Felix Salmon

40 pages of hedge-fund letters

By Felix Salmon
August 26, 2009

Market Folly has the 24-page second-quarter letter from Elliott Associates, while the 16-page memo from Howard Marks of Oaktree is here. Both have moments of brilliance, and are better financial writing than anything you’ll read in a newspaper or magazine this month. Of course, they’re openly talking their book. But you guys are smart enough to discount for that, and come away with some pretty sharp insights.

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On page 5 of the Elliott Associates letter, I noticed that they said that the problem with Toxic Assets was not the inability to price them, but the gap between bid and ask. I’ve been saying this since last Nov., and was constantly being told that the problem was that no one could price them.

There’s a big debate about saving the System and not Individual Companies, but those of us who agree that saving AIG et al were good decisions believe that this was necessary to save the system.

From Howard Marks:

“In the years leading up to the current crisis, it was “as plain as the nose on your face” that prospective returns were low and risk was high. In simple terms, there was too much money looking for a home, and too little risk aversion.”

I thought that you believe the opposite. People wanted safety but bought risk.

“One of the themes of my talk was that it wasn’t an excess of greed and speculation which led to the financial crisis, but rather an excess of overcaution”

And from Marks:

“Investor opinion regarding markets and the government’s actions has grown more positive, and as Bruce Karsh says, “Armageddon is off the table.” (He and I both felt
6-9 months ago that a financial system meltdown absolutely couldn’t be ruled out.)”

If that’s true, wasn’t the system saved?


“their first quarter letter mentioned that all the government spending and bailout activity could potentially make the economy worse.”


Posted by dvictr | Report as abusive

Bonus! I’ll get right on these 40 pages. Lunchtime reading, to be sure.

Posted by flippant | Report as abusive

“…better financial writing than anything you’ll read in a newspaper or magazine this month.”

Good grief! What newspapers and magazines do you read?

Posted by BigBadBank | Report as abusive

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