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Institutional Fish: "It's All Just A Pretend Game"
Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

Jack Delano. Cars being precooled at the ice plant, San Bernardino, CA Mar 1943
Large and/or institutional investors, your pension funds, your market funds, you name them, have one glaringly obvious and immense Achilles heel that they very much prefer not to talk about. That is, they MUST invest their funds, in something, anything, they can’t NOT invest. They are trapped in the game. They have to roll over debt, investments, all the time.
In today’s markets, they can move into Treasuries, as we see bond funds (and undoubtedly others) do recently, and while that’s already a sign of unrest in the ranks, at the same time it exposes the funds. And not only because everyone knows it won’t allow them to meet the targets they must meet. Oil, gas and gold are unattractive alternatives.
The big funds can play the game, but they really shouldn’t, because they can’t win. Not in the end. Not when the chips are down. The reason is that they cannot fold. And the others at the table know this, and immediately recognize this for the fatal flaw it is. No matter how smart and sophisticated institutional investors and their fund managers may be, in ultimo they are, to put it in poker terms, the ‘designated’ fish.
It may take a long time before this plays out, and they realize it for what it is (fish don’t recognize themselves for what they are, other than, and even that’s a maybe, once they’ve been exposed as such by others), since in times of plenty there is no urgent need for the other players to catch and filet the fish.
As long as there’s enough to eat at the table, the ‘solid’ players can bide their time and let the fish fatten themselves (as long as it’s not from their money), only to gut them when times get leaner. In a way, the solid players use the fish as a way to stow away for a rainy day some of the ultra cheap QE money has made available, the money without which there would be no markets left, if only so their own actions don’t become too conspicuous.
Funds that invest for a living, and whose managers must meet, say, a 7-8% profit target, can appear to be well run and profitable for many years, provided they operate in a rich environment and no solid players decide to go after them (if these do, it’s game over in a heartbeat).
Seven years of QE et al have made this possible. As have many years of increasing debt and leverage and ever looser rules in global finance (re: the infamous murder of Glass-Steagall) before that. But. But that play is coming to a close. The ‘free’ money that’s been arriving at the table from outside sources for so many years is finally, thankfully, starting to dry up (and no, Mario Draghi won’t fill in the gaps).
I’ll quote out of context something then-poker playing law student and now-bankruptcy lawyer Ashvin Pandurangi wrote here at the Automatic Earth on February 9 2011. Out of context in the sense that Ashvin when he spoke of ‘fish’ meant speculators and the like, not institutional investors.
However, because of the fatal flaw for any player of having to play no matter what, the description of the psychology of fish versus solid players at the poker table is still spot on.
A Glimpse Into the Stubborn Psychology of Fish
What makes poker a profitable venture for “solid” players, unlike blackjack, craps or roulette, is their opportunity to capitalize on the mental mistakes of other players, by accurately “reading” the opponent’s potential range of hole cards in any given hand (mostly from betting tendencies and style of play), and accurately calculating the “pot odds” they are being laid (money that must be put in on the present and future betting rounds as a percentage of money that could be won from the pot). The pot odds calculation allows the solid player to determine the best course of action (bet, call, raise, fold) by comparing it to the equity his/her hand carries against the opponent’s range.[..]
Institutional investors such as your pension fund may not suffer from too many ‘mental mistakes’, they may be as smart as other players, but in their place comes the worse flaw of not being able to fold. Which means the the other players have a very easy time of calculating the “pot odds” they are being laid. They just, until today, haven’t been forced to call the hands of the fish, because of the money being injected from outside.
The best feature of a true fish is that they never learn or adapt to an opponent’s style of play. They will keep calling you with weak hands even when you only show down “monsters” at the table, because they are only concerned with their own cards and they always assume you are holding even weaker than they are.
There are not many real-life players who fit exactly into this idealized style of play, but there are many who generally harbor its underlying psychology – one of permanent and irrational belief in an ability to win a hand, despite any mounting evidence to the contrary. They cannot possibly conceive of folding, because that means giving up any chance of winning, slim as it may be, and also giving up any money already invested in the pot.[..]
Your pension fund manager may not believe in his ability to win a hand, but still be forced to play it. Because (s)he must always play something, some hand. (S)he is forced into the psychology of the fish.
The fish never stop to think what your strong bets out of position imply about your hand, especially given the fact that you most likely know that they are fish. If the fish do stop to think about these factors, then they most likely dismiss the thought before it has any chance to settle, since it would be too disruptive to their goal of never folding a potential winner. While the solid players are constantly engaged in several different layers of critical psychoanalysis, the fish are forever stuck in a one-track mindset.
It’s sort to fun to play around with, and take out of context, what Ashvin wrote, and what mindsets managers at pension- and other funds may have, not just fun for me but even far more for the solid players sitting opposite those managers. Because they know they have a rich source of profits waiting from them after QE has been cancelled, in the vaults of those whose job descriptions say they must play every day no matter what hand they’re dealt.
In essence it’s all just a pretend game, and the fish in today’s investment world are probably far more aware of their own identity than the fish at a real life poker table. But it doesn’t matter. They’re still fish, and everybody knows they’re going down. And therefore so are your pensions and your other institutional investments. What are they going to do, stop playing? They can’t.
