Diary of a Hedge Fund Manager: From the Top, to the Bottom, and Back Again

CHAPTER 12

THE GREAT SQUEEZE

After the Crash, and the bailout, came the backlash, against banks, and against AIG and AIG’s risky hedge fund type operation, AIG-FP, and hedge fund managers in general, who, depending on the day, either caused the financial system to collapse via aggressive short selling or rumor mongering, which even if you buy those arguments, was still the equivalent of trying to call out a handful of rowdy fans for ripping down stadium goalposts when 80,000 people rushed the field. In the midst of all this outrage and pandemonium, the signals, surprisingly, were flashing positive.

For all these years I had been logging price data and a multitude of other economic factors into notebooks and checking them with either a red colored X (bad) or two red Xs (awful), or three (toxic), or, conversely, a green check mark (three check marks = really good). It was this process, a difficult daily grind but one I have to do, day in, day out, that led me to make a call that a crash was brewing. E-mails were still pouring in from grateful clients who moved to cash on my prompting (more than a couple of the biggest hedge funds, mutual funds, and pension funds in the business were, by the summer of 2008, using Research Edge for macro calls and had, indeed, moved to cash ahead of “Black Week”) when I realized I needed to reverse course—I had to become bullish. This was not about ...