More lefty, populist fiddle-faddle from Ben Stein

Not content with his legacy as a TV and Film character actor, former speechwriter for President Nixon, and beloved game show host, Ben Stein has been working furiously in print and Internet as an economic pundit, and sometimes not doing it all that well.

Yahoo Finance: How to Ruin the U.S. Economy

Most of his 12 points are sensible, in the way that Glaucon would have replied to Plato "Well, a reasonable man would agree!"

I was on-board until Ben got to number six.

6) Allow the creation of large betting pools called "hedge funds" that can move markets and control the outcome of trading, thus taking a forum for savings and retirement for families and making it into a rigged casino game that exists primarily to fleece suckers like ordinary working men and women.

Seriously, I have to ask what kind of fairy tale world Mr. Stein thinks he inhabits? Does he really think that the equity markets should be a magical kingdom where his hypothetical "working men and women" can invest their wages with zero risk and all return?

How is his point any less naive than the rioting investors in Karachi who demanded that the Pakistani government should pass laws to ensure "that stocks only ever go up"? What a great idea!

Newsflash: risk and reward are not correlated at 1:1. And, um, markets move. Sometimes a lot. Without any volatility, there wouldn't be any losses, but neither would there be any gains. Anybody who's uncomfortable with that should put their cash in a coffee can and bury it in the back yard.

Sadly, invective like his plays well to the crowd that wants to blame "the Man" for their problems, but doesn't do much to further their grasp of the real issues at play.

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Newsflash: People who badger you with statistics are usually trying to sell you something

Lovely little spot of rudeness on Dealbreaker yesterday in response to a dire pronouncement.

Dealbreaker: Jeremy Grantham: RUN FOR YOUR LIVES

Are you presently working for a hedge fund or major bank? May Jeremey Grantham, chairman of Grantham, Mayo, Van Otterloo & Co. (via us) suggest that you get the hell out of there, because most of you are going to die anyway? That’s right, Dealbreakettes, according to Grantham, credit-market declines are going to force “as many as half”-- half, 50%, 1 of every 2-- of all hedge funds to close in the next five years. Last year 717 hedge funds closed, leaving 9,800 in business. Ergo, FOUR THOUSAND NINE HUNDRED of you are soon to be history (we did the math). Oh, and at least one global bank (gut instinct: Goldman Sachs) and “one or two” of the largest private equity firms, because those assholes have it coming. Grantham can make such apocalyptic forecasts for 2012 because he is 68, and may very well be dead by then. Grantham, Mayo, Van Otterloo & Co will survive, presumably.

Not to swing too hard from Nassim Taleb's nuts or anything, but I get a kick out of these wildly doom n gloom pronouncements from pundits who are, in fact, totally full of crap.

As it happens, I've conducted extensive research, analysis and modelling that indicates that 88% of pundits, 94% of tv talking heads, and 173% of bloggers pretty much just make up wild-ass statistics to get attention for themselves.

My favorite dumbass stat was from the researchers who (just in time for the 2004 Olympics) plotted the improvements in the 100M sprint among male and female sprinters and deduced that at the current rate, women would be running the 100M faster than men by 2036, or some such. Oddly enough, they didn't trumpet how if you followed their models all the way down the line, both men and women would be running a 100M sprint in 0.0000 seconds by 2287 AD, at the latest.

Idiots.

On the bright side, there's a lot of sensible talk in the comments section.

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Borowitz on Hedge Funds: He wants some of that action!

In a similar vein to my post earlier this month entitled "Remember when Hedge Funds hedged?" satirist Andy Borowitz has penned a how-to guide to starting your own fund.

The Huffington Post: They Key to Happiness
Owning a hedge fund has changed all that. My workdays, which used to stretch out before me like a desert of meaninglessness and ennui, now brim with fulfillment and joy. As a hedge fund owner, I am truly, insanely happy, from the moment I wake up to the moment my head hits my 1200 thread-count pillow in an absinthe-drenched haze. And as for the other things I wanted to do before I die, I pay other people to do them for me now.

Like all good business plans, he even gives advice on your exit strategy:

One final thing: as magical as it is to own your own hedge fund, at some point you may feel the need to let go, to move on. More specifically, you may need to leave the country under cover of darkness. But speaking as someone who has done just that, it's not as tricky as it sounds. What will you need? Just three things:
1) a single-engine plane
2) 20 million dollars in small bills
3) a face transplant

Well done! I'm really feeling good about the marketability of my cunning plan to arbitrage the divergence between the market returns of horse races, microcap fraud, and Columbian supermodels. Besides, once the fund is up and running, I can wear a cool t-shirt to the bar that says "I wish I was your derivative, so I could lie tangential to your yield curve!"*

*I totally stole that from somewhere else, and no, I'm not sorry.

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Remember when hedge funds hedged?

This subject has worried at me like a sore tooth for some time. I always understood that hedge funds were named thusly because they figured out complex cross-trading positions to reduce risk by being able to profit from the market going either up or down. That made sense to me. So I have been puzzled by the steady stream of reports of funds going under because of over-weighted positions that went south, with no apparent counter-positions to shore up the downside of their bets. I figured that it was just because I'm unsophisticated.

So it was a great relief to see my doubts articulated by an apparently more sophisticated observer, The Stalwart's Joe Wiesenthal.

The Stalwart: Hedge? Funds
See, when I think of a hedge fund, I think of a fund that has identified some discernible arbitrage opportunity, arising from investor bias or regulatory incongruity. Either that, or the fund's strategy is the practical application of some obscure finance paper, perhaps embedded into some software that trades automatically. This view, however, is a little too idyllic it would seem, since a lot of funds are simply uni-directional bets on a certain asset or derivative. In the case of the recent Bear Stearns fiasco, some are actually claiming that the fund wasn't a hedge fund because there was no, you know, hedge.

Since there seems to be no shortage of dumb money investors willing to go long on people who talk a slick game, I'd like to announce my new fund: The Lee Distad's Professional Opinion Clueless Audacity Han Solo ("Don't Tell Me The Odds!") Fund. Initially I'm looking to raise $300 million in capital. My investment plan is to allocate 5% in myself, and allocate the rest to playing long shots at the horse track, pump & dump schemes in worthless penny stocks, and furthering the careers of Columbian strippers supermodels. All of this will be proportioned according to complex proprietary algorithms that, frankly, none of you would understand. My primary hedge will be stockpiling all the empty deposit bottles and cans that my frat brothers management team drain. Even if all of our other positions go south on us, the deposits on the recyclables should return at least 0.5-1%, which is more than anyone got back out of Long Term Capital Management when they tanked.

**The content contained in this blog represents the opinions of Mr. Distad. This commentary may contain forward looking statements and definitely contains sarcasm and rude sentiments. This commentary in no way constitutes a solicitation of business or investment advice. If you're looking for stock picks from me, look somewhere else. Really, what were you thinking? If you came here because you were trolling Google looking for someone to help you get rich in only twenty minutes a month, you need to seriously re-evaluate your worldview. This blog is intended solely for the entertainment of the reader, and the author, and not necessarily in that order.

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