Download Famous Trades

FamousandInfamousTrades
Howtogetrichquick($$$)(ordietrying)
Brainteaser
Problem:
MarketUpdate
MarketWeekinReview
• WeakChineseData– Exportsfell10%,Importsfell2%
• ChinesePPIcameinpositive
• DeathofThaiKing– effectonThaipoliticsandBaht
• Yellenspokeandmarketsmovedagain,Decemberratehikeat66%
• Poundvolatilityconcerning,inflationexpectationsskyrocketing,gilts
• Strongearningsfromfinancialssofar
• Goldman/Libyacaseruledinfavorofscrewingoverclientsandgetting
awaywithit
WhatisaBubble?
TulipMania
DotComBoom
GeorgeSorosvs.TheBankofEngland
TheManwhoBroketheBank
EuropeanExchangeRateMechanism
• FixedExchangeRateofGBPtoGermanMark
• FirstAttemptatUnifyingEurope
• BritishInflationWayinExcessofGermans
SorosNoticesDeflationaryPressuresCounteractingBOE
• SellsShort10BGBPwhenthecurrencywasatthelowerendof
therangetocounteractBOEratehikesandmarketpurchases
• Made1BbasicallyovernightwhentheBOEremovedEngland
fromtheERM
GeorgeSorosvs.Asia
BreakingSomeMoreBanks
• AsianFinancialCrisis– Shorted
THBandMYRintothecrashto
forceliftsonthepeg
• HotMoneyoutflowsdrivenby
short-sellersforcedAsian
FinancialCrisis
• SorosbannedfromMalaysia,
publicenemy#1
TheRiseandFallofLong-TermCapitalManagement
• JohnMeriweather – Hotshotbondtraderfromthe1980soutofSalomon
Brothers,wherehewasvice-chairoffixedincometrading
• Startedhisownfund(LTCM)aftertheSalomonBrothersfixedincomedivision
scandal– BoardincludedRobertMertonandMyronScholes…soundfamiliar?
• Oneman’s(Soros’)treasureisanotherman’strash?– AsianFinancialCrisis
setoffarippleeffectofdeleveraging/fearfromglobalinvestors
• LTCMreturned$2Bofcapitalwithoutreducinganypositionsizes,thusincreasing
totalleveragesignificantly
• PositioningwasshortTreasuryBonds..Whichiswhatpeoplestarted
buyingwhenRussiadefaultedin1998
• Fundwasdown$2B,competitorsexitsfromtheirstrategiesdestroyedvalueeven
more,andby2000,thefundhadlost$4Bandwounddown
• Meriweather triedhedgefundworkagain,andagain…andthen2008
happened
JohnPaulson
How togetanAuditoriumNamedAfterYou
ShortingtheEconomyandHousing
• SyntheticallyShortedsubprimemortgagesusingcreditdefault
swaps
• Beganshortingtheinstitutionsthatbackedthoseassets(i.e.Bear
Stearns)
Returns
• Made15billionforhisfundin1year
• Pocketed4billionofthat
NickLeeson andBaringsBank
HowtoBringDownUK’sOldestMerchantBankOvernight
UnauthorizedTradinginSingaporeFuturesMarket
• SenttoSingaporetotradefutureforBaringsin1992
• Madeunauthorizedriskytradesandatfirst,madegreatreturns
• Whenhebeganlosingmoney,hehidhislossesinanerror
account
Downfall
• Jan16,1995,placedahighlyleveredshortstraddlepositionin
theSingaporeandTokyomarket,bettingitwouldn’tmove
• TheKobeEarthquakehitthenextday,sendingAsianmarkets
crashingdown
• Lossesreached£827million(US$1.4billion),twicethebank's
availabletradingcapital
• Leftanotereading“I’mSorry”andfled
• FoundandarrestedinGermanylaterthatyear
TheLondonWhale
Don’tbedumb,anddon’ttake bigriskspt.2
• BrunoIskil takingbigshortpositionsin
CDXIGforafundamentalviewon
creditspreads
• Somesmartfundsnoticedthehuge
indexmoves…tookoppositepositions
• Initiallossesturnedintoa$2Bgainfor
theoppositeside..Anda$2Blossfor
JPMorgan
• WinnersincludedSabaCapital,
Hutchin Hill,BlueMountain,and…JP
Morgan
BillBrowder
InvestinginRussia
BackgroundBeforeHermitageCapital
• WenttoStanfordBusinessSchool,hadnoideawhathewantedto
doafter.BerlinWallfellafterhegraduatedandcamefromfamilyof
Communists,sowantedtobea“capitalistinEasternEurope”.
