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Paolo Pellegrini Follows Druckenmiller Into The Sunset: Paulson Protege To Return All Capital To Investors
When we reported that Stanley Druckenmiller had decided to call it a day after a 30 year career, we joked that his action was a stark confirmation that alpha was dead, as more and more hedge funds are increasingly unable to eek out incremental returns over risk free, thereby rendering the whole 2 and 20 business model meaningless. Today, we get more confirmation that ever more of the "smartest money" on the street is packing it in (at least temporariliy) after Absolute Return+Alpha reports that the man behind the Paulson CDO trade, Paulo Pellegrini has decided to return investor capital and is stepping back from managing investor capital "given challenging market conditions." "Paolo Pellegrini announced today that he will be returning all outside investors' capital in his global macro firm PSQR Capital by the end of September, citing the additional work necessary to profit from his bearish views." As a reminder, as of his first letter (posted below), the fund was up 175.5% through September 2009 from inception in April 15, 2008. One wonders how much pain Pellegrini may have suffered, considering his main bets, at least as of a year ago, were short Treasuries and short equities.
We turned bearish on long-dated US Treasuries in early 2008 because we expected a massive policy response, both monetary and fiscal, to the economic crisis that was taking shape. Shorting Treasury futures worked relatively well early in the year. To limit the event risk in the Treasury short position, we started shorting equities as well, primarily S&P futures. Intuitively and empirically, one would expect equities and Treasury securities to be anti-correlated with respect to event risk. Shorting Treasury and the S&P futures together did reduce volatility for a time but proved challenging in July and August, when in some cases the two instruments appreciated at the same time.
It is an unfortunate reminder that even though you may be right on Wall Street if you get the timing off, it does not matter. This is precisely one such case. While eventually bonds will crash and burn (and yes, it is a bubble), for the time being, expectations are that the 30 Year will soon plunge below 3%, even as well over $10 trillion in backlogged issuance is coming down over the next decade.
While we wish Pellegrini all the best, somehow we are confident he will do just fine with even the "meager" personal profit capital he has collected to date.
Congratulations Bernanke, you just succeeded in getting another legendary trader/investor out of the market with your central planning voodoo.
PSQR inception letter presented below.
PSQR Investor Report September 2009
And below are his even more bearish views as of his Annual Letter:
And here (via Alphaville), is PSQR's last monthly report.

h/t Lawrence Delevingne
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The market has become a coin toss. But the pain must continue until everybody is disillusioned, then the cycle will start again.
can anyone explain wtf is going on with gold and why for the past 3 days, at almost the same time, there have been swings?
Druckenmiller decides to retire, what a surprise ! I guess earning a few billion is enough.
Rats are leaving the sinkin ship.
Well said.
Damn, the rat analogy was taken when I got to this thread. My thoughts exactly.
your avatar MountainMan, those men look like dorks, in penguin suits.
Agreed
Stolen because the thieves can be quite certain it is the real deal, not gold-plated tungsten!
http://www.reuters.com/article/idUSTRE67J0PN20100820?type=domesticNews
COMEX?
Nope stolen from a museum in Key West. The bar dates back to 1622.
Like I said, the thieves can melt it down because its obviously the real deal. Not tungsten, won't "turn to dust", etc.
turd, yuck on my hands.
what a fascinating story that santa margarita had. those were the exciting adventures. pearls too.
"a very quiet smash and grab." inside job bet. local police. hole in the cabinet, dumb do do or turd do, art museum people.
In the securities business and in personal trading....
One is as good as their last trade....
One is as good as their last trade....
Crap said on the street to keep you enslaved.
;)
same in racing sports.
one is as good as their last race.
Making money is hard work when you haven't rigged the game up front.
I wish I had the ability to put as much truth and impact into one sentence as you, Crazy Joe.
Government intervention-- and in the case of the zzzz... the SEC... non-intervention-- is creating havoc in the hedge fund world. And as opposed to TBTF firms that get a backstop on losses and zero percent interest rates to fund more speculative activity-- independent HF shops like Druckenmiller's and Pelligrini's are left with no safety net.
The latter is the way it SHOULD BE.
I'm pretty sure Pelligrini will be back, and there will be a following. But, unfortunately, this is another case where the Fed clearly can maintain viability and influence over assets prices for much longer than hedge fund managers can stay solvent (Leo loves hearing that, I'm sure). If I were Pelligrini, and I saw that infinitely funded HFT shops were my primary competiton in stocks, and the Fed was my competition in bonds-- I would fold tent as well.
