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Speaking of SAC not sure if anyone saw this from last November. Pretty good piece entitled "The Naked Dollar: The SEC Will Take Down SAC Capital". We'll see about that, but this guy brings up some very good points about the probabilities of SAC having the historical returns using "conventional" investing methods. Enjoy:
"Wednesday, November 28, 2012
The SEC Will Take Down SAC Capital
The indictment of Mathew Martomo marks the sixth time a current or former SAC employee has been charged with insider trading. The Feds have had Stevie Cohen, SAC's founder, in their sites for years. This new suit marks the first time Cohen has been directly named, albeit as "Portfolio Manager A."
The Naked Dollar has has written in the past about how insider trading laws are poorly written and there's a lot of gray area. But what of SAC? Is this an unfair government vendetta of some sort?
I don't think so.
The most damning evidence against SAC is, ironically, their track record. Not evidence that you can use in a court, mind you, but common sense evidence that they're not playing by the rules. I have seen their monthly numbers, going back 20 years, and to be blunt, they're not possible. SAC has averaged about a 30% return for 20 years. This, in and of itself, is remarkable, far exceeding the likes of Buffett or Soros. But what most observers miss is what SAC's gross returns have to be to achieve this.
SAC charges the highest fees I've ever encountered: a 3% management fee and a 50% incentive fee. To demonstrate how much these fees slash off the top, let's say they have a 10% year before fees, not bad result. But then subtract 3 points for the management fee and 3.5 points for the incentive fee, and the investor is left with a paltry 3.5% net return. Not so great, although SAC is presumably content because they have pocketed 65% of the return for themselves.
To produce a net return of 30% requires a gross return of...wait for it...63%. While this is not impossible to believe for a single year, or even two, it is wholly unbelievable for twenty. We're talking many standard deviations better than Soros, Buffett, Lynch, or anyone you care to measure against. More damning, they are doing this with billions of dollars, meaning much of their trading activity has to be restricted to highly liquid stocks, which are by their nature more efficient, i.e. less prone to the sort of mispricings that money managers can exploit.
Cohen operates his business by lording over dozens of isolated trading groups, each pursuing their own strategies. Make the company money, and you are paid well. Lose money, and you're shown the door pretty quickly. It is speculated that Cohen has insulated himself from potential charges by having plausible deniability about the actions of the individual groups.Yes, they can go after him on something called "failure to supervise," but this is sometimes hard to make stick.
But here's the thing. The trade in question, the one Martomo has been charged with, was massive. The profit alone was $276 million. There's no way Martomo executed a trade of this size without approval from Cohen.
No way.
I hope SAC is innocent, I really do. The hedge fund industry doesn't need this kind of publicity when the vast majority of its players are law abiding citizens. But I don't know how it's possible to legally produce the returns they do, for as long as they do, with as much money as they do. Heck, it would be hard to nail returns like these even with inside information.
And there's this:
The Cohen Spread, Greenwich
And this...
A $12 Million Stuffed Shark
It's not illegal to own a big house, of course, and nor is it illegal buy stupid, overpriced art. But the Obama administration has created toxic atmosphere of class envy, bordering on hatred, and sustaining such a zeitgeist requires putting faces on your enemies. Guilty or innocent, Stevie Cohen makes for a very compelling villain.
This is why, one way or another, the feds will bring Cohen down. They may get a conviction, they may not, but no matter. Death of a thousand subpoenas is still death. Investors will bail. Personally, I can't believe they haven't already, but I guess 30% is hard to walk away from."
http://thenakeddollar.blogspot.com/2012/11/the-sec-will-take-down-sac-capital.html
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'trans' pid='16795' datel Wrote:He also has several different funds to park positions in, and trade back in forth with that setup. Only a suspicion, but I absolutely note a growing "collusion" of big money pools on the short side of the market. That's primarily why, imo, the dark pools have been pushed by the bigs in wall street. They can capture smaller and smaller cap stocks. imo
Trans - agree 100%. Some of the IOC shorts absolutely trade back and forth with their "sister" funds. I use Totalview at Scottrade which allows me to see 15 times deeper into the market maker book than level 2. You can see the how the MMD profiles and bid and ask all seem to magically match on the way down. It's almost comical how transparent it is. And this is not even seeing the darks.
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"the Obama administration has created toxic atmosphere of class envy, bordering on hatred, and sustaining such a zeitgeist requires putting faces on your enemies."
Psychologists call such statements "projection".
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Palm-- Thanks very much for your informative rreply. Answers many of my questions.Looking forward to learning where rig2 (ant3 rig) will be moved to and when. Again,thank you.
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Ill quickly add my two-cents into this for what it's worth. As far as why the shorts keep shorting you need to understand we arenot dealing with ordinary individuals we are doing with PM's whose bonuses are in the millions of dollars and based solely on performance. On top of that these guys have egos large enough to fill a room. Think about it if you've been shorting ioc for the last couple of years now and been paid millions of dollars to do so a lot of times that past performance and Ego gets in the way of seeing things right in front of you. Two perfect examples of this are 1) the London Whale and 2) an old Morgan Stanley bond trader named Howie Hubler. One other thing to consider the shorts that don't let their ego get in the way can now almost perfectly time when they need to exit their positions. The company has said no deal will be announced before march and furthermore the company will be entering their quiet period for earnings within the next two weeks which will severely limit the company to what they can say. Consequently if I was a short I would know that I can manipulate the price for a couple more weeks, hedge my position with OTM option contracts and wait till the last week of Feb or first week of march to begin significantly covering my shares. With all that being said IMHO knowing the egos of ppl in the industry only 25-30% of the shorts are smart enough to cover soon enough or hedge our their positions. The rest of the Followers like Whitney Tilson will be caught off guard and it will be a race to the exits. Once again all just my opinion
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'sageo' pid='16801' datel Wrote:
Palm-- Thanks very much for your informative rreply. Answers many of my questions.Looking forward to learning where rig2 (ant3 rig) will be moved to and when. Again,thank you.