• WorkingforBCGinLondon,firstprojectwasworkingwithbus
factoryinUkranian border
• Talkstointerpreteroneday,andfindsoutgovernmentisprivatizing
businessesthathadmarketcapitalizationsequaltohalfofthe
previousyear’searnings.
• Had$4,000insavingsandmakesfirstinvestment.Makes10xin
twelvemonths.
BillBrowder
InvestinginRussiacont.
SalomonBrothers
• FiguredoutRussiawasagreatinvestment.Onadvisoryproject
withfishingcompany.Fishingfleet– 2Bworthofships(1Bat
marketvalue)- 51%offleetbeingsoldfor2.5m.
• Justthetipoftheiceberg.Entirecountryisbeinggivenawayfor
free.BestwaytodoitisthroughVoucherofPrivatizationProgram,
giventoeveryRussianover18.Givesaccessto30%ofallshare
capitalofRussiancompanies.
• Voucherscost$20x150mpopulation=$3bofproperty.Ifthisis
30%ofallcapitalinRussia,thentheentiremarketcapofRussia,
thecountry,was$10bin1993.
• Hesaysfuckinvestmentbankingadvisorywork,justinvestas
principalsintheseprivatizations– quitstostartHermitageCapital.
BillBrowder
InvestinginRussiacont.
HermitageCapital
• Startswith$100m.Firstmonthup40%,secondmonthup35%,first
yearup175%,secondyearup228%.
• By1997,had1bAUM.Up800%intwoyears.ThenAsianmarkets
hadtroubleandin1998,Russiadefaulted.Lost900m.
• Evenworse,oligarchsofRussiastartedmisbehavingafterWall
StreetstoppedinvestinginRussia.Startedassetstripping,transfer
pricing,dilutions,embezzlements,andbasicallyanythingand
everythingtostealmoney.
• Goestowaragainststealing.
BillBrowder
InvestinginRussiacont.
Gazprom
• Gazpromtradingat99.7%discounttoExxon,perbarrelof
hydrocarbonreserve.Marketconcludedthateverythingwasstolen
fromthecompany.
• Researchteamtoperform“stealinganalysis”.FiguredoutRussia
keepseverybitofinformationinsomeministry.Findsoutabout
Gazprom.
• AnoilcompanythesizeofExxononlyrepresented9.65%of
Gazprom’sreserves.Morethan90%wasstilltherewhenthe
marketwaspricingitasif99.7%wasn’t.
• Made100xonGazprom(30%ofportfolio):that100mà 4.5b
BillBrowder
ThingsgetreallybadinRussia
BrowdergetsRaided
• 25officersfromMoscowInteriorMinistryraidshisofficeonJune4,2007.
• Raidedhiscompanytogetcertificatestamps,seals,andarticlesofassociationofhisfund.Threemonthslater,police
transferredhiscompanytoVictorMarkelov,someRussianconvictedofmurderandreleasedfromjailayearearlier.
• Browderhires7lawyersinresponse,includingSergeiMagnitsky.Sergeidigsdeeperandfindsthatdocumentsseized
wereusedtofraudulentlycreatebillionsofdollarsoffakecontractsthatcompanyowedtothreenewlyformedshell
companies.
• Shellcompaniessued.Theguyswhostolehiscompanyhiredlawyerstopleadguilty– courtawardedabilliondollars
ofjudgementstothreeholdingscompanies.
• Filedcriminalcomplaints,Browder+6lawyersgotoLondontofigurestuffout,Sergeideclinesanddidn’twantto
leave.
• SergeiMagnitsky innocentlyarrested,tortured,kepthimsleepdeprived.Theywantedhimtotestifyagainst
Browder.
• “Withdrawyourtestimony,signthefollowingconfessionsayingthatyoucommittedanumberoftaxcrimes,thatBill
Browdercommittedthesetaxcrimes,andthatyouguysstole$230millionfromRussia”.
• SergeidiesfrompancreatitisbecauseRussiafailstotreathiminjail.
Whataboutyouguys?
AnyFunStories?MomentsofGlory?MomentsofNotGlory?
PitchoftheWeek:Macro
LongTreasuries
ShortTreasuries