Please click here to access the roughly 15 minute project.  Hope it works !

Click here to view a recent interview with Jim, in which he updates current thoughts about markets and the global economy.

But don’t think that the entire industry is in danger.  The concept of performance-based pay will always attract the best and brightest.

Near the end of this Financial Times article, the CEO of a large Swiss bank — which admittedly advises clients to allocate heavily to absolute return investments — makes an outstanding point:

“The hedge fund industry is the most talented people who have come
together to manage money. When they don’t achieve they disappear. There is a Darwinian process that we don’t really see in the long-only world.”

Teewinot fully intends  - and remains well on track - to survive this negative environment and absolutely thrive as the world eventually emerges from it.  There is no hurry, no panic, no “hail mary” environment for us.  We’re simply preserving our clients’ capital in down periods, seeking opportunities for profit, and taking calculated/limited risks.

Please check out Teewinot’s 2008 3rd Quarter Client Letter for more information.

“Just stop paying your mortgage“

Summary: it’s half socialism, half robbery.  And a very slippery slope for our nation.

I could also type for hours about how Fannie, Freddie, and the Federal Reserve itself have no place in free markets and we’d all be better off with the dissolution of all three .   But I don’t have that kind of time or inclination.

Apparently, in this modern America: a business will be mocked and additionally taxed if they do too well, yet get government assistance if they screw up badly enough.  This encourages recklessness and mediocrity, not hard earned business success.  Any social safety net should be reserved for individuals, not companies.

I don’t believe for one minute the “trickle down” arguments that are being espoused.  Banks will hoard this capital.  From Bloomberg.com: “Paulson Lacks Leverage to Compel Banks to Put New Cash to Work.“  Yes he does.

The only other item I must note: This bailout stuff obviously socializes corporate losers. We so quickly forget that not very long ago — this summer — with oil at $130 and ExxonMobil stock at $92 there were calls to socialize successful businesses also.. via ill-conceieved “windfall profit” taxes. But those voices are long gone with $85 oil and a $67 Exxon stock price. The free market took care of the “exorbitant” energy prices, as it would with these financial industry issues if allowed to proceed sans Government.

Thanks to Barry Ritholtz’s excellent blog, The Big Picture, for the cartoon.  Thanks to the 1st Amendment for allowing me to vent.

Julian Robertson was certainly the headliner (and as a Tar Heel, the only non-Wahoo of the bunch) but they are all sharp guys.  I primarily went to brief John Griffin - who taught by far my favorite college class via teleconference from his New York fund’s office - and several other former professors on Teewinot’s progress and my career in general.

After much discussion of the obigatory topic of 2008 - financial industry malaise - they were each asked by moderator Griffin to give their best current investment idea.  Their responses:

Chris Shumway said that buying stocks that were down huge primarily based mostly on hedge fund liquidations would be a long-term winning strategy.  It’s always debatable why a stock is down, but this does make fundamental sense.

Paul Touradji layed out a thesis for shorting copper.  He believes that base metals are priced based on the “velocity of money” - a measurement that’s likely to drop as the world generally de-leverages.  Fair enough.

Julian - believe it or not - was bullish on a particular derivative bet.  He believes the interest rate yield curve will steepen significantly, and discussed “steepener swaps” as his favorite investment right now.  While chuckling, Griffin said that when Julian called to tell him about the idea, Julian joked that in his family this Christmas there would be “a steepener in every stocking.”  Us finance people are really easily entertained. 

Rick Gerson made a good point that United States corporations had really gone down the road of “professional” management — he compared it to outsourcing.  Naming a few middle eastern companies that he deemed good investments, Rick made the case that in these frontier markets there are still plenty of “owner/operator” public companies in which the people running the show retain 70-80% ownership.  He presumably has some of Blue Ridge’s money allocated to these situations.

John Griffin did not share any specific security that he liked, but ruminated that what he’d really like is the ability to “arbitrage time.”  Basically that in a world dominated by short-term thinking, it’s hard to take a stand on a company or stock because even if you’re eventually right, the losses you may sit on during the interim can cause both your investors and employees to get hot & bothered.  I hear what he’s saying, but that’s just the fact of life with public/listed company investing.  If you don’t want a daily price quote, you’ve just got to get big enough (or partner with other funds) to buy the whole company and take it private.  The practice of not marking to market is a different game.

Much thanks and respect to Mr. Griffin and the rest of the panel.  Heck, getting 2 minutes with hedge fund legend Julian Robertson on stage afterwards was in itself worth the trip!

Global equity markets have obviously seen a rout for weeks now. But even if one has suspected such action — as we have — it is still a difficult trade to capture.
To us, the best course of action is either hedging long positions with shorts, or holding a significant portion of the portfolio in cash.

Kevin Depew of Minyanville.com details the risk I’m referring to:

Risk in equities remains high on both sides. You can’t short stocks because if it is not already illegal, it is too risky to try and match wits (and capital) against the SEC, Treasury, Federal Reserve and Federal Government. No one really knows what desperate rule, mandate, acronym or Fed action will cross the wire next, temporarily crushing short sellers. Similarly, you can’t buy stocks either, because doing so means you are essentially gambling on the success of the SEC, Treasury, Federal Reserve and Federal Government.

Teewinot is for now a long-only shop.  However with the existence of Inverse ETF’s, we could be economically short the market if we so chose.  This quote aptly describes our reluctance to do so in any significant size.

Japan is down 11% and the Dow futures are off another 200 points as I write just before bedtime.  It should be yet another interesting day on Wall Street.  I’ve noticed the business media has stopped counting the number of consecutive triple digit moves in the Dow Jones Industrial Average.  That won’t stop tomorrow’s session from adding to the count.

Two articles well worth reading:

• An excellent piece from Slate’s “The Big Money” website, which discusses how even though many many people saw this collapse coming (just like the .com bubble), so few were able to fully capitalize on the fall they so presciently expected.  I count myself among this camp.  Moral: investing is a lot harder than analyzing.
• Also, Kevin penned another solid argument on Tuesday, which I believe correctly describes the current crisis as one primarily made from impaired debt values, not simply a lack of liquidity.  Tomorrow at 10:00 am, President Bush will try again to convince us otherwise.

“Before He Trades” ….. a Carrie Underwood Parody

Portfolio Update

More seriously, we still have client accounts very conservatively positioned… with only two stocks in the portfolio:

1. Tempur-Pedic (TPX) with it’s unique product, 50% short interest,
   strong new CEO, and stock price just breaking north from many months in
   the penalty box.
2. Fuel Systems (FSYS) which is a play on Boone Pickens’ well thought out plan to use domestic natural gas in our nation’s fleet of vehicles. (Aubrey McClendon, Chesapeake Energy’s CEO, is also promoting the idea on TV spots these days)  www.cngnow.com

Most of the attendees had heard of hedge funds, but learned how they are typically set up operationally and the myriad strategies that they can employ. I certainly tried to dispel the myth of hedge fund similarity.

I dedicated 2/3 of the program to the differences between fundamental and technical philosophies of investing. I assumed this was new material for most of the group, so drilled down on one concept pretty hard:

• When you invest fundamentally, you assume that you know something that the market doesn’t.
• When investing technically, you assume that other players (with large proprietary research departments) know more than you do.. and you make buy/sell decisions based on their “elephant tracks”

The response was extremely positive from the members, many of whom I’ve known for years while growing up there. Of course the gig also provided an opportunity to pass out about 50 copies of our most recent Fact Sheet.