Here's an article about a highly profitable "expert network" company that gets paid to put hedge funds into contact with individuals with inside information, such as doctors overseeing clinical trials of new drugs. The article is cautious, but a commenter explains:
RBSF San Fancisco, CA
Nobody pays $100,000 at $1,000 [per hour] just to chat with an expert about information that's already public. Of course, they're fishing for insider information, and finding it--the $100,000 paid by SAC resulted in a $250 million profit, or 2,500 times its investment. Gerson's revenues are $300 million per year--it has been paid over a billion dollars in the last five years, and there are many other firms like this. At a multiple of 2,500 this would amount to trillions of dollars of profit by insider trading, which is money stolen from ordinary investors.
Hedge funds's performance this year is trailing S&P 500, after trouncing it every year for the past 20 years. Everyone is wondering at the deep reason behind this--the answer is likely much simpler. The titans running hedge funds are not smarter than anyone else; but this year they've been scared to act on insider information following the well publicized Gupta and Rajratnam convictions.
Posts
34 comments:
The Gupta and Rajaratnam cases seem like an interesting story for iSteve. One take on things is that the powers that be got their shabbos Indian, Preet Bharara, to do some high profile "financial fraud" cases to take some of these noveau riche down a peg. The cases had nothing to do with the mortgage issue, let alone the minority mortgage/Bush/Clinton/Obama/CRA angle, but they did serve to moderate the spotlight on Madoffs and Goldmans and Blankfeins.
Regarding insider trading, this is just a silly law. Politicians are immune from insider trading. All non-publicly traded securities, like investments in hot startups, are all about insider information.
You can only understand the SEC if you realize that it's trying to make investing "democratic". But business is anything but democratic. Repeal the insider trading laws and the "certified investor" laws, and just let caveat emptor reign. At least then people don't have the illusions they have now.
Hedge funds's performance this year is trailing S&P 500, after trouncing it every year for the past 20 years. ...
This is only half right. Hedge fund performance trailed in 2011 and 2010 as well.
way of the world:
http://lewrockwell.com/paul/paul834.html
Basically they are like escort services.
"Basically they are like escort services."
But, they claim they're just phone sex companies.
"but they did serve to moderate the spotlight on Madoffs and Goldmans and Blankfeins."
A shame the steven cohen/SAC prosecution had to come along and ruin your analysis; another beautiful theory slain by an ugly fact - the tragedy of the news if you will.
Everyone is wondering at the deep reason behind this--the answer is likely much simpler. The titans running hedge funds are not smarter than anyone else;
Exactly. In addition to "inside information" they have access to millions of dollars in essentially free money to leverage their deals.
If you "lent" me 100 million at 0 interest for a few years, I could make some big returns too...
You can only understand the SEC if you realize that it's trying to make investing "democratic". But business is anything but democratic. Repeal the insider trading laws and the "certified investor" laws, and just let caveat emptor reign. At least then people don't have the illusions they have now.
The issue isn't just "business" here. We're talking about "public" companies here. Public companies and markets rely on a larger public, not just small networks of businessmen. They have an interest in maintaining some semblance of integrity.
Rajaratnam got taken down because he was funding a terrorist group in Sri Lanka (Tamil Tigers?) and the Sri Lankan government complained about it.
the well publicized Gupta and Rajratnam convictions
Why that sounds like the vibrant, enriching effect of cognitive elitism at work!
The Way of the World indeed:
"Carlos Slim, world’s richest man, gets richer supplying ‘Obamaphones’ to poor"
http://www.myfoxdc.com/story/19792114/carlos-slim-worlds-richest-man-gets-richer-supplying-obamaphones-to-poor
"A Mexican telecom mogul who holds the title of world's richest man, and one of President Obama's top donors are both getting even richer from the U.S. government program that supplies so-called "Obamaphones" to the poor.
Carlos Slim, who has an estimated net worth of $70 billion, owns a controlling stake in TracFone, which makes $10 per phone for each device it provides to poor Americans. The company, whose president and CEO is Frederick "F.J." Pollak, also makes money from extra minutes and data plans it sells to subscribers who get phones and service through the government's Lifeline program. The program, which began in the mid-1980s, has exploded in the past four years after being expanded from supplying landlines to the poor to providing cellular phones.
