Leon Cooperman on the fallout from the hedge fund industry following the guilty Raj Rajaratnam verdict. Interesting insights on the nuances between ‘insight’ and ‘inside information’ and the overlap between expert knowledge and illegal information.
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The SEC mandate is to provide a fair trading environment; a quick look at the options market immediately prior to Buffet’s Lubrizol purchase indicated heavy open interest even before any newswires reported the takeover agreement. The option interest was uncharacteristic and stretched compared to historic performance. Purchases of open calls were amplified and the fact that this has not been investigated is disgusting. The SEC is clearly behind the curve; it has not even registered with them. The laissez faire approach of the SEC undermines confidence in the ability of regulators to enforce, even if superficially.
The Government don’t understand risk, profit and complex interplays. Even after the crisis, governments worldwide encouraged financial institutions to hold more liquid tier 1 capital, and this was something that was considered to be essential. However, they specifically encouraged government paper including sovereign debt as they implied a government guarantee and these debt instruments were also heralded by the ratings agencies. It’s not the government’s job to advise financial institutions as to how they should specifically allocate their capital. Capital allocations should be weighted towards gold, silver, cash, foreign currencies, stocks, direct investments, commodities and materials. Purchasing government bonds in countries which have significant deficit imbalances should be avoided. The constant search for yield in bonds should be avoided, as they have weakened and have lost real value. There is also significant principal risk given the current inflation trajectory.
The Cognitive Dissonance.com 