Ackman

4:23 AM 11/12/2008
I was asleep after trying to watch Ball State-Miami lying down on the bed.

"So there was this guy on Charlie Rose just now who was explaining hedge funds and blaming the govenment for disallowing short sales."
"Was it Bill Ackman?"

So I got up to look at it on TIVO:

Bill Ackman, CEO of Pershing Square Capital, on Charlie Rose last night.
created in 2004; $6 billion in mgt; down slightly this year

Describes what hedge funds are: going long and short.
Blossomed last 5-7 years ... when govt shut it down (short selling)
it was a disaster managers got imbalanced. Most of our shorts are done through derivatives such as Credit Default Swaps -- insurance on credit defaulting
imagine you could trade the insur policy on your home. if there was a brush fire in the neighborhood your policy would become more valuable.
spread is wide in over the counter market
credit default swaps are very profitable
more efficient than shorting a stock
dealers made fat profits acting in the middle; spreads were wide
a 50 trillion market but a lot was offsetting
so maybe 10% or 5 trillion of one person betting against the instutuion and the other person taking the other side
I researched "Farmer Mac" operates in the agricultural market
GSC bought a credit default swap
did same with Fannie and Freddie
in 2002 made short bets on them, but ultimately gave up because I concluded too big to fail
looking for other cos with AAA ratings that were not justified
MBIA
bond insurers started out as almost cooperatives; but went public in early 1990's and had demand from their shareholders (short-term gain); took on more risk
100 to one leverage but they still had a AAA rating!??

The world was a world that believed. "Investors outsourced their judgment to the rating agencies" Moodys S&P and _______
You can't outsource credit analysis.
Regulators around the world deferred to the rating agencies.


CDO's and asset-backed securities

in the internet bubble people's riskiest money was put in the dot coms

Now:
the safest money was put in the riskiest assets

Renaissance
James Simonds, Citadel: Ken Griffen, two others
rough sledding when they get to Congress
Congress is looking for a skapegoat

Avg mutual fund has done much worse.
A handful only of hedge fund managers makes $100,000,000.
most opportunistic capital is hedge fund money
short sale prohibition destroyed faith in the market

The focus should not be on the managers, but on the investors.
Investors are the Canegie Halls of the world, the St. Luke Hospitals, the state pension funds.
the single best time of my career to invest. Prices are below values.

Most people do not have permanent capital...Buffet does. He's the most fully-invested we've ever seen. Where your capital isn't permanent you have to be defensive.


AIG, Freddie Mac, AMBAC, all got us in trouble. Why?

AIG ets. were "AAA" and did not have to post collateral.

AAA firms were given a free pass. did not have to post collateral. like someone writing hurricane insurance but don't have the money.

what should have been done?

bankruptcy, or in case of fannie and freddie, conservatorship

creiditors own the buainess

Ackman supports TARP

Is concerned about GM

Do not lend more money to GM

do prepackaged bankruptcy (on GM)

debt trades at 30 cents to the dollar

you want a GM that can compete

Design an auto co that can compete.

pouring money into GM is a mistake.

AIG is a different animal.

govt is letting 17-18 banks fail

Lehman Bros?

counterparties lost 90 cents on the dollar.

Should have been given notice.

investment banks never were, as now, 30 to 40 to one leveraged

Lazard is a very profitable inv bank.

Goldman Sachs 30:1

when competitors are so leveraged GS had to do the same.

"Too much leverage."

"Too much easy money."

Housing market turns when?

Spring. You've saved. House that was $600,000 is now available for $280,000.

us is a turnaround.

US govt is incredibly solvent. govt has 35% of everybody's assets (taxing power)

Preview of Michael Chrichton retrospective to come:

"Travels" by Michael Chrichton

Mike D'antoni of NY Knicks