The phones came into the national spotlight after a viral video surfaced on YouTube in which a Cleveland, Ohio, woman praised the president, saying he needed to be re-elected because he gives out free phones.
"Everybody in Cleveland, every minority, got an Obama phone. Keep Obama as president. He gave us a phone. He gonna do more," the woman said in the video.
Slim's Movil America owns TracFone and recently snapped up service provider Simple Mobile for $100 million. TracFones and Simple Mobile service are huge players in the Lifeline program through the company's "SafeLink Wireless" brand. TracFone had 3.8 million subscribers through the federal program as of late 2011.
Pollak has donated at least $156,500 to Democratic candidates and committees this cycle, including at least $50,000 to the Obama campaign. His wife, Abigail, is a campaign bundler for Obama and has raised more than $632,000 for the president this cycle, and more than $1.5 million since 2007. She has personally contributed more than $200,000 to Democratic candidates and committees since 2008.
The Pollaks hosted Obama at their Miami Beach home in June for a $40,000-per-plate fundraising dinner, and hosted a similar event with Michelle Obama in July 2008. The couple personally donated a combined $66,200 to Obama's re-election effort that year."
I think you are overestimating finance people and/or underestimating how complex the economy is. I've done work, at a fairly high hourly rate, for GLG. I didn't pass any inside info along because I don't have any.
It can be valuable to finance people when they are evaluating a deal just to understand how exactly does market X work? How does regulation of market X work? If Y happens, how will that affect market X and how do we know? How will regulators react if Z happens? etc. Why would some Wall St droid have a detailed knowledge of the market for, say, cardiac stents? When they are evaluating, they need to come up to speed quickly, and they need answers to specific questions which answers require detailed knowledge. Experts are useful for that.
I know it isn't all inside info, and I doubt much of it is.
...which is money stolen from ordinary investors.
Not from me. The stock market has never been a reliable place to put your investments unless your time horizon is something well over a half-century. This doesn't describe the individual investor, and as such none of my money is in stocks.
Seriously, invest in almost anything else. If you want to gamble, go to a casino.
A shame the steven cohen/SAC prosecution had to come along and ruin your analysis; another beautiful theory slain by an ugly fact - the tragedy of the news if you will.
I guess we'll have wait and see what really transpires, who actually goes to jail, and how egregious their crimes were.
It might just be a shakedown or a warning. Who knows. I see corruption practically everywhere.
Yep. Raj Rajaratnam and Gupta are the epitome of our "diverse" nation -- insider corrupt ethnically nepotistic networks run to the exclusive benefit of those ethnicities and running right through the old style, dead America of White middle class values.
"If you "lent" me 100 million at 0 interest for a few years, I could make some big returns too.."
Can you tell more about it? Who lends them at zero interest and how?
If demography really ruled destiny, then sheep would lead the shepherd or thousands of wildebeests would be killing the lions, but that isn't the case.
Among humans, ceregraphy--power of those with cerebral advantage--often prove to be more decisive. Even if the top leadership isn't ruled by smartest people of society, it tends win over the smartest people since most smart people simply want to succeed within the system than challenge it. This is why most smart people in China just go along with the authority of the Chinese Communist Party. Smart people also know that intelligence is useless in a world of social chaos in which thugs run supreme. Smart geeks need protection from strong thugs, and that means smart people prefer social order. And even when smart people lead a movement to overthrow the existing system, they work fast to install a new system of order that is even more controllish than the one before. Just look at the Bolsheviks.
It's no wonder that Steven Pinker has come to love order and control. The 60s were useful to Jews in shaking up the old system so that Jews could rise. But now that Jews have risen, they want more social order--devised by their kind of course--in order to secure intelligent geek power from the unwashed brawn power of the masses.
