B+

That Tilson's fund was down 0.9% in February is no surprise. After all the company's Qualified fund has underperformed the S&P since inception in 2004 (more on that in a second). After posting a gain in January, T2 is back to its losing ways (as a reminder the fund was down 20% in 2011, which means it has to post a well bigger than 20% return in 2012 to get above the high water mark). Tilson's performance is summarized as follows: "On the long side, winners included Citigroup (8.5%) and SanDisk (7.8%), offset by Netflix (-7.9%), Grupo Prisa (B shares) (-7.4%), and J.C. Penney (-4.7%). On the short side, we profited from First Solar (-23.6%), which just reported dismal earnings and guidance, Interoil (-10.4%), and Boyd Gaming (-8.7%). These gains were offset by Salesforce.com (22.6%), which is growing rapidly but trades at 8.7x revenues and has a $19.6 billion market cap despite being unprofitable. In addition, Green Mountain Coffee Roasters, which we think is likely to be the next Krispy Kreme (for those of you with long memories), rose 21.8%" And also "Since Berkshire reported earnings, the stock is actually down a bit so we took advantage and, though it was already our largest position, we added to it." All that is fine and well, but we have two questions. What is Tilson's, a self-professed "value investor" Sharpe Ratio? Judging by the monstrous volatility swings in its marginal positions, the fund is as much a value investor (read slow, stable rise), as a momo investor is the Queen of England. How long until the CME opens a triple levered (forward and inverse) ETF to take advantage of the already ridiculous monthly vol in the Tilson portfolio, whose Sharpe, just by eyeballing it, must be negative give or take.

With 9 days left until the end of the Greek exchange offer, many are curious for hints on how the uptake may be proceeding and whether funds have amassed enough of a blocking stake in the Greek bonds (they certainly have it in the UK-law bonds whose exchange offer will take place conveniently in Apil after the Troika's €130 is funded, if at all). Which is why the following statement by Juncker will likely be very closely scrutinized:

• JUNCKER SAYS THERE'S `PLAN B' IF GREEK DEBT SWAP FAILS
• JUNCKER DECLINES TO PROVIDE DETAILS ON BACK-UP PLAN

The problem for the Fed is that interest rates are already zero, and playing around with bonds and buying more mortgages (the Fed already owns $1 trillion) is ultimately pushing on a string: the Fed can't force all the free money into productive investments, nor can it force banks to lend or consumers to spend. The cliche is "don't fight the Fed;" there is no need to "fight the Fed" because they're busy self-destructing, and all we have to do is watch. Maybe the market will follow Apple in a trajectory to the moon here. If it doesn't, a variety of other models suggests the wheels may fall off the "growth and rising profits forever" story and the market will decline to test recent lows or even hit new lows.

For anyone who traded in the 2003-2007 interval (second liens what else - did anything else even trade in that period), the name DB Zwirn was synonymous with hedge fund perfection. In fact, the only name that stood above it was that of Phil Falcone's hedge fund Harbinger. Gradually, both of these high fliers were replaced in the awestruck trader lexicon with another "legendary" hedge fund, that of Paulson & Co. But for a brief period the Zwirn offce at 745 Fifth is where every fixed income trader wanted to reside. Yet as always happens, anything that is too good to be true, isn't. Below is William Cohan, who in a way that only he can, spins the tale of the the rapid rise and even more rapid fall of the hedge fund manager who had it all by his thirties, only to lose it (mostly) all shortly thereafter.

Bill Gross' monthly letters are always a fresh source of jovial imagery, although the bond king may have outdone himself in his latest monthly letter which collapses the principles of investing onto the football field: "My point about pigskin offense and defense is the perfect metaphor for the world of investing as well. Offensively minded risk takers in the markets have historically been the ones who have dominated the headlines and won the hearts of that beautiful gal (or handsome guy).... Canton, however, has an approximately equal number of defensive in addition to offensively positioned inductees, so there must be a universally acknowledged role for both sides of the scrimmage line. What fan can forget Mean Joe Greene, Deion Sanders or Mike Ditka? The old, now politically incorrect showtune laments that “you gotta be a football hero, to fall in love with a beautiful girl,” but football and any of life’s heroes can play on either side of the line, it seems." And it only gets better. While at its heart Gross' latest is merely yet another lamentation against the confines of the financially suppressive regime that arises from ZIRP and ends with what many expect is a whimper (when in reality they all forget to factor in the facility of hitting the CTRL+P keys as many times as necessary), the flourish of abandon this time around is palpable. We would not be surprised to soon see Gross hang up his offensive (and defensive) jersey, and sit back and enjoy the coming lunacy from a distance (but hopefully not before he allocates just a little to the Ron Paul SuperPAC).

A few days ago, before the definitive Greek PSI term sheet was available, we presented the complete preliminary BNP PariBas decision which despite having some assumptions was almost spot on in its flow chartness of Greek next steps. Today, to avoid any confusion on the matter, here is Bank of America with its take on the finalized Greek PSI Terms and the final final (until changed yet again) Greek decision tree.

Every time we see oil prices go up we hear that it will cause inflation and/or the economy will go into the tank. The premise is wrong because that has never happened.

Large IPOs often mark tops within sectors and within stock markets as a whole. In June 2007, shortly after the s*** had begun to hit the fan in the financial stocks, the Blackstone Group (BX) was able to get a multi-billion dollar IPO in. About a year and a half later, BX was down about as much as the Dow Jones fell between its 1929 peak and its mid-1932 nadir--almost 90%. Major IPOs and runs of hot IPOs in a single sector do not happen in a vacuum. They are not the result of a philanthropic attitude amongst corporate insiders or the financial community. Last year, memories of the crash had finally faded enough that it became time for U.S. investors to become the quacking ducks that, as always, Wall Street had food for. And of course, tech was there as the most palatable food. If they wanted, Facebook could raise every penny it needs, and more, from private sources. So ...

But coincidentally, the ECB’s next Long Term Refinancing Operation (LTRO) is set for February 29...

Will Germany go “all in” on the Euro experiment? I doubt it. In fact I’ve found the “smoking gun” the little known act that Germany has recently implemented that proves the country has a Plan B that involves leaving the Euro with minimal damage.

I'm not a very good hedonist, I guess.

Here I am in Las Vegas, and to my way of thinking, everything I hate about the human race is conveniently compressed into one tidy package.

And I ask myself: what's my problem? Why do I let places like this get to me so much? I mean, after all, why should I care what other people do with their time and their lives? What business is it of mine?

"if you don't ask the most fortunate Americans to bear a slightly larger burden of the privilege of being American, then the only way to achieve fiscal sustainabilty is through unacceptably deep cuts"

The authors identify two "externalities" to the triggers for default cascades: 1) variability of financial robustness of all of the interconnected financial entities; and 2) the average financial robustness of the interconnected entities. If all parties have similar financial robustness (variability is low), then increasing connectivity makes the system more robust. Stability is even likely through diversification if the individual parties are not very robust. It was only when the initial robustness was highly variable across agents (i.e., some agents are weak and others strong) that increasing interconnectedness tended to stimulate systemic defaults.... The lesson here is diversification is not always a good idea. If you diversify across financial entities with wide risk profiles (i.e., some are weak and some are strong) you actually increase the likelihood of a financial calamity.  We don't have to confine ourselves to financial institutions. If we consider our agents to be sovereign, we expect the same problem. Creating a financial superpower out of a group of Germanys would be perfect--even a group of Greeces might be okay. But creating one out of Germanys and Greeces tends to encourage a financial catastrophe. Who could have predicted that? The authors suggest that the "fix" for this situation is to concentrate risk rather than diversify it. I wonder--in whose hands will the risk be concentrated? Perhaps if you hold gold, the risk won't find its way into yours.

While mostly a regurgitation of old, very trite, and quite meandering thoughts, there are some tidbits of information in the latest just released 2011 Berkshire Letter to shareholders such as that Buffett has chosen a successor to the 81 year old increasingly more confused head (unclear who), that Buffett is on the prowl for large acquisitions, that he hopes IBM shares languish for the next five years (frankly we can't wait until Buffett opens a stake in Apple so he can control the two stocks that between them account for about half of the moves in the DJIA and the NASDAPPLE - after all "economies of scale" is all about how Nominal Buffett exudes 'success'), that he once again sees a housing bottom (he adds: "Last year, I told you that “a housing recovery will probably begin within a year or so.” I was dead wrong" - this admission is far more than we will ever hear from James Cramer who has been calling a housing bottom since 2009), and "Housing will come back – you can be sure of that" - sure, just not in your lifetime, and probably not in ours either, but most importantly, is the discovery not that BRK's profit declined by 30% (to $3.08 billion from $4.38 billion) on a smaller gain on derivatives, but that since he actually will have to post collateral on new derivatives, "we will not be initiating any major derivatives positions." The reason: "We shun contracts of any type that could require the instant posting of collateral. The possibility of some sudden and huge posting requirement – arising from an out-of-the-blue event such as a worldwide financial panic or massive terrorist attack – is inconsistent with our primary objectives of redundant liquidity and unquestioned financial strength." So his warning that derivatives are WMDs years ago was only appropriate if there was money to be lost, such as is the case for 99.9999% of other investors? Ah, there goes the good old hypocritical, crony Warren we have all grown to known and love. And finally what would be a recent Buffett missive without the obligatory gold bashing section: after all, how will the Ponzi scheme inflate if people have realized it is a ... well, Ponzi, championed by none other than the person everyone once thought was actually an investing genius. Fast forward to Buffett's 2020 Letter (when Greek debt/GDP is precisely 120.5%) his main message will be: "I told you to run away from gold. I was dead wrong."

Yes, the Federal government can cover up the damage by borrowing 10% of GDP each and every year ($1.5 trillion, and don't forget to add in the off-budget "supplementary appropriations"), and the Federal Reserve can add trillions in quantitative easing stimulus, but even adding $8 trillion of borrowed/printed money to the economy over the past four years has had remarkably little effect on the private-sector economy. That does not bode well for the "recovery."