Andrew Lahde: The Hedge Fund Manager With a 1000% Return

To the pantheon including subprime shorter John Paulson and Amaranth vanquisher John Arnold we should probably now add Santa Monica hedge fund manager Andrew Lahde. Lahde almost certainly hasn't reached the billion-dollar-a-year club, but he does now officially oversee a fund – the poetically named US Residential Real Estate Hedge V Class A – which is up 1000% year-to-date.
Lahde's still very bearish on both housing (he has a new fund to short commercial real estate) and on the economy more generally (he's predicting a deep recession). But it seems he thinks the bloodletting in residential real-estate might be over: he's returning money to his investors, telling them “the risk/return characteristics are far less attractive than in the past”.
In a way, given the sheer number of hedge funds out there, and the increasing amounts of leverage they employ, it's a little surprising there aren't more funds which return 1000% in a year – and it's actually quite reassuring that such things are still rare. To have one enormously successful year, like Lahde or Paulson or Lahde, can make a man dynastically wealthy. But it doesn't make him an investing great like Buffett or Swensen or Lynch. Remember that during the housing bubble people were regularly making 1000% returns on their own money by buying and flipping condos with little or no money down. In a way it's only just that now a few hedge fund managers are making equally large returns by making bets in the opposite direction.

S&P Futures Limit Down

The overnight market made a 5% move down causing the market to go
to a "Limit Down" situation. Today will undoubtedly be an
important day in the global markets.

TED - Spread

Who gave the Wall Street bull those blue balls?

Fox Business - Jim Cramer

Dow Jones 1900-2008

VIX Index Tops 80 for First Time

The benchmark index for U.S. stock options exceeded 80 for the first time in its 18-year history, driven higher by equities extending the biggest slide since 1987 on concern the economy will continue deteriorating. Europe's volatility benchmarks also jumped to records.

The VIX, as the Chicago Board Options Exchange Volatility Index is known, rose a third day, adding 9.6 percent to 75.92 at 12:50 p.m. in New York after climbing as high as 81.17. The index measures the cost of using options as insurance against declines in the Standard & Poor's 500 Index, which fell 0.6 percent. The stock benchmark earlier slid as much as 4.6 percent, extending a 9 percent plunge yesterday.

There's no historical context for the VIX at 80, said Dean Curnutt, president of Macro Risk Advisors LLC, a New York- based firm that advises institutional investors on derivatives strategy. ``Investors are scrambling for protection and it's driving up the price of options.''
The VXO Volatility Index, a predecessor to the VIX that reflects the price of options on the S&P 100, climbed 23 percent to 84.30. It jumped to 103.41 on Oct. 10. The old VIX set an intraday record of 172.79 a day after the October 1987 stock- market crash.

Libor is inching down

Icelandic Stocks Drop 77% as Trading Resumes After 3-Day Halt

Iceland's benchmark stock index plunged 77 percent, the biggest decline on record, as trading resumed after a three-day suspension and the nationalization of the country's largest banks.
Investors demanded a higher premium to hold Icelandic government bonds, while the price of the country's currency remained ``undetermined,'' according to TD Securities.
The global financial crises sparked the collapse this month of Kaupthing Bank hf, Glitnir Bank hf and Landsbanki Islands hf with debts equivalent to as much as 12 times the size of Iceland's economy. The three banks accounted for about 76 percent of the OMX Iceland 15 Index's value prior to the nationalization.
``We are quite far away from having it up and running in terms of anybody being able to invest, or disinvest in the Icelandic stock market,'' said Lars Christensen, a senior strategist at Danske Bank A/S in Copenhagen. ``Given that we don't have a normally functioning exchange-rate market, a fixed income market, we don't have a clearing system between the banks internally, it's hard to talk about any well-functioning stock market.''
The OMX Iceland 15 fell 2,326.22 to 678.40, the lowest since April 1996. The gauge has lost 89 percent this year, making it the worst performer among 88 equity indexes tracked by Bloomberg News. Four of the 13 other stocks in the index didn't trade, while the six that did accounted for about 8.5 percent of the measure's weighting before today.
Global Stocks Rally
Iceland's record decline came as the U.S. plan to inject $250 billion in banks helped send Europe's Dow Jones Stoxx 600 Index to its biggest two-day gain on record. The regional benchmark added 3 percent today, while the Standard & Poor's 500 Index rose 0.7 percent.
Trading in Icelandic stocks was halted since Oct. 9 after the OMX Iceland 15 lost 30 percent in nine days as the country's financial system collapsed. Iceland started talks in Moscow today to secure an emergency loan of as much as 4 billion euros ($5.47 billion) from Russia.

New all-time high in the VIX

Some contrarian-minded advisers have gotten what they've been hoping for -- a new all-time high in the VIX -- and are now ready to issue a buy signal.

The VIX, of course, is the CBOE's Volatility Index Last: 70.98 +7.06 +11.05% ,which many believe to be an investor fear gauge. Contrarians therefore are prone to consider any spike upwards in the VIX as a positive sign.

Wachovia's Board Approves Wells Fargo Merger Proposal

Wells Fargo (NYSE: WFC - News) last night presented Wachovia with a signed and Board-approved offer to purchase Wachovia Corporation as an intact company and without government assistance in a stock-for-stock merger transaction. Under the Wells Fargo proposal, each share of Wachovia common stock will be exchanged for 0.1991 shares of Wells Fargo common stock, representing a value of $7 per share, based on Wells Fargo's closing stock price on Oct. 2, 2008.

When Congress goes to work, it's time to sell. . .

"According to two economists, Mike Ferguson of the University of Cincinnati and Hugh Douglas Witte of the University of Missouri at Columbia (paper link here) , if you had invested $1 in the Dow Jones Industrial Average back in 1897 when the index first started and invested only when Congress was in or out of session until the year 2000, here's how much money you would have:Invested When Congress is In Session:$2Invested When Congress is Out of Session:$216"Paper Abstract:"We find a strong link between Congressional activity and stock market returns that persists even after controlling for known daily return anomalies. Stock returns are lower and volatility is higher when Congress is in session. This “Congressional Effect” can be quite large - more than 90% of the capital gains over the life of the DJIA have come on days when Congress is out of session. The Effect varies systematically with the public's opinion of Congress: returns are lower and volatility higher when a relatively unpopular Congress is active. Public opinion appears to play a fundamental role in market prices. This is consistent with a mood-based explanation that sees Congress as ‘depressing’ the average investor. Alternatively, our results can also be reconciled with rational explanations that view Congressional activity as a proxy for regulatory uncertainty or rent-seeking behavior.

Cramer on his Wachovia recommendation: "I let you down, because I wasn't skeptical enough"..."I screwed up, I apologize"