The Siamese Connection
3 January 2007: DJIA 12474; Thai Baht/USD exchange rate: 35.45Rule One: Never listen to your broker when he says, I have a great idea. Brokers are not paid to have great ideas. They are not smart enough to have great ideas. They exist to do what you want them to do, and skim off a healthy slice of commission for the privilege. Look at it logically. When did you last hear a broker saying, Thats a dumb idea? They dont try and stop you when you cut some arbitrage deal involving Sudanese muni bonds and Icelandic wind farm debt. Great, they say. Thats great. In the brokerage world, everything is great, as long as youre trading with them.Take Stanley. Stanley has a view on everything: whos buying what, where the hot money is headed, who is losing the plot, all that sort of stuff. Now, he is a buddy and hes my main man at Bear, where we do most of our business, but I value his opinions about as much as the output of a government statistician.Sure, Stanley fulfils some other vital functions for me. We go fishing for marlin, spend some time at his condo in Cancun, get a private jet to see the Lakers, Superbowl tickets, et cetera et cetera. Its a very symbiotic relationship: I pay him a ton of bro, and he pays me back with his unique market insights and some discreet excursions. Nothing ostentatious like the eighties, though all very low key and understated.Today is no different. Stanley has an idea. He has a friend who works in Bangkok how do you get that gig? and he says that the Thai economy is just about to dematerialise. The rice harvest tanked (who said global warming did nobody any good?), the government, military and royal family are all at each others throats, and sex tourists are going elsewhere to get their rocks off with lady boys. As Stanley said: Time to sell the hell out of the Thai Baht.So heres one of the essential conundrums of the active trader. Do I run off to my analysts, tell them to work up a full-blown report on the Thai economy and the recent history of the Baht, study and refine the document before presenting it to the investment committee and then wait for a green light or do I take the word of some guy who is a friend of a friend who might, just might, know more about Thailand than the man who washes pots at my neighbourhood restaurant? Its a constant challenge, balancing these conflicting demands.I should, of course, follow Rule One (and Rule Two, which is not to pay attention to friends of Stanleys or any other broker). But life is never that simple. Truth is, I just happen to know that we have a pile of client cash sitting around that isnt sweating as much as it should, and our performance numbers could do with some fine-tuning so what could be better than a little leftfield excursion into the Thai currency market?The investment committee (which I chair) is too busy to be troubled by such minor tactical considerations so, two hundred and fifty million bucks later ah, the joys of leverage! - we have made a serious dent in the Baht. Caroline, our receptionist, comes up to me and says: Hey, Larry, I hear youre selling the hell out of the Thai Baht. News travels fast. Even Bloomberg doesnt have the story yet. Why? I stall. Because were going on our honeymoon to Thailand and I want to know when to buy the currency.Honeymoon? I didnt even know she was engaged. I think I hide my disappointment well. I was working up the courage to ask her if she was available clearly no point now. A pity, as she has a good rack and great undercarriage. But a married receptionist? That wont do our image any good at all. Clients like to think they have a chance.After I have dealt with that news, its back to the desk and more screen-watching. We like big, flat-screen monitors that fold around you like the inside of a hi-tech gun turret. I personally have four screens, all flashing constantly as prices change and old news makes way for new. But there is only so much data a brain can process, and sometimes you need to go and sit somewhere quiet where there isnt anything more taxing to watch than the firms rather impressive tropical fish collection.Some of those fish have been at the firm since it began or more likely someone just quietly replaces them when they die so that nobody notices and gets too upset. Some of the women can get a bit emo about stuff like that. Personally, I have managed not to get too attached to any of them.I, too, have been with Curveball Capital from day one. The fish and I took up residence on the same day, along with my three business partners, a secretary and a guy called Bohdan who looked after all the technology. That was six years ago, when making double-digit returns was as easy as hitting a cows rump with a banjo. Clients lined up on the sidewalk to get a piece of the action. We raised a billion dollars in eighteen months. When Goldman Sachs called, we thought wed died and gone to hedgie heaven. (Typical Goldman: they never did invest. They just wanted to find out what we were up to. No imagination.)Ive been doing the same thing for all of those six years managing the money. Nowadays, of course, I have a few rocket scientists and brain surgeons to help me, as well as a black computer the size of Milwaukee that crouches menacingly on a separate floor all by itself. Bohdan is still with us and, when he isnt trying to get into the knickers of any woman with a pulse in our office, he looks after these monstrous boxes. He refers to them as Matka, which apparently means mother ship in Ukrainian.I shall miss Bohdan and the fish. We had a board meeting a week ago and formally endorsed our plan to open up in London. Its where all the action is. Boston, frankly, is on its last legs. Bostonians all look and act as if they have a giant dill pickle stuck up their fundament, and the money management industry is no different. Mention CDOs squared to a Boston investor and they look at you as if youd just let off gas and lit it - in front of their grandmother.London is different. Everything is so cool over there and the financial community is much more sophisticated. They are not going to need educating on the merits of leverage, shorting, and all the other stuff that hurts the brains of our Boston brethren. We have a target a billion from UK investors by 2010. Personally, I think thats going to be no stretch at all. I probably wont even need to work five days a week. I hear there are some pretty good golf courses over there.
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