, humanity... anything. There is no oversight or "police" looking into what these guys do. They are secretive and play with "products" most people do not understand and have terms that only work in normal functioning markets. The products are created and traded on proprietary systems by over paid number crunchers who have the street smarts of a doorknob.
OK, off the stump. Well, I will add that one of the early "brilliant" ideas of Mr. Bernanke was to open the treasury up the regulated banks followed by the unregulated Wall Street "investment" banks with the explicit idea that they would provide liquidity to their "clients" duh, hedge funds, they acted as prime brokers to, lent to and often took positions in their "investments" (raids on other companies).
It is really fascinating to see the treasury open up to the completely unregulated market through regulated entities. Oh, and when the unregulated entities begin to go broke because leverage at 30 to 1 has failed as a "business model", the fed says "OK now you just become regulated and we will open up the spigots for you." I mean this is just F***ing crazy. Period.
Also it is fascinating to see how desperately this entire process is failing. There are so many "dislocations" in the market right now nobody knows which way is up. All I know is the stock market is now a playground for hedge funds to trade and manipulate and play "who is left standing at the end of today" games to try and make a buck. They account for 40+% of the volume and for anyone in 2008 to even THINK that the stock market is a place to "invest" they are kidding themselves.
The valuation of the stock market has become such that the model of how it used to work is no longer valid when you have hundreds of billions of dollars (trillions really when you count leverage)playing it like a schoolyard game. All of the "value" funds, mutual funds, retirement accounts, endowments, pension funds and the like that still have "ownership" of stocks are simply going to hand all of their money over to whoever manages to rake the most out of it before it collapses entirely. This will be soon.
We are looking into the abyss right now and as long as the government continues to pump billions of soon to be worthless dollars into the institutions that function in this market, this money is going to simply be sucked back out by those who understand what is going on. If you want to see an example look back to that 1998 collapse of the Rubble. I will not forget the billions pumped into Russia at the time by I believe it was the World Bank. The money went into Russia as hard currency, got converted by anybody and everybody with access to the right people and promptly went right back out of the country into Swiss bank accounts and the like.
This is what is happening with the money the Fed is pumping into a dying system right now. That is why there is no market. The cash pumped in goes right back out and is being held by anyone and everyone with access to it. The "market" continues to get sucked like a vacuum.
Meanwhile, I am convinced the dollar is going to loose it's international value as the world's reserve currency and as I have said many times before, if the nations with this currency don't start spending it on I don't care what, (buy anything and everything TANGABLE you can now with the dollars you have) they will be burning them for fuel in the winter, maybe not this winter but definitely by next winter.
This takes me to Ceberus Capital Management, the fund stupid enough to buy some 80% of Chrysler and 51% of GMAC Financial Services including their desperately worthless mortgage arm ResCap. GM announced this week they don't have any money and thus have no resources to bail out Chrysler. I believe this spells b-i-g p-r-o-b-l-e-m for Ceberus. They were trying to orchestrate some kind of quick deal to get Chrysler on GM's books so the government could bail the auto company out. Not even the idiots making decisions to bail out industries in Washington right now have the stomach to hand over the money to the likes of Cerebus. They would go to jail for something like that.
What if Chrysler / GMAC / Cerebus all go down the tubes? What a party that would be.
Don't be stupid. Shake all preconceived notions about the US stock market being a place to put your money for your future. The world is being reshaped as we speak and until the idiots running our government have the "balls" (for lack of a better word) to shut down the massive unregulated markets that trash the global financial system for a living and admit all of the norms that have defined the functioning of the capital markets have been completely destroyed by this massive unregulated market and their creation of "products" to place their highly leveraged bets, normal people must stay as far from this circus as possible.
If you are saving for your future, get out of the sucker's stock market before it becomes an empty dustbin.
All the best.
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