Dancing with wolves
17 July 2007: DJIA 13,971; MER 89.23; C 52.46; BSC 139.91Thank you Stan. Having bought Merrill stock at the end of 06 at an average of 90, I have been patiently waiting for the trade to get even close to being neutral, let alone positive. And Stan ONeal who is so unpopular that even his friends dont like him has come up with the goods. A storming second quarter has made my day. Granted, the chairman and CEO of Mother Merrill doesnt always sound convincing, but these numbers are hard to ignore. The guys have done well, much as it pains me to say it.Unlike poor old UBS, who finally dumped Wuffli what kind of a bank hires a CEO with a name like a character out of the Gummi Bears? and brought in Rohner, his deputy, who I think also has quite a lot of blood on his hands. I would short his stock.When I told ALCO that I was short financials, I probably overlooked the fact that I hold MER and one other: the Big C, Citi. Dont ask me why I did it. I bought a lump of stock at a not-very-smart price (55 even) on the day that HSBC announced its 2006 sub-prime problems. I figured that, if the market could take that in its stride, there wasnt much to worry about with a bank as big as Citi. But I did have one reservation about the trade: Chuck Prince ranks up there with some of the worst, most unconvincing CEOs ever. How he got the job is a mystery even to him, I suspect. Why do I get the feeling he has problems balancing his checking account?Well, he just signed his own death warrant. I waited patiently and I have been rewarded. If you want to act like a complete fool, you could do no better than to look at what he said the other day about Citis position in the leveraged loans market. As long as the music is playing, youve got to get up and dance, he said, when asked about the health of the market. Were still dancing.Did I hear that right? Even Ken Lewis at BofA another one whose IQ I suspect is not much above room temperature has started to have his doubts about leveraged loans. Not Chuck. Hes still dancing, just like Elton John. I think hell be dancing all the way to the exit, making way for someone smart preferably Jamie Dimon to come in and rescue the bank, and my investment.Ideally, I need a few analysts to give him a vote of no confidence, watch the stock dip, lend what I have and buy some more to improve the average cost. Problem is, most analysts are right up the fundaments of the CEOs theyre meant to be covering. Independent analysis is a contradiction in terms. Oh Chuck, we love you and your bank now can we have that trip down to Hilton Head on the corporate yacht?Meanwhile, my old buddies at Bear arent exactly joining in the mood of celebration and general market euphoria. After pumping more bad money into their terminally sick hedge funds, theyve had to fess up and say that they are essentially worthless. Anyone here shocked? Of course, there are a few of the living dead who put money in, but who cares about them? If they chose to invest with Bear, rather than my very own Special Opportunities Fund (up 39pct on the year, thank you), they can go hang.The Dow continues on its inevitable flight path to 14,000. Its already at record levels, even though there are some serious worries about inflation oil is up to 74 bucks, and that doesnt help the cost of living. Looks like my friends at OPEC have done me a favor if only we could get a bad winter as well.So things are looking sweet. Im lending MER, borrowing BSC, nursing a good profit on the old Thai Baht deal and oil is on the rise. All the other transactions that are going on are pretty much run-of-the-mill stuff that keep the clients happy and show that we can behave like responsible citizens and guardians of their assets. But the Curveball Special Opportunities Fund is my very own baby, the only pool of money I still actively manage. Its certainly a special opportunity for me, as I can pretty much throw anything I want into it. It was the deal I struck with my partners when we formed the company.My partners. Have I been through a learning experience or what? There have always been just the four of us. We started with Revis LaTrobe as chairman, David Vitale as CEO, and Art Massolo chief administration officer (look Mom, I made CAO!). I was and am - chief investment officer. We hired a couple of other dudes, like Bohdan and Bengt, and we were in business.Six years on, and we look like a regular firm. Offices in 111 Huntington Avenue, a receptionist, fish tanks, even a compliance officer (although he may soon be sleeping with the fishes if he doesnt get off my back). We have so many hangers-on, in the form of auditors, consultants, administrators, vendors and sundry advisors that it feels like we are fueling the New England economy single-handed.The partners have never been great buddies. That was part of the deal. We didnt want friendships getting in the way of business. Just as well, as we pretty much hate each others guts. Revis has an education and isnt afraid to flaunt it. He went to school with a lot of the Boston Brahmins and lives near some of them in Hingham. I guess he couldnt quite pull enough strings to get a partnership at Brown Brothers.David is very different. He is sharp, analytical, very personable and great with clients. He knows a little bit about money management, which can be dangerous. He tries to engage with me about investment strategy recently opining that sub-prime was an unpinned hand grenade was one of his notably dumb remarks but, most of the time, he minds his own business and gets on with schmoozing.Art is probably the most boring guy I have ever met. He wears a bow tie, which is about as wild as it gets. In our meetings he is always the one who shakes his head, blows out his cheeks and offers a hundred reasons why it cant be done. Its in his JD. He deals with all the finance, admin and ops crap that flies at us on a daily basis. He seems to like it, so we consequently have little in common. I suspect hes behind this relentless pursuit of me by Haresh.So these are the guys that want to tie my hands, and effectively let our not-so-little Matka do all the work. Or rather, wanted to tie my hands. Since reading the file from Brimm, I am much more confident about my standing vis-a-vis these boys. Each of them has little secrets that they probably dont want aired in the Globe or on Bloomberg, let alone slipped to the regulators or the Feds. Revis, in particular, needs to be very cautious, as I advised him during what was threatening to turn into a showdown a couple of weeks back.Revis, old buddy, we should probably kill this discussion right there, I said, after hed all but accused me of rigging the performance numbers. I have my weaknesses and you have yours, but we want to keep the firm afloat, dont we? Why rock the boat?He got it real quick and shut up. He knows I know. I asked Stanley, just for verification, if it was all true. I thought you mustve known, he said. Thats why I never mentioned it. Thanks for sharing.But the real excitement comes in a couple of days time, when I am due to meet Brian and Brad, the dynamic duo who have been cooking up this fantastic commodities deal for me. I cant wait to see the look on Reviss face when I tell him that Curveball is going to be transformed into one of the worlds largest money managers. Fidelity, State Street, AXA, and all the rest of you bandits, watch out: Curveball is coming.