Why its probably best not to trust high profile investment managers

[seanD]

It's weird how I'm not an investment manager, I'm basically a dummy, and don't even have a degree in economics, yet I managed to see coming in the markets and economy what these mighty head honcho investment fund folks apparently couldn't see coming. I don't get it. I don't think they're dumb. Maybe it's just the greed makes them delusional?

"I Have Given Everything I Could": Melvin Capital Calls It A Day, Will Wind Down Fund After Gigantic Losses

Having suffered historic loss after historic loss, and dropping 23% through the end of April after plunging 39% in a catastrophic, for the hedge fund 2021, Melvin Capital went for the Hail Mary last month when it tried to sneak a "high water mark" exemption and get paid a performance fee by his massively underwater investors, even though the fund is like half a mile below its high water mark. It didn't work when LPs unanimously told Gabe Plotkin to do something anatomically impossible, and so - having run out of options - the "superstar" hedge fund investor, who Steve Cohen said was one of the best traders he had ever met, decided to call it a day.

According to Bloomberg, Mevlin - the once high-flying hedge fund that lost billions of dollars after its bearish wagers were caught up in a Reddit-fueled short squeeze - told investors that it plans to wind down funds and return cash to investors.

“The past 17 months has been an incredibly trying time for the firm and you, our investors,” founder Gabe Plotkin wrote.

“I have given everything I could, but more recently that has not been enough to deliver the returns you should expect. I now recognize that I need to step away from managing external capital.”

Actually, it's more like Gabe - who took a $2.75 billion in rescue funding from Citadel, Point72 Asset Management and others in early 2021 when a historic short squeeze led to over $7 billion in losses, or 53% of his capital in a few days - had taken as much as he could including his $44 million Miami mansion...

... when the Fed was lifting all boats, and now that the Fed no longer is backstopping him and every other mediocre fund manager who is clueless how to navigate a market that - gasp - doesn't always go up, Plotkin decided to take the easy way out and return what little money was left in Melvin while naturally keeping over a decade's worth of "performance" fees, which amounts in the billions, even if the average return of someone who put money into the fund on day one has underperformed the S&P (Melvin's CAGR is 12%) which one could have bought in 2014 for $0.

IMHO, next famous television investment celebrity that the MSM fawned over as a genius investment strategist to walk the plank, or at least close behind, I think will be Cathie Wood.

[Sparko]

Seems like half of the episodes on "American Greed" are about investment con artists who create unworkable pyramid schemes to steal money from gullible investors looking to get rich quick.

I seem to be doing pretty good just managing my own personal investments and my 401K retirement fund. Sure I am down right now, but I too saw the writing on the wall and moved about 1/3 of my more risky investments into money market funds and about 1/4 to some bonds. Heck I saw the writing on the wall when BIden got elected. I was actually surprised that the market actually did well mostly throughout 2021 until about November. And I am by no means an expert investor.

I was also smart enough to move my money out of stocks when COVID first started and it was reported on US soil. I beat the crash by a few days. Then went back into it only after it was clear it was climbing back out of the hole.

[Thoughtful Monk]

Interesting story. To me it just shows incompetence or cluelessness can exist in all levels of the organization but it's really bad when it's at the top.

[seanD]

Seems like half of the episodes on "American Greed" are about investment con artists who create unworkable pyramid schemes to steal money from gullible investors looking to get rich quick.

I seem to be doing pretty good just managing my own personal investments and my 401K retirement fund. Sure I am down right now, but I too saw the writing on the wall and moved about 1/3 of my more risky investments into money market funds and about 1/4 to some bonds. Heck I saw the writing on the wall when BIden got elected. I was actually surprised that the market actually did well mostly throughout 2021 until about November. And I am by no means an expert investor.

I was also smart enough to move my money out of stocks when COVID first started and it was reported on US soil. I beat the crash by a few days. Then went back into it only after it was clear it was climbing back out of the hole.

I would imagine a good deal of them are con artists, but I don't get the impression at all with Cathie Wood. When I watch her analysis break downs of the market, I get the impression she's sincere and quite smart. She's just delusional in her perceptions.

[seanD]

I feel bad for those that got duped by all the hype and media accolades...

Melvin Capital Investors "Fuming" At Fund's "Fairweather Money Management" Strategy And "Abrupt" Shut Down

(bold emphasis mine)

While the meme stock "apes" may be cheering the demise of Melvin Capital, the fund's LPs aren't quite as thrilled about its decision to call it quits.

After returning "roughly 30% in annualized gains" for years, the fund is "abruptly" shutting down - and some investors were caught by surprise, according to a new report from Bloomberg.

The report says that the investors were hopeful that Melvin - and its CIO Gabe Plotkin - could recoup its losses. They referred to shutting the fund down as "fair-weather money management".

Plotkin, meanwhile, has already started winding down the fund's positions and "effectively freeing some 40 employees at the firm from working below the so-called high-water mark that they’d have to crest to resume performance fees," Bloomberg wrote.

Andrew Beer, managing member of New York-based Dynamic Beta Investments, commented: “Only in hedge-fund-land does someone get paid hundreds and hundreds of millions of dollars on Jan. 1, incinerate half of clients’ capital a few weeks later, fail to recover over the next year or so, then suddenly shut the doors."

He added:

“There are plenty of hedge fund managers who were paid a lot one year, went through difficult drawdowns then worked for years to claw their way back. Melvin obviously isn’t one of them.”

(....)

As we noted hours ago, Plotkin started Melvin at the end of 2014 after leaving Steve Cohen’s Point72 Asset Management, and posted returns of about 30% a year through 2020, thanks to the Fed's QE.

