There have been many questions about the Hedge Fund Lock-ups which were announced by Cerberus Capital today. Many of the explanations & by the major media outlets have been unclear if not incorrect.

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One of the main misconceptions with most of the articles presented in the media is that the Lockups will affect existing hedge fund investors. This is not the case, as the Lock-Up period will only be effecting investors who choose to move their investments to the new funds created by Cerberus Capital in the future.

To balance out the 3-year lock-up, the new Cerberus funds will be offering lower management fees. The success of this new structure will no doubt be watched by hedge fund managers around the world.

1. What is a Lock-Up Period?

A lock-up period is the time during which investors are prohibited from redeeming their shares. Hedge funds often have lock-up periods for funds so that the firms are able to take a longer investment horizon. The Lock-Up period is defined in the Fund’s Private Placement Memorandum.

Tradionally a Lock-Up period will be 1 year. With the possibility to redeem every quarter after a 30-60 day notice.

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Tags: Cerberus Capital, Cerberus Capital Management, Investment, Management Fee

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As I was browsing through Bloomberg’s news and found this rather uncharacteristic story in the feed. It’s a good read

It isn’t just hedge funds troubling fund capital Greenwich, Connecticut. It’s hedges.

A fast-growing vine known as mile-a-minute weed, or the kudzu of the North, is stalking hedges, shrubs and trees in the town 27 miles (43 kilometers) north of New York City that is home to 60 fund companies. The plant advances as much as 6 inches (15 centimeters) a day and has a grip on National Audubon Society land and other patches, said Denise Savageau, Greenwich’s conservation director.

“Remember ‘Invasion of the Body Snatchers,’” said Tom Baptist, executive director of Audubon Connecticut, who found the creeping interloper at the group’s Gimbel Sanctuary in 1996. “This has a similar science fiction feeling, but it’s the attack of an alien plant. It usually kills what it covers.”

That threatens millions of dollars of damage to Connecticut orchards, farms, gardens and landscaping, said Todd Mervosh, a state weed scientist and member of the Connecticut Invasive Plant Working Group. The state produced $14 million of apples, peaches and pears last year, and $3.8 million of Christmas trees in 2007, according to U.S. Agriculture Department data.

Like all stories about hedges, this one has an unlikely hero!

Calling on Weevils

On the hedge front, state experts are planning their most aggressive assault yet. Early next month, they will release 3,000 vine-eating weevils in Greenwich, Newtown and North Haven. The insect larvae bore in the stem and kill the plant, said the University of Connecticut’s Ellis, co-chairman of the state’s invasive plant working group.

The weevils have been used with success in Delaware, New Jersey, Pennsylvania, Maryland and West Virginia, she said.

“We need to fight and fight hard,” Ellis said. “This is the enemy of the year.”

Click here for the full story!

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Jim Chanos, the founder and managing partner of Kynikos Associates, is likely the most successful pure equities short seller in global markets. Kynikos’ flagship Ursus short bias fund has grown steadily for over two decades and now manages over an estimated $4 billion. The recent bear market has helped the fund earn strong returns, furthering a reputation that was very publically enhanced by Chanos’ successful shorting of Enron earlier in the decade.

Yet Chanos is much more than a shrewd short-seller and a brilliant securities analyst. In recent years, he has built an impressive public profile speaking out on regulation, corporate malfeasance and accounting standards to governments, trade bodies and regulators. These interventions have benefitted the broader hedge fund industry and for that Chanos deserves the respect and gratitude of managers around the world.

For some years, Kynikos has also operated a UK and European research arm in London called Axia Advisors. It provides the New York-based portfolio management and trading operation with the research capacity Kynikos needed to create as its investment focus grew to be global in scope.

Bill McIntosh, editor of The Hedge Fund Journal, recently spoke at length with Chanos about the ongoing deliberations among financial authorities to regulate short selling. The conversation also extended to the importance of reforming accounting standards and of getting hedge fund managers to actively lobby politicians at a time when far reaching changes are being considered in how financial markets are regulated.

The interview discusses the current market climate, regulation and the failure of banks in depth.

Jim Chanos was in the news earlier this year when emails surfaced which suggested the possibility of his fund acting on negative analyst research on Fairfax Financial Holdings Ltd. before the research was published.