I'm sure we're going to see even more of these exit announcements from the hedge fund world, as long as the Fed has their nasty little finger in the pie. The foundations of this market structure are eroding more and more.
The fog of war is obscuring the investment picture for longs, shorts, and neutrals alike. Why? In a word, the sucking sound....of money being withdrawn as a result of gradual grand scale wealth destruction. That leaves only one "risk free" trade left: frontrunning the Fed. Even that is providing diminishing returns now that debt levels are in the red zone and Fed policy is becoming less and less effective, or perhaps as I've been suggesting for almost a year, it's crossed over into counterproductive.
Investment is like sex.... "even if bigger always impresses... most of the time erodes performance"
... specially with low volumes and less liquidity it's tough to be big..
-xoxo Pam
speaking of sex...Mandy is quite stunning today in that white top.
Mmmmmandy
Pure pornstar
hey pam, asking about your analogy. sex = bigger. sex isn't bigger, i think your talking about the whoa dingy.
It's tough to trade against TOBOR the 8 Man.
TD, it would be interesting to get some comment from you on how our good friend Mr. Rosenberg seems to have gotten off the reservation on the Treasury bubble, unless you perceive him to be recommending that we ride this horse while it lasts.
I believe you can subscribe to his newsletters for free.
Thank you TJ.
Kathy is waiting Joe. Get to it.
David obviously agrees on the deflationary theme of the collapse. Where he disagrees is on the timing the jump to hyperinflation (oddly enough he quotes Albert Edwards who, just like us, believes in hyperdeflation followed by a Weimar Republic-like loss of faith in the currency, resulting in monetary collapse or hyperinf, whatever one wants to call it). We do not have enough confidence in our ability to pick the point where the bond bubble goes from an ebb to a flow. We are 100% confident that point will come.
Thanks.
+++++
David obviously agrees on the deflationary theme of the collapse. Where he disagrees is on the timing the jump to hyperinflation (oddly enough he quotes Albert Edwards who, just like us, believes in hyperdeflation followed by a Weimar Republic-like loss of faith in the currency, resulting in monetary collapse or hyperinf, whatever one wants to call it). We do not have enough confidence in our ability to pick the point where the bond bubble goes from an ebb to a flow. We are 100% confident that point will come.
Nuff said.
The manipulations and frauds by ZombieBanks' HFT (and whatever else no one knows about), USFedRes and US.GOV triad has so distorted this market that the "best and brightest" can't profit enough from trading insider information...pity, that!
Run away, run away, PIGmen, run away!
Btw, does CNBS just read ZH and cherrypick for "BREAKING NEWS"?
TD posts the Pellegrini news at 11:41. CNBS goes "BREAKING NEWS" at 1:09.
Hmmm...
do you think they do?
turd your busy on this page making me have amnesia, thanks.
Congratulations Bernanke, you just succeeded in getting another legendary trader/investor out of the market with your central planning voodoo.
AND the economy sucks to boot.
Man Of The Year
I have to admit that I laughed at this.
On a lighter note, I sure am glad its almost football season...
http://www.maxim.com/girls/girls-of-maxim/70299/2008-nfl-pom-profiles.html
ROFLMAO!
BAHAHAHAHAHHAHA!
nice guns, p i n e n u t .
one trade wonder.....well... two trade wonder... but thats it!
He didn't have that much money though did he? Basically, the guy isn't interested anymore and wants to sit by the pool... fine.
What ever..... not sure "legendary trader" is the right term for this guy.....
The guy helped make over a $15 billion profit for his firm. "Legendary" certainly does apply.
Stepping out and realizing a lost cause for what it is, is likely the most prudent move Pelligrini could make for his clients.
Alternatively, he could try to front-run a manipulative Fed... but don't you think that's a crowded enough mo-mo trade???
Nobody wants to be the one one to yell
"doodie in the pool."
Of course, they will all continue to trade their own
accounts, duh.
People are afraid, very afraid.
Ain't you the dollar bull extraordinaire ?
Buy treasuries.... Whee This investing stuff is easy !
Haven't you grown tired of being wrong?
Now thats a WOP
From Bloomberg:
Kenneth Fisher Recommends Stocks as Pessimism SurgesIt's one thing for the cheerleaders of the MSM to say that the retail investor is stupid and that, as Fisher says, you should buy when the mood is bearish.