My understanding is that Rig 2 will be going to Tuna 1 to spud that, I would guess in early March.
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I heard something that surprised me and struck me as very interesting about at least one short. Someone at IOC told me recently about talking with someone who told him about a conversation that person had with a person who holds a short position, so third party through two people to me, fwiw; and I don't know how much short is involved, although it didn't sound like they would have been talking about just some John Doe on the street. Concerning the prospect of IOC reaching a sell down deal, that short indicated little concern because he thinks if they do, it will probably be with a "nobody", at a low price, and with very little cash up front! My contact at IOC was incredulous at what he heard, that someone could possibly have that set of expectations at this point. It's even harder for me to believe that it could be someone with or managing big money in the short; however, if that kind of thinking is behind a significant portion of the shorts in place, it definitely would appear that we could be set up for a significant short squeeze with the announcement, as Pavel at RJ seems to think, and in fact stated in his Jan 24 update. That's assuming, of course, we don't get one before the announcement as the result of a losing bidder or some other party launching a takeover attempt.
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'Palm' pid='16796' datel Wrote:
Speaking of SAC not sure if anyone saw this from last November. Pretty good piece entitled "The Naked Dollar: The SEC Will Take Down SAC Capital". We'll see about that, but this guy brings up some very good points about the probabilities of SAC having the historical returns using "conventional" investing methods. Enjoy:
"Wednesday, November 28, 2012
The SEC Will Take Down SAC Capital
there's more to it than is evident, keep looking mauri
The indictment of Mathew Martomo marks the sixth time a current or former SAC employee has been charged with insider trading. The Feds have had Stevie Cohen, SAC's founder, in their sites for years. This new suit marks the first time Cohen has been directly named, albeit as "Portfolio Manager A."
The Naked Dollar has has written in the past about how insider trading laws are poorly written and there's a lot of gray area. But what of SAC? Is this an unfair government vendetta of some sort?
I don't think so.
The most damning evidence against SAC is, ironically, their track record. Not evidence that you can use in a court, mind you, but common sense evidence that they're not playing by the rules. I have seen their monthly numbers, going back 20 years, and to be blunt, they're not possible. SAC has averaged about a 30% return for 20 years. This, in and of itself, is remarkable, far exceeding the likes of Buffett or Soros. But what most observers miss is what SAC's gross returns have to be to achieve this.
SAC charges the highest fees I've ever encountered: a 3% management fee and a 50% incentive fee. To demonstrate how much these fees slash off the top, let's say they have a 10% year before fees, not bad result. But then subtract 3 points for the management fee and 3.5 points for the incentive fee, and the investor is left with a paltry 3.5% net return. Not so great, although SAC is presumably content because they have pocketed 65% of the return for themselves.
To produce a net return of 30% requires a gross return of...wait for it...63%. While this is not impossible to believe for a single year, or even two, it is wholly unbelievable for twenty. We're talking many standard deviations better than Soros, Buffett, Lynch, or anyone you care to measure against. More damning, they are doing this with billions of dollars, meaning much of their trading activity has to be restricted to highly liquid stocks, which are by their nature more efficient, i.e. less prone to the sort of mispricings that money managers can exploit.
Cohen operates his business by lording over dozens of isolated trading groups, each pursuing their own strategies. Make the company money, and you are paid well. Lose money, and you're shown the door pretty quickly. It is speculated that Cohen has insulated himself from potential charges by having plausible deniability about the actions of the individual groups.Yes, they can go after him on something called "failure to supervise," but this is sometimes hard to make stick.
But here's the thing. The trade in question, the one Martomo has been charged with, was massive. The profit alone was $276 million. There's no way Martomo executed a trade of this size without approval from Cohen.
No way.
I hope SAC is innocent, I really do. The hedge fund industry doesn't need this kind of publicity when the vast majority of its players are law abiding citizens. But I don't know how it's possible to legally produce the returns they do, for as long as they do, with as much money as they do. Heck, it would be hard to nail returns like these even with inside information.
And there's this:
The Cohen Spread, Greenwich
And this...
A $12 Million Stuffed Shark
It's not illegal to own a big house, of course, and nor is it illegal buy stupid, overpriced art. But the Obama administration has created toxic atmosphere of class envy, bordering on hatred, and sustaining such a zeitgeist requires putting faces on your enemies. Guilty or innocent, Stevie Cohen makes for a very compelling villain.
This is why, one way or another, the feds will bring Cohen down. They may get a conviction, they may not, but no matter. Death of a thousand subpoenas is still death. Investors will bail. Personally, I can't believe they haven't already, but I guess 30% is hard to walk away from."
http://thenakeddollar.blogspot.com/2012/11/the-sec-will-take-down-sac-capital.html
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