Different peoples have different temperaments, talents, and outlooks. Why is it that wildebeests cannot unite and take on the lions? A 1000 wildebeests working together can destroy a lion pride of 10 in no time. But even when there are 1000s of wildebeest, their first impulse is to run even if they see only one lion. Wildebeest can never live up to their true potential because they are mental and emotional prisoners of their natures.
What is the 'nature' of white conservatism today? Why are there so many whites but why have they become so defensive, apologetic, wimpy, wussy, and etc? Why do they cower and act like Yohei character in SEVEN SAMURAI? It seems like a 1000 white conservatives are helpless against a single Jew, gay, or Negro.
We need a fundamental change of the 'nature' of conservative personality. White cons need to start seeing movies like RIDE THE HIGH COUNTRY. Them were good guys.
Investing is simple, don't try to pick companies like you know anything, that's gambling. Make a side gambling fund if you want to do that, but don't go in expecting decent returns.
Up from your youth to middle age invest your money in index funds like the S&P500, you'll guarantee make good decent returns. Don't get freaked out by economic downturns like an idiot and sell all and then stay out. If you stayed in the market from 2009 to now, you would be in the green again.
Once you near retirement age and your investment horizon is not long enough to weather the volatility, transition into bonds and other safer investments.
Investing is not long term wealth growth, not making a bundle overnight.
Repeal the insider trading laws ...
Please explain why repealing insider trading laws would be good for the USA.
Bill is right: not all expert information is inside information, because not all experts are insiders, by the legal definition of the term. And it's worth noting that even experts can get burned. There was a hedge fund (based out of California, if memory serves) run by a physician who specialized in buying biotechs. But something like half of his fund's money in Sequenom, based on published results of its tests. And it turned out that the company had fudged those tests.
The Rajaratnam case was a different animal entirely: just comically blatant insider trading. E.g., a guy sitting in the boardroom of Goldman Sachs telling Raj that Warren Buffett was going to buy a stake in the company to shore it up, and Raj buying ahead of that news. No grey area there.
BTW, related to the previous post about Asians voting Democrat, Raj's prosecuter, Preet Bhahara, is a Democrat. And his brother Vinnie sold co-founded a company that he sold to Amazon for $540 million. Why can't Republicans get guys like this to vote for them?
Outsiders seek 'insider' information.
Insiders don't seek it because they are already inside.
It is illegal for outsiders to gain insider information but not for insiders to know insider information for the simple virtue of being on the inside.
So, Goldman Sachs can never do wrong but hindus must go to jail.
"It is illegal for outsiders to gain insider information but not for insiders to know insider information for the simple virtue of being on the inside."
It's illegal to act on inside information to your personal benefit, whether or not you are an insider. If a Goldman board member or senior exec privy to the news that Buffett was going to invest in the company bought a bunch of stock in Goldman ahead of that news becoming public, he'd be in violation of the law too, and would go to jail if convicted. But he would be stupid to do something illegal when he's already making plenty of money legally.
Steve, I'm sorry, but by posting this you outdid yourself when it comes to ignorance of economics and finance. A couple of quotes from the genius you picked this crap from:
"At a multiple of 2,500 this would amount to trillions of dollars of profit by insider trading." - this would be bigger than total of all annual corporate profits, b.t.w.
" The titans running hedge funds are not smarter than anyone else" - in other words, RBSF could himself be a titan of finance, but he doesn't want to, cuz he is such a nice guy!
"The titans running hedge funds are not smarter than anyone else; but this year they've been scared to act on insider information"
A better explanation is the market is now crowded with hedge funds who have effectively crowded out the market inefficiencies that used to allow the original hedge funds to make their profits.
Tons of former traders opened up hedge funds creating a crowded field all using the same trading strategies, especially after layoffs from the big banks after 2008 and the Volcker Rule prompted many banks to close their prop trading desks.
You don't need a grand conspiracy or massive corruption - you can explain it with basic financial markets economics.
"It's illegal to act on inside information to your personal benefit, whether or not you are an insider. If a Goldman board member or senior exec privy to the news that Buffett was going to invest in the company bought a bunch of stock in Goldman ahead of that news becoming public, he'd be in violation of the law too, and would go to jail if convicted."