But when the real pros like Druckenmiller and Pellegrini start getting out, you know the game is up.
Agreed.
When guys who know how to game the system
bail it's over. Higher taxes and more debt mean
long term underperformance by equities.
No one has mentioned derivatives recently either.
The prime rib is gone. All that is left are scraps and filler food for the mid-to-low lever managers. Fighting over the bones next. Then cannibalism. What a show! ZH is like front row seats to the carnage.
ZH is like front row seats to the carnage.
+1000! Well said!
Well... it's worse than that.
If there was a high degree of certainty that equities would underperform and bond rates would increase, HF investors like Druckenmill and Pelligrini would still be in the game.
The message being sent by these guys is essentially "we can't play this game and win". If the Fed is committed to intervene in markets for "as long as it takes", and no one should be investing on fundamentals. Those who have a peek at the Fed's playbook are the winners... and likely the only players left.
I hope they have fun when the Fed loses control of things.
I should have listened to my grandmother--get an economics degree and then an MBA from Wharton, get hired by the Fed, then front-run the Fed playbook using my proprietary account and get rich.
Sigh...my grandma was a genius.
LOL - When they make money, they are "geniuses", when they lose money, they cite "adverse market conditions".
So much for hedge funds that are supposed to make money even in adverse markets ...
There is no market....and I mean that in the Zen meaning of the word. Supply/demand has been totally short-circuited and is really out of the equation due to the total obscuring of price discovery. That leaves greed/fear which is also on short/circuit once they instituted gazillion circuit breakers and flash-crash preventers and Ben doubled down on the Bernanke Put. So fear has manifested by the absence of greed, ie non-participation in equities markets, shunning "risk assets" and the rush to ultra defensives like T-notes at 2%, high grade corporate that barely has a yield pulse, cash and gold.
Paulo Pellegrini has decided to return investor capital and is stepping back.
oh goody, maybe he is going back and spin some vinyl.
• In his spare time, he worked as a jazz D.J.
is that you S T E A K in disguise, bet, you sound dashing. steak i meant dashing not bashing. and my internet has been down to correct. b's d's all look the same at some point in my life. i have to recheck a lot.
Mr. Pellegrini is a smart man. So many beautiful places to retire in Italy...
yep leo, you got that one right, to d r e a m is human.
put serious miles on pavement in that country, on my two wheel italian de sosa, bianchi, guerciotto (1st Road owned) basso bicycles. my red floor pump i use, got in siena, damn it is ancient. but the ones they make today are ass ugly. maybe i could go find a new italian floor pump.
One thing nobody has mentioned is the rumors PP was the man who prodded the SEC towards the JP/ GS structure. I wonder if he felt he was receiving especially rough treatment as a result of breaking the code of omerta?
"Uh you leave-a da bizziness or-a we in-a-vestigate-a YOU"
xoxo
Mary S Hapiro
Why complain if the market is broken? I would only complain if stocks have been driven to stupid heights (like in 1999) - because then there is nothing to do - and shorting is very frustrating as well. But now - this is different. If the hedgies want to dump stocks enmass because of whatever quant algoriths they use - great. Of course its not great for people who want to be like the quants and trade intraday. I imagine it must be frustrating. But if you want to invest- it is creating opportunities. Check out the energy space for example.
There's no opportunities when there is a stampede rushing out. High quality and nice dividends are just fodder for the margin calls.
Retail investors leaving the market en masse.
Hedge Fund closing shop left and right could cause a fire-sale avalanche.
The bond market telling everyone to get the fuck out.
What are you seeing?
Good luck Paolo. Use your off time to figure out how to blow up treasuries and get even with Benron.
After getting nearly gored prior to option expiration, I'm still waiting for the rally-on-vapors bounce before piling on the downside again.
I feel for the pros, down here in the trenches it hasn't been an easy ride. more like a square-wheeled model-T running moonshine on a dark country road.