So who are the solid players in this game, you ask? Why, Wall Street, of course. They’ve had their eye on your remaining cash all along.
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Justice Department Expert Witness: Blacks 'Less Sophisticated Voters'
Less sophisticated. Less educated. AKA low information voters.
Oh my lol If a Republican had said such things, he'd be hammered with allegations of racism.
#seattle
Washington state high school on lockdown after shooting…
Latest:
http://tersee.com/#!q=seattle&t=text
Eliminating useless paper-pushing middlemen has never been easy. History is very clear on this, yet life goes on.
Yeah. Nature returns to efficiencies and economy given time.
You see...Right now it may just be a "pretend game" But that game has far reaching and very REAL consequences.
And after reality hits those pretenders will be realizing the consequences at the short end of a rope on a very long lamppost.
You sir, are an optimist.
Already kissed my 401k goodbye. Would a cashed out of the Dann thing but I can't unless I quit.
I was able to convince my company to fire me, let me cancel my 401K, and then rehire me. I switched that money into gold and silver and a canoe. Damn canoe trip.
Im in same shape and I'm terrified. My boss won't rehire anybody and forget about a canoe I can't even swim. This thing about cashless banks has me paranoid as to what happens after I cash out..as I have to withdraw a piece at a time or they;ll think I'm a dang terrorist. I hope the bitcoin thing works out but they are on them like white on rice..:(
Hey, ZH Snob. Find out if your 401(k) administrator allows in-service transfers to a self-directed IRA. Instead of watching your account balance go up and down like a pogo stick every day;wholly dependent on what a bunch of crazy people do, investigate that option - and good luck to you.
ZH Snob,
Is your company small enough that you could request additional funds?
The DEA Once Turned A 14-Year-Old Into A Drug Kingpin. Welcome To The War On Drugs
"Funds that invest for a living, and whose managers must meet, say, a 7-8% profit target, can appear to be well run and profitable for many years"
i have heard of such a fund ... let me see ... i think madoff something or other ...
why warren buffet a perma bull
has no choice
too big a fish ... a move out of equities in large manner could trigger "unpleasantness" in markets
Which is interesting considering the percent of the population actually invested and not on the dole.
What remaining cash?
Me thinks this is a game with diminishing returns.
In that Big Poker Game, if you wonder who the sucker (or fish) is, it's you.
We have met the fish and he is us.
terribly incomplete description
Claim a hardship on your mortgage and get the 401k money ASAP.
Great advice, but unfortunately the cap is $50k. My plan has a choice of equity funds or bond funds that invest in mainly TBTF Wall Street banks. The problem is that the higher-yielding TBTF investment grade bonds tend to be higher-rated by the corrupt rating agencies,but many market players are on to the increased risk being taken by retail investors in TBTF. I'm actually considering quitting my job to get to it.
Don't worry .
They worry .
The Hysterical Focus is , by definition , on your side .
https://www.academia.edu/8942403/The_Hysterical_Focus_is_your_friend_
Asshole adviser on CNBC saying the economy is 50%-60% capacity, but his clients should go long equities.
The economy is going to recover, then rates will be raised, everything will be fine.
He probably said the same thing in 2007.
And still taking his commission.
"Thank you very much".
Did Madoff call his marks "clients" too?
From the article- "So who are the solid players in this game, you ask? Why, Wall Street, of course. They’ve had their eye on your remainig cash all along."
I am reading Zachary Karabell's " The Leading Indicators." In the first chapter he describes how King William the Conquerer sent minions to every corner of England to record every asset of every subject and every parish in 1066 to ascertain how much he now controlled. When it was completed in 1086 the findings were assembled in a vast manuscript known as the Doomsday Book.
Fast forward to 2014- didn't we just hear about a secret book called the Doomsday Book created by the Federal Reserve.
These are the people who will take your remaining money- they know how much you have and where it's located.
Casino Capitalism is like the Hotel California where one can check in but never leave. Casino Capitalism will only let you leave the casino when they have all of your assets safely in their bank accounts. When they have finally secured the assets you are fee to leave the casino property entirely.
At this juncture you will find yourself living under a bridge and back to a hunter gatherer upper paleolithic lifestyle which includes 'dumpster diving' for 'vegans', how to panhandle for fiat currency, how to build a complete
house from cardboard boxes, and how to survive in sub-zero temperatures
without TV. Moreover, just as Atlantic City can't play poker anymore you too will soon find that the Casino near you has decided to enter Chaper 11
just like Lehman Bros. did back in the institutional fish days of the FED vs. AIG, or the FED vs. Bear Stearns, or the FED vs. Lehman Bros., or the FED vs. Fannie May, or Freddie Mac, et cetera. Lastly, Alan Greenspan thought he was the biggest 'Institutional Fish' of all time before March 10th @ 11:00 am Bear Stearns time 2008. If this thesis was correct why is Alan Greenspan no longer considered to be the 'biggest Institutional Fish' of all time given that he is not eating smaller fish at at even greater rate today. Peak Institutional Fish was pre-2008.
We are now a post-institutional fish society looking for a spot to eat a shore lunch of investment banksters with relish.
fi(s)he