But how are gonna prove that he acted illegally with ill-gotten knowledge when there is no record of him having sought that knowledge?
That is the advantage of being an insider's insider.
I mean does anyone really think Soros got so far without acting on insider knowledge?
http://www.nytimes.com/2012/11/27/us/educator-aided-others-at-cheating-us-charges.html?_r=0
The media agreed that, in hindsight, it was obvious Madoff was a fraud because he managed to regularly return 12 or 15% gains; what if its fund had a steady 30% yield?
http://www.dailymail.co.uk/news/article-2234398/Kevin-Clash-Elmo-Puppeteer-agrees-pay-accuser-125-000-publicly-retract-underage-sex-claim.html
Pickle Me Elmo
Guess Obama's well is gonna start running a bit dry.... bummer!
I guess now we can expect that, since the MSM is fair, they're going to start questioning Obama's buddies Soros and Buffett about how they just happened to magically beat the market year after year. Especially since they have been gnashing at the bit to find instances of greedy evil Wall St White men.
"But how are gonna prove that he acted illegally with ill-gotten knowledge when there is no record of him having sought that knowledge?"
There's a record of his trades. It doesn't matter whether he sought the knowledge or not. If he's an insider, he's assumed to have access to it, and his trades are restricted accordingly.
"The media agreed that, in hindsight, it was obvious Madoff was a fraud because he managed to regularly return 12 or 15% gains; what if its fund had a steady 30% yield?"
The red flag with Madoff's returns wasn't their size but their consistency. SAC Capital doesn't have a "steady 30% yield". It had a 30% average annual return for 18 years, before losing 19% in 2008, as the article you linked to notes.
Given the nature of Cohen's operation -- hundreds of portfolio managers he yells at and churns through -- there must be plenty of bitter former employees. If he was doing anything illegal, the Feds should have little problem finding cooperating witnesses.
Susanne Craig and Ben Protess, “Wall Street Examines Fine Print in a Bill for Start-Ups,” New York Times, April 4, 2012, http://dealbook.nytimes.com/2012/04/04/wall-st-examines-fine-print-in-a-new-jobs-bill/:
Wall Street is examining whether it will benefit from a little-known section of a broad new law that President Obama is expected to sign on Thursday.
Provisions tucked into the so-called JOBS Act, or the Jumpstart Our Business Startups, will roll back some major securities regulations and parts of a landmark legal settlement struck almost a decade ago … when it comes to smaller companies, so-called emerging growth companies [those with less than $1 billion in annual revenue]. …
Davis Polk, a large law firm that caters to Wall Street, wrote in a recent note to clients that the JOBS Act represented “the most significant legislative loosening in memory of restrictions around the I.P.O. process and public company reporting obligations.”
Almost every big bank on Wall Street, including Goldman Sachs, Morgan Stanley and Bank of America, is poring over the provisions, which some firms say will open a new front on their business model. … One Wall Street executive familiar with the JOBS Act but who declined to be named said the law would give firms “more flexibility” in covering emerging companies.
The new legislation passed through Congress over the objections of regulators, past and present, who warned of the potential risks to investors.
“It is a bad sequel to a bad movie,” said Eliot Spitzer, the former New York attorney general. “It shouldn’t be called the JOBS Act, it should be called the Bring Fraud Back to Wall Street Act.” …
Regulators were against the JOBS Act from the beginning. When the measure cleared hurdles in the House, the Securities and Exchange Commission scrambled to stop it in its tracks.
The law will “weaken investor protection,” Mary Schapiro, chairwoman of the S.E.C. warned last month.
“We should not walk backwards here,” she said. “Collusive behavior between analysts and bankers cost investors huge sums, shattered confidence in the integrity of research, and damaged the markets themselves.”
The JOBS Act is far reaching and also exempts emerging growth companies from certain disclosure and governance requirements for up to five years. It will also provide a new form of financing to start up companies.
Through what is known as crowdfunding, or the sale of small amounts of stock to many individuals, companies could solicit equity investments through the Internet or elsewhere, raising up to $1 million annually without being required to register the shares for public trading with regulators.
Post a Comment