The party rapidly ended when the Steve Cohen protege was outsmarted by a few thousands "apes" in January 2021 - that's when a group of ragtag retail investors instituted a short squeeze (orchestrated by Senvest Partners) against Melvin’s shorts, including GameStop, pushing the hedge fund to a 55% loss.

Had he not been so delusional (or had any wherewithal about how markets and the economy function), he could have used that capital he had left to short the markets in the beginning of the year, and would have made up all his previous Gamestop losses and then some by now.

And then I thought I'd add this bit of hilarity from the article...

Despite this, one investor told Bloomberg they were confident Plotkin could return and be successful again some day.

If you actually trust this guy to manage your money after this, you deserve everything coming to you.

[seanD]

I feel bad for those that got duped by all the hype and media accolades...

Melvin Capital Investors "Fuming" At Fund's "Fairweather Money Management" Strategy And "Abrupt" Shut Down

(bold emphasis mine)


Had he not been so delusional (or had any wherewithal about how markets and the economy function), he could have used that capital he had left to short the markets in the beginning of the year, and would have made up all his previous Gamestop losses and then some by now.

And then I thought I'd add this bit of hilarity from the article...



If you actually trust this guy to manage your money after this, you deserve everything coming to you.

For those who got firewalled by the bloomberg link, here's the 2016 video of Simone Foxman of bloomberg gushing over this guy with a cringe factor of 10, like she's enthusiastically trying to sell a clunker at a car dealer...

https://www.bloomberg.com/news/video...ve-cohen-proud

It's almost as disgusting as Jim Cramer of cnbc gets.

[seanD]

Permabull market con artists crying for their welfare.

TL;DR translation: Cathie Wood, the financial MSM "guru" and absolute darling of fund managers (I'm not being hyperbole here in how they sanctified her when the markets were in a bull run), whose investment is getting absolutely decimated now because she was dumb enough to fall for the "inflation is just transitory" hype and too dumb not to know the ramifications the Fed's actions would have on the markets she's invested in, crying for the Fed to stop tightening...

ARK Invest Pens Open Letter To Fed, Warning Of Deflationary Bust

Well, well, well...it turns out we're not entirely critical of everything that Cathie Wood and ARK Invest have ever done.

Despite the manager's dismal performance over the last 12 months in her flagship "Innovation" fund, we were pleasantly surprised this morning when she released an open letter to the Fed that pointed out that Fed policy could be leading us down a road toward a deflationary bust.

"In this summary, we delineate first the upstream price deflation that is likely to turn into downstream deflation. Then, we focus on the two variables––employment and headline inflation––upon which the Fed seems to be making its decisions. In our view, both are lagging indicators," the letter reads.

Wood points out that most commodity prices - leading indicators - have peaked and are now falling on a year over year basis.

"Without question, food and energy prices are important, but we do not believe that the Fed should be fighting and exacerbating the global pain associated with a supply shock to agriculture and energy commodities caused by Russia’s invasion of Ukraine," she writes.

The letter continues, pointing out that inventories are starting to balloon:

Downstream, inventory accumulation seems to be overwhelming manufacturers and retailers. After grappling with supply chain constraints for more than a year, even world class companies seem to have overruled their automated enterprise resource planning (ERP) systems and over-ordered merchandise. In the face of single-digit sales growth, inventories at Walmart and Target increased 25.5% and 36.1%, respectively, during the most recent quarter.

Nike’s recent quarterly results suggest that the inventory imbalances have worsened. Despite sales growth of only 3.6%, Nike’s inventories increased 44.2% globally. In North America and on ships in transit, its inventories increased 64.8% and 85.0%, respectively!

In the auto sector, used car price inflation as measured by the Manheim used value index peaked at 54.2% on a year-over-year basis in April 2021 and made another run to 46.6% in December 2021, but have dropped 13.5% year to date and now are down 0.1% year-over-year. Facing inventory losses, used car dealers are likely to disgorge more inventories, which could push price inflation deeply into negative territory.

Then, the letter calls out the Fed for following the lagging indicators of downstream inflation and employment. Wood then challenges the Fed's "unanimous" stance on higher rates.

"During September and early October, the Fed felt vindicated in its tough stance by reports that inflation as measured by both the CPI and PCE Deflator excluding food and energy increased 0.6% (7~-8% annualized) and that the PPI excluding food and energy increased 0.4% (~5% annualized). Including food and energy, the CPI and PPI fell 0.1% (~1% annualized), however, while home prices as measured by the Federal Housing Finance Agency (FHFA) fell 0.6% (~7-8% annualized)," she writes.

"Unanimous? Really?" she concludes. "Could it be that the unprecedented 13-fold increase in interest rates during the last six months––likely 16-fold come November 2––has shocked not just the US but the world and raised the risks of a deflationary bust?"

Recall, we have been talking about the idea of a deflationary bust since May of this year. We wrote then:

The bullwhip effect occurs when a drop in customer demand causes retailers to under stock. In turn, wholesalers respond to a lack of retail orders by understocking themselves. That then causes manufacturers to slow production. Eventually the reverse occurs. As customer demand comes back, retailers quickly order more goods, often too much, and wholesalers and factories are caught short. Shortages occur, prices increase. Eventually production ramps up at levels that are far beyond equilibrium levels and this cascades down the chain. These violent swings in availability of goods then continue back and forth until an equilibrium is eventually established.

"Think: widespread inventory liquidations," we concluded, nearly 5 months ago. "In short: we are about to see the mother of all liquidations as retailers scramble to unload inventory in a time off rampant demand destruction."

Looks like we were right...and that Cathie Wood may not always be wrong about everything...