Last year in June 2009 we first wrote the following comment, and have repeated it several times since then (and as recently as February). The business (as we have known it to us old timers) is gone. Good luck everyone. Once again: "There is NO MARKET..."
by AR
on Mon, 02/22/2010 - 16:35
#240616
It's slow today, so I'll add to your comment. I've repeated this story over the last 6 months from time to time, and I'll do so again here. Back in June 2009, a colleague of ours (a $5+ Billion dollar hedge fund) traveled to Europe on a meet-n-greet, money raising campaign. At the time, he returned and said "there is 50% LESS MONEY out there to invest." I presumed his observation was due to lost investments, the meltdown, margin calls, etc.. Then, a month later (keep in mind they are large) he told us, "...there is no market..." I said, what do you mean there is "no market?" He literally said, there is no market. What he meant was, they could not find market participants to take the other side of their trades -- literally. Bid/Ask spreads were huge, and there was no liquidity anymore for them initiate trades as they’ve done in the past (or, much less).
Since then (the last 4-6 months) all of us, have now discovered, exactly what he was talking about. There is NO MARKET (period). Volume is gone. Government, computers, quants, algos, HFT's -- whatever you want to label them – now are said to dominate 70% of all volume today. Thus, keep in mind too, that they dominate 70% of "today's volume" (which on the above premise, is 50% LESS than the real volume the market traded before the credit crisis).
So, think about all this. One, there is 50% less real volume. 70% of the existing (50%) volume is computer led. Thus leaving, theoretically, only 15% of the actual volume in today's markets being "true or real volume" (when compared to volume prior to the crisis). Only 15%. So... now we see the problem with the market's today. This is a huge structural shift (and problem). We don't see it getting better in the short-term. Interesting dilemma. Good luck everyone...
Very well put, AR. The markets are like a bridge with an eroding foundation. And while no one knows the timing, the chances of general market collapse are that much greater as more participants leave.
And here you have a bunch of Ivy League phds who apparently think that really isn't much of a problem. Hmmm...
AssetMan: Seriously, few truly understand how these structural shifts have negatively impacted our business. Funny, but the friend and colleague who I quote above has closed his $5+ billion fund. Druckenmiller & Pellegrini are closing. Plus, there are hundreds more not yet public or known that are quietly closing too. It is getting to a point where many of us who have made our money over the last 20-30 years are all saying "...enough of this bullshit..." The markets today are frustrating, very often illogical and counter-intuitive, and it is becoming increasingly more difficult to "properly manage your risk."
Anyway, you hang in there too, and, try to keep a positive frame of mind. I always enjoy your comments on ZH, they are thought provoking and intelligent. You be well...
Well said, AR.
+1M This is why I come to ZH.
I see market participants as fleas on a carcass in the polar regions.
Good luck .
God,Garden,goods, guns ,gold and lots of Love, we are gonna need it
The garden of good and evil. We are in for an epic battle.
I thought drunkenmiller just wanted to play more golf?
Trading community to Goldman f**king Sachs, JPfM and the NYfFED:
Fuck this shit I am out of here
Yeah, Screw you guys, i'm going home.
Smart guys to know their limits - or friends with the guy above with bills sticking out his a$$.
I remember seeing an article in Spring 2010 how Pellegrini was
* Short Dollar
* Long Commodities
* Short Treasuries
Shows how common sense doesn't help you make money in the markets. Never trade against the market, it's always bigger than you.
So, this guy walks into a casino.
He asks where to find his favorite tables: SeekingAlpha and LeveredBeta. Ben, the proprietor, tells him that those 'old' games have been retired and instead to try some of the newer tables: DeltaDecay, DgammaDspot, or Zomma.
Not comfortable with the odds of these new games, he glances around the room to find that the casino is eerily vacant and asks Ben how he manages with no customers. Ben replies that it is no problem because management owns the printing press around back.
Frustrated, our gambler asks about the people playing dice on the curb, out front under the Buttonwillow tree. Ben says not to worry to much about them. The cops are already on their way.
Invest accordingly.
We'll just start our own exchange, the trading pit will have a pool table and poker table - plenty of pizza and lots of booze. Oh wait, I guess I mean we will all be hanging out in the bar. Someone get me a shot of whiskey!
Looks like the WSJ reads Zero Hedge:
http://online.wsj.com/article/BT-CO-20100820-711478.html
So he's bearish, lost 7.9% in July. One less short to squeeze to prop up fantasy land. Look out below
He told clients that he decided to stop managing their money because of the “additional work” required given his bearish outlook on the economy
Fund Performance
The hedge fund lost 7.9 percent in July
There are certainly a lot of details like that to take into consideration.I read and understand the entire article and I really enjoyed it to be honest.
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