Warren Buffett's Mentor Was A Crappy Hedge Fund Manager

According to Jack Bogle, the outspoken godfather of index funds and passive investing strategies, didn't approve of a recent Wall Street Journal article defending hedge funds.  In particular, he took issue with the author's reference to Benjamin Graham, the legendary Columbia finance professor who literally wrote the book on Security Analysis and mentored Warren Buffett. Here's an excerpt: from his letter to the editor

Citing Benjamin Graham as the first "hedged fund" operator is an especially unfortunate example. "The trick," Mr. Rice writes, was Graham's "clever way to make money . . . whether it [the market] continued to rise, or started to fall."   How did the hedged strategy work out in the bull market of the Roaring Twenties and thereafter? Thanks to Joe Carlen's recent book, "The Einstein of Money," we know the answer…. From 1929 through 1932 inclusive, the Graham account turned in a loss of 70%, compared to a loss of 64% for the S&P 500 Index.  "The strategy unraveled quickly," Mr. Carlen writes. "There was no longer any reliable advantage to be gained from that kind of hedging."

Some hedge fund manager. At least he didn't do much worse

Read all about it at http://www.businessinsider.com/benjamin-graham-underperforming-hedge-fund-manager-2013-6

The Rise (And Repression) Of The 'Bond Vigilantes'

According to Ed Yardeni of Yardeni Research   In the past, before the era of financial repression imposed by central banks, the 10-year Treasury bond yield tended to trade around the y/y growth rate of nominal GDP. From the 1950s through the 1970s, the yield tended to trade below the GDP growth rate because bond investors failed to anticipate rising inflation.

They learned their lesson and bond yields generally exceeded GDP growth during the 1980s and early 1990s. That was the era of the "Bond Vigilantes," a term I coined in 1983. They contributed to breaking the back of inflation. As a result, by the late 1990s, they became less vigilant. While they’ve been repressed in the US by the Fed since late 2008, they were back in the saddle again during 2010 and 2011 in the peripheral countries of Europe. But then, ECB President Mario Draghi repressed them over there when he said on July 26, 2012 that he’ll do whatever it takes to defend the euro.

If the Fed stops repressing the Bond Vigilantes over here by phasing out QE, then the 10-year Treasury yield should rise to the growth rate of GDP, which was 3.4% y/y during Q1. That would probably be a big shock to the economy….

http://www.businessinsider.com/yardeni-on-bond-yields-and-gdp-2013-6

Goldman Here's How The Fed Will Try To Calm The Markets This Week

From BI: ... While we do not expect the committee to deviate much from the existing message, we anticipate that Fed officials will, on the margin, try to calm markets at the June 18-19 FOMC meeting.

We therefore expect the FOMC statement to show only modest changes, mostly focused on acknowledging the lower inflation numbers. Moreover, the committee is likely to downgrade its 2013 growth and inflation numbers moderately. While Chairman Bernanke is likely to reiterate in the post-statement press conference that the QE tapering decision is data dependent, we expect him to dissuade markets from frontloading too much of the entire monetary tightening process—not just the end of QE but also the normalization of the funds rate—as soon as the committee takes the first step in that direction….

Read all about it at http://www.businessinsider.com/goldman-sachs-fomc-preview-2013-6

Hedge Funds Cut Gold Bets as Paulson’s Loss Widens

Hedge funds cut wagers on a gold rally for the first time in three weeks on mounting speculation central banks will curb record stimulus and as this year’s slump in bullion spurred losses for billionaire John Paulson.

The funds and other large speculators lowered their net-long position by 4.1 percent to 54,779 futures and options by June 11, U.S. Commodity Futures Trading Commission data show. Net-bullish wagers across 18 U.S.-traded commodities rose 0.1 percent. Bearish copper bets more than doubled as the metal had its longest slump since November….

http://www.bloomberg.com/news/2013-06-16/hedge-funds-cut-gold-bets-as-paulson-s-loss-widens-commodities.html

Lampert Yanks $393 Million from AutoNation for Redemptions

From Bloomberg: Eddie Lampert used $393 million of shares in AutoNation Inc. (AN) to meet client redemptions from his main hedge fund, whose investment in Sears Holdings has led to volatile returns. Lampert’s ESL Partners LP on June 10 distributed 9.09 million AutoNation shares, or about 41 percent of its stake in the auto retailer, to investors who were redeeming their interests in the fund, according to a regulatory filing June 12. The fund also used part of its stake in Orchard Supply Hardware Stores Corp. (OSH) to meet redemptions, filings show.

With Sears struggling, clients have been pulling money out of ESL Partners. Gross assets declined 24 percent to $5.1 billion at end of 2012 from a year earlier, and the number of investors in the fund dropped to 164 from 250, filings show.….

Read all about it at http://www.bloomberg.com/news/2013-06-13/lampert-clients-exit-fund-with-393-million-of-autonation.html

Hedge Fund Manager: If I Get Assassinated…

According to CNBC: Bill Browder, chief executive and founder of Hermitage Capital Markets, told CNBC the Russian government is "apoplectic" over sanctions imposed on Russian officials that he has campaigned for, and if he gets assassinated, "everyone would know who did it."

The well-known critic of the Kremlin has been living in London since he was kicked out of Russia for accusing Russian tax officials of embezzlement, in 2007.   Since then, he has repeatedly accused Russia of corruption and has been involved in a high-profile battle with the Russian state over the death of his lawyer Sergei Magnitsky, who was investigating fraud among Russian officials.  In April, Russia issued an arrest warrant against Browder on charges that he stole shares in gas giant Gazprom fifteen years ago and requested Interpol, the global police agency, to launch a manhunt for the investment banker.   Interpol refused the request but Browder said he feels under constant threat….

Wait...wait...there's more at http://www.cnbc.com/id/100815768

Goldman Sachs, Do-Gooder: Firm to Finance Early Education Program

Attention must be paid.  Goldman Sachs is making its second foray into an experimental method of financing social services, lending up to $4.6 million for a childhood education program in Salt Lake City.

This “social impact bond,” in which Goldman stands to make money if the program is successful but will lose its investment if it fails, will support a preschool program intended to reduce the need for special education and remedial services. The upshot, in theory, is that taxpayers will not have to bear the upfront cost of the program.

Goldman is being joined in this effort by the Chicago investor J.B. Pritzker, who is providing a subordinate loan of up to $2.4 million, bringing the total financing to $7 million. The loans were announced at an event in Chicago on Thursday….

Read all about it at http://dealbook.nytimes.com/2013/06/12/goldman-to-invest-in-utah-preschool-program/