Gary Shteyngart Goes Deep on Hedge Funds and Bitcoin

I really enjoy all that Gary Shteyngart publishes (see here and here, for example) . In his latest year-long project, Shteyngart has been researching finance, bitcoin, and has written an interesting article about Michael Novogratz for The New Yorker:

I like how Shteyngart brings his own life events into the story:

As a hungry, insecure kid growing up in eastern Queens, I remember watching the movie “Wall Street” and fantasizing about how I would look in suspenders and a contrasting collar. The men on the big screen did not have to understand themselves; the money made them understood. Although my greed had been expunged at Oberlin, and the financial crisis of 2007-08 had left me with a more or less permanent view of finance as an industry built on fraud, I found it hard to dislike some of my new acquaintances. The more intellectually vibrant ones came with backgrounds in advanced math and physics; they approached their trades like a puzzle, albeit one they were increasingly unable to solve. Others seemed to be flirting with the edges of sociopathy, or, at least, an inability to pass “Blade Runner” ’s Voight-Kampff empathy test.

Reflecting on the competitive nature from high school days:

At Stuyvesant High School, a competitive math-and-science school in Manhattan with a high proportion of first-generation immigrants, my classmates and I would get up every morning to wage battle over a hundredth of a percentile on our grade-point average; my new friends were fighting over so many basis points on their Bloomberg monitors. When we failed, we failed in front of our families, our ancestors, our future and our past.

Novogratz on Bitcoin:

He doesn’t think that cryptocurrencies will replace the dollar or the yen, but he believes that they will be a boon to countries in the developing world, where people don’t have trust in their fiat currencies, and that blockchain can revolutionize the way information is logged and shared and, in our age of data breaches, protected. “I’m good at selling the dream,” he said. “I can get onstage and get people to start saying ‘Hallelujah! Hallelujah!’ ”

Perhaps the most cogent piece of wisdom comes near the end of the piece:

After six years of exploring finance, I concluded that, despite the expertise and the intelligence on display, nobody really knows anything. 

Worth the read if you enjoy Shteyngart’s writing and/or are curious about the evolution of bitcoin and what some hedge fund managers are trying to do in the space.

The Hedge Fund Manager Who Loves Losing Money

“You’ve got to love to lose money, hate to make money.”

That’s a direct quote from Mark Spitznagel, an unusual hedge fund manager who is betting on a huge decline in the markets when the Fed stops its quantitative easing program. Needless to say, investors aren’t exactly lining up to invest with him. The Dealbook blog profiles his fund:

