Wednesday, August 01, 2007

A long but funny one...on our friend, Jeremy Grantham

Jeremy Grantham: RUN FOR YOUR LIVES

Are you presently working for a hedge fund or major bank? May Jeremey Grantham, chairman of Grantham, Mayo, Van Otterloo & Co. (via us) suggest that you get the hell out of there, because most of you are going to die anyway? That’s right, Dealbreakettes, according to Grantham, credit-market declines are going to force “as many as half”-- half, 50%, 1 of every 2-- of all hedge funds to close in the next five years. Last year 717 hedge funds closed, leaving 9,800 in business. Ergo, FOUR THOUSAND NINE HUNDRED of you are soon to be history (we did the math). Oh, and at least one global bank (gut instinct: Goldman Sachs) and “one or two” of the largest private equity firms, because those assholes have it coming. Grantham can make such apocalyptic forecasts for 2012 because he is 68, and may very well be dead by then. Grantham, Mayo, Van Otterloo & Co will survive, presumably.


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Thank you for doing the math for us. However, could you post your Excel spreadsheet for the rest of us so that we may learn to create such sophisticated models?

Thank you,

A loyal reader.

double post...

5 years? Time 2 Chill, Jerry. Pop a few pills, Jerry. Jerry, Jerry, Jerry. My man.

there will be more hedge funds in 5 years. the ones that exist today might fold but there will be more up and coming rock stars. Also if Goldman goes under that would actually mean the world is ending. good thing you're a writer not a trader.

good thing she was obviously kidding, rog.

Goldman will go down its just matter time, people said it could ever happen to: EF Hutton, Drexel, Lehman (the original), LTCM, Kidder Peabody, Saly

Blackstone is the new Goldman
Citadel is the new Salomon
Goldman is the new Bear Stearns
Bear Stearns is the new Raymond James

Goldman will go down its just matter time, people said it could ever happen to: EF Hutton, Drexel, Lehman (the original), LTCM, Kidder Peabody, Saly

Blackstone is the new Goldman
Citadel is the new Salomon
Goldman is the new Bear Stearns
Bear Stearns is the new Raymond James

great comment, please elaborate on your reasoning.

Blackstone = New Goldman.... for sheer eliteness and name recognition coupled with IPO riches... though there is sum grumbling about stock performance at the moment (this was also true at GS Circa 2002)

Citadel = Saly.... pure quantitative ability to out trade its peers

Goldman = Bear.... a solid gig for a second tear ivy league kid or top tier state school kid. nothing amazing but a legitimate job none the less.

Bear = Raymond James .... Well given that Goldman is recruiting talent after Blackstone and a shit load of hedge funds wear does these leave bear sterns in the equation of competing for freshly minted talent from nations top learning institutions. Bear Stearns is now the offer to accept as last resort one notch above Equities in Dallas.

"Gut instinct: Goldman Sachs" - I love it!

Not to swing too hard from Nassim Taleb's nuts or anything, but I get a kick out of these wildly doom n gloom pronouncements from pundits who are, in fact, totally full of crap.

As it happens, I've conducted extensive research, analysis and modelling that indicates that 88% of pundits, 94% of tv talking heads, and 173% of bloggers pretty much just make up wild-ass statistics to get attention for themselves.

My favorite dumbass stat was from the researchers who (just in time for the 2004 Olympics) plotted the improvements in the 100M sprint among male and female sprinters and deduced that at the current rate, women would be running the 100M faster than men by 2036, or some such. Oddly enough, they didn't trumpet how if you followed their models all the way down the line, both men and women would be running a 100M sprint in 0.0000 seconds by 2287 AD, at the latest.


I think anyone would be hard pressed to call Jeremy Grantham a pundit, wacky as this most recent prediction might be. That's like saying Michael Jordan (ok, Larry Bird) doesn't know anything about basketball.

Dear Random -- Do not necessarily disagree with your logic, but must insist on use of correct nicknames for venerable Wall Street institutions.

In the days of its trading prowess--Meriwether, Rosenfeld, Stavis, et al.--the old Citadel was known affectionately as "Solly." "Saly" just sounds like Sally Fields.

Nitpickingly yours,

Oh, and by the way, the trading geniuses at Solly were the same guys who blew up Long-Term Capital Management.

Hmm ... Maybe ol' Jeremy isn't such a nutter after all?

LTCM can be blamed squarely on those efficient market hacks: Merton and Scholes

this is entirely Jim Cramer's fault. And we could see a couple dozen funds blow up in the next 10 days. crazy out there. crazy in here too.

Grantham is no knee-jerk gloom-and-doomer, he's a brilliant money manager. Recall that hedge funds went from $2bn in AUM in 1970 to $250m in 1977. Who knows, but one can't discount his views.

On any given day, a few hedge funds get wiped out. It isn't reported in the media because nobody finds out about it except for the fund manager and the friends, family and fools who invested with him. It's usually the smaller funds that are shutting down on normal days. Such is the nature of this racket. Research also shows that the distribution of hedge funds' AUM is highly skewed, i.e. the vast majority of assets are managed by a few elite firms, while the majority of hedge funds are always struggling to raise funds and are managing peanuts. I am quite sure that half of all hedge funds fail within 5 years, with or without a credit crunch or any other macroeconomic crisis. So it is by no means far-fetched to say that half of all hedge funds will fail within 5 years, especially if the cost of capital significantly increases. And if we enter a bear market then half will fail for sure because a large majority of these funds are really just riding a raging bull market in equities, debt and commodities. This is similar to short-only funds: they did great during the dot-com crash but 9 out of 10 were wiped out in the bull market ... i.e. they were disguising beta as alpha. So Jeremy is really just stating the obvious here.

hedge funds will make a killing in the comming years, Ive been reading a lot on google finance & am sharp as a tack. I'm thinking of starting my own actually. I leveraged to the hilt & picked up CSCO in early '07 & dumped at the perfect time. My track record is fantastic. Anyone want in, I'm only charging 4 & 65...

I wish CNBC would get rid of Jim Cramer because he can double talke from the mouth and out his ass at the same time. He hasn't shown me s- -t. Be contrarian and buy everything he doesn't recommend.

Random Banker needs to learn to spell.

Actually, you all do.

You guys should shut up. I love James Cramer. He is always right on the money with his rec's. He's almost never said anything wrong and his stock's always seem to skyrocket. I think the lightening round is where the good C-picks really come to light. I'm a big long-term bull on the market. Booo Yah!

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Lunch is for wimps

Lunch is for wimps
It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.