Tags: Business, Enron, funds, hedge fund, Investing, Jim Chanos, London

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I ran into this interesting list of great sites for finance geeks, one day soon HedgeCo.Net will be on this list

1. Tip’d. By participating in this social network, you will get the latest in finance, business, and investing through news, tips, articles, and connection with other members. Vote for which content goes on the homepage and even submit articles from your blog as well.
2. Zacks Investment Research. The research done with Zacks is mathematically-based and available for you to learn about markets and trends. Create a portfolio, connect with community and more at this site.
3. Covester. An excellent way to learn from others experience, Covester allows members to watch the investment habits of other members in order to learn how to invest their money.
4. InvestingMinds. Whether you want to benefit from what others say or share your own investing ideas and experience, you can do so on this site that provides a place for everything from investing clubs to chat rooms.
5. Minyanville Financial Infotainment. Meet other investors on this financial social network where you can learn about smart investing strategies, read articles, participate in forums, and read blogs.
6. Cake Financial. When you join Cake Financials, you can manage your investments and participate in a community of other investors.
7. MarketWatch Community. Members can create profiles to help connect with others, then find, organize, and share financial articles on this social networking site.
8. My.WallSt.net. Beginners will enjoy learning about stocks and trading on this social site. Track your investing performance or check out others in the Top Gun section to see how they are doing.
9. The Motley Fool. Keep an eye on top performing stocks and get news and investment tips at this popular investing site.
10. ZeccoShare. The investment community at ZeccoShare offers investment tracking, sharing of ideas and tips, and specific groups where members gain knowledge and support from each other.
11. UpDown. Practice investing with a $1 million portfolio and even earn money from doing so. Also, get tips and experience from others in this community.
12. Money Talk. No matter if you just need help with personal finance, if you are an experienced investor, or you run a small business, you are welcome to participate in this community. Find news and advice from this resource that includes forums, RSS feeds, and an entire section on 401k resources.
13. TradeKing Community. Investors come together at this site to share their insight and learn from others as well as keep on top of the latest happenings in the world of investments.
14. Wikinvest. Learn about specific companies, investment concepts, funds, markets, and more at this site where members can also contribute and grow their reputation through participation.

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I discontinued my writing since the launch of the fund in order to focus on fund raising and managing the portfolio. Since I’m so disenchanted about the stock market’s response to the Freddie and Fannie bailout I had to write about it.

I’ve decided to tip-toe through some of our theories about today’s financial rally and dollar rally. It is our belief that once the market completely digests what has just taken place there will be a complete reversal.  There is no logical explanation as to why financial stocks would rally after the government takeover of Fannie Mae and Freddie Mac.  The logical thing for investors would be to steer clear of financials because they are failing all around us.  We have had no faith in Freddie and Fannie, the investors have had no faith in them – so what do you do with bad investments?  The answer is to give them to an investor who does not have a choice, the US taxpayer.  So, the government gave the American taxpayer several trillion dollars more in debt, adding to the nearly $10 trillion we’re already in debt.  The crazy thing is not only did financial stocks rally but the DOW was up over 250 points today in the pre-market.  There is also a dollar rally taking place.  Gold, however, lacked luster today, up only $1 at the time of this writing.

Here is what we believe will happen when the fictitious reality meets the actual reality. The DOW will continue its downward trend and the financial stocks will continue to fall, with some bottoming out all the way at $0.  Meanwhile, gold’s value will shine extremely bright and continue to climb beginning in the very near future.  We also expect commodity prices to begin to climb despite the global recession – the reason being that, when the world faces the true reality, the only way for our government to buy these companies is by printing more money.  Likewise, the only way they can make new loans is by printing more money.  Their plan is to sell the new loans as mortgage-backed securities, which would be a great idea save for the fact that nobody in their right mind wants mortgage-backed securities.  As such, the only way to sell them is to make money-backed guarantees to all the buyers of mortgage-backed securities.  Only with an explicit guarantee from the government are these investments attractive for investors to buy.  The problem is there has yet to be a bottom in this market, which means, of course, the value of the collateral will continue to diminish.  This is significant because if the government is forced to buyback the bad loans through the guarantee, the American taxpayer will be taking even more losses from the devalued assets.

I wrote a long time ago that I wasn’t sure if a recession would cause the housing collapse or whether the housing collapse would cause the recession.  And let’s not forget about hyperinflation.  The reason I raise this chicken versus the egg point, is because inflation has already begun and these types of government bailouts are the gasoline on the fire igniting hyperinflation.  To be clear, the bailouts of Freddy and Fannie will do nothing to help those who are already in trouble.  Therefore, on any new loans made, the borrower will be upside down soon after the purchase, kind of like the purchase of a car.  The new homeowner buys a home it can afford – that is, until hyperinflation kicks in and their daily necessities get more expensive, at which point the house they can afford today they are unable to afford tomorrow.  When they inevitably default due to hyperinflation or a layoff – which is to be expected in a recession – the devalued property will belong to the government, in which case the entire process repeats itself.  First, there is a trend, then there is the misconception of the trend and the misconception of the trend fuels the trend and the misconception.

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If t the Fed had done in the 1930s what Bernanke and Greenspan have done, the Great Depression would have been much worse.  If the Fed would have tried to re-inflate the stock market bubble or keep it from bursting in the first place, it’s the dollar that would have collapsed.  Subsequently, the Great Depression in America would have looked liked what we are about to experience now.

As bad as the Great Depression was, hyperinflation would have made it even worse.  It is unheard of for any country to devalue their currency into prosperity.  Recessions are a natural part of the free markets; corrections and ups and downs are normal.  However, the US could never allow its foreign investors to see a downside in its consumer driven economy – an economy that could not exist without their investments.

It is important to keep the economy going, and that means keep Americans shopping, give them credit and allow them to finance a lifestyle their incomes can’t support.  So the feds solution again was to cut the fed funds rate, but the impact of low interest rates have devalued the currency and the foreign investors are finding better investments outside of America.  Now all this cheap money is being held by the banks and they only loan to each other.

The old saying,” I gotta rob Peter to pay Paul,” is now taking place in the banking industry, but the only people getting paid is them.  Americans will soon be forced to live without credit, earning an income in a currency that is depreciating!  So how can this consumer led economy continue to grow?  All U.S. asset values will continue to come down because their current value is based on past performance.

I call that style of investing “the rearview mirror investments” because most Americans are investing in things based on how they performed in the past.  The “rearview mirror investors” will keep asset values from going down at lightning speed because they believe, “the real estate prices will come back this always happens” or “it’s a cycle” or “I’m going to buy that stock because it’s cheap.”

Rearview mirror investors are operating on American arrogance and unfortunately are able to sell their beliefs with no evidence to support them except “this has happened before.”  Well, I believe those asset prices are extremely overvalued, for example:

1.) Banks are holding debt they used to sell to investors and no one is buying it.  So banks are now carrying that debt on their books while their stock prices fail to reflect that.

2.Retail stock prices have consumers and their credit cards priced into their values.  However, the true value of those stocks should, at the minimum, price out credit.

3. The decline in U.S real estate assets has just begun, and what will those values be without credit when credit is what created the bubble in the first place.

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The most frightening thing in the world is the lack of acknowledgment that you don’t know what you don’t know. Unfortunately, American politicians are the truest example of such folly.They are blaming the burden of high gas prices on OPEC, speculators, and big oil companies. The biggest reason people related to the oil industry are being targeted is because gasoline is the only thing in America for which the price is written 15 feet high in the sky on a bright 4 x 4 sign. The change in price is more noticeable – because whether or not you stop – you notice the price constantly going up on the sign.While Congress is trying to sue OPEC, tax windfall profits from big oil, and change speculative trading, it’s the American people who will suffer.First, the members of Congress must acknowledge that they don’t know. The problem, however, is that they don’t yet know that they don’t know. And what exactly do they not know? That it’s not an oil problem: It’s a dollar problem!  America has tried to devalue its currency into prosperity and as a consequence it has crippled the economy and buried the tax payer. Everything in America will continue to get more expensive, whether the price is written on a big bright sign or scanned at the register. As Americans get poorer through inflation, foreigners will become increasingly wealthier, because every time the dollar loses some of its value, the foreign currencies gain value, thus increasing their purchasing power. It is for that reason that I believe we will not be able to reel back inflation. In the past, when Americans stopped spending, prices came down because of supply and demand. This time when we stop spending, the rest of the world starts spending, and then we will experience a recession in America, only this time with hyperinflation. Unfortunately, with the sub-prime debacle, the US financial system has been exposed. The world saw what I’ve been saying for awhile: Americans have borrowed their way into the good life and don’t have the ability to repay.  Our economy is 72% consumption and most of the consumption has been based on credit. Now, with credit soon a thing of the past, Americans will be forced to live without credit, earning an income in a depreciating currency – all of which will contribute to a sharp decline in the American standard of living. For these reasons, we believe every company that is reliant on US consumerism is tremendously overvalued. We believe the US consumer will continue to fight for its lifestyle to the end. Nevertheless, we believe the end is near. We believe that once Americans spend their tax return, spend their stimulus checks, and finish maxing out their credit cards for necessities, the charade will end.

We believe the opportunity to mass great returns – and the only true way to protect your purchasing power – is to earn an income in a currency outside the of US.

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