The Greatest Trade Ever: Profiting from the Crash
online.wsj.com
online.wsj.com
Gold bugs have been ramping up their rhetoric during the last decade, and during that time period, the data have shown that gold is strong against the USD. However, the way the article reads, and particularly the way it ends, verges on scaremongering of the sort that can only reinforce the very investments described in the article.
Weird editing, but maybe the purpose was to make it abrupt enough that people who want to go get the book to figure out what happens next.
Interesting use of "quotation marks".
When markets move this much, there's bound to be at least one person who made an out-of-the-ordinary amount of money. Doesn't mean he can do it again.
Words fail me.
If you look at the people who profited from the crisis, they all did a similar play. It was not shorting stocks, it was taking advantage of mispriced insurance.
His main investment shown by some filings is a pairs trade of long dollar long gold, which is a very interesting position as noone seems to be taking the long side of both those assets at the same time.
Some further reading: http://www.marketfolly.com/2009/06/john-paulsons-43-billion-...
Wow are some people's lives far different than mine.
If your friends are Harvard MBAs who have been working for ~30 years on Wall Street, they'll have a nice bit of cash set aside for funding
And the financial industry is essentially allowed to bet on funds that don't exist (unbacked insurance), safely knowing that the government will print cash to help pay these imaginary sums should disaster happen.
But let's go broader.
You are looking at capital incorrectly. Let's say you are given money from investors for your start up. Eventually though, your start up begins to tank. Competitors are coming in, you are just not good enough, and any incremental reinvestment in the start up will likely yield negative returns. Is it really wise of you to squander your investor's money like that? No.
You would be better off parking that capital where it will generate returns (i.e.: a financial investment) or giving it back.
Warren Buffett was confronted with this prospect when he took over Berkshire Hathaway, a failing textile mill. Textiles were rapidly going overseas and Buffett had a choice to make. He could take the business' cash flow and buy new equipment, to try to compete. Or he could invest it elsewhere. He chose to invest it elsewhere and look where Berkshire is today: $10K invested back then would be $50M today.
Sometimes investing in the business is the wrong choice, especially when you have a responsibility to your investors.
Its like if I sold you insurance for $999 trillion that there wouldn't be an earthquake in California tomorrow. I obviously don't have that much money, just like those banks didn't have the money that they are now paying Goldman Sachs and the guy in this article with taxpayer money.
Ironically you cite Warren Buffet when he himself was quoted as saying "I view derivatives as time bombs".
You should take some time to read the following:
http://www.berkshirehathaway.com/news/may0208.pdf
Also, note that during the 2008 AGM Warren Buffett remarked that a small canadian insurance company had profited from credit default swaps, and mentioned that they aren't all that bad.
He was referring to Fairfax Financial, a company I myself invested in over 2 years ago with the intention of hedging against sub-prime:
http://en.wikipedia.org/wiki/Fairfax_Financial#Subprime_mort...
Fairfax was likely the ONLY insurance company to protect its shareholders from the financial crisis and profited immensely. They were able to use the CDS investments to profit and then sold and reinvested in equities.
Next time try arguing with better facts than an arbitrary quote.
It doesn't look like he's doing all that well following the latest fad though.
Look at the date of that article, it is from April. Go see what the S&P 500 has done since then (Hint: it is up 22%).
Meaning, the mark to market loss that those derivatives at will have already narrowed quite a bit. He still has a ways to go, but so far things appear to be in his favor.
Also, remember that it is a paper loss, he still has not paid anything out. So he still gets to put those premiums to work in the market, given his recent performance on his warrants w/ GS and others, he is doing quite well.
Can you go see what the S&P has done since that press release you cited? (Hint: its down 27%).
Now I'm not saying that you can't make a bunch of money on derivatives. Let's stop arguing about this.
The fact is that derivatives is about as moral as gambling except that you can gamble imaginary sums and the government will step in to pay with tax payer money because Goldman Sachs owns the Fed and the banks are "too big to fail". Even Warren Buffet has admitted that they are bad, and its not just one random quote.
Just because he is joining the club doesn't mean that derivatives have stopped being bad, it only means that he can't fall behind the other investment vehicles.
You're correct about this point. If you sold that insurance and couldn't pay off when the earthquake happened, the bank should take all that you have and eat the remainder. (For "bank", read Goldman et al.)
However, note that the folks selling the insurance in these cases included pension funds, small cities in Australia, and the like. I'm perfectly happy with them losing everything (especially since the alternative is US taxpayers paying to make Goldman whole), but are you?
However, note that the folks selling the insurance in these cases included pension funds, small cities in Australia, and the like. I'm perfectly happy with them losing everything (especially since the alternative is US taxpayers paying to make Goldman whole), but are you?
Yup. My investment in GS is 0 and I live in the US.
My response to that argument should be obvious.
Every news article and writeup has said that there were many CDOs between AIG and Goldman.
http://www.reuters.com/article/newsOne/idUSN1548789520090316
I just pointed out that there are folks who make that argument whenever someone says that the govt covered Goldman's potential losses.
As long as they don't punish everyone else by deflating the currency, they can sue each other just like any other industry.
Think about this. What other industry can you bet imaginary sums of money and have the government print it for you when someone cashes in?
In every other industry I can think of, if the money doesn't exist, tough luck. It someone can't pay you, they declare bankruptcy and you either get their assets or have them pay the debt for the rest of their life.
replace "deflating" with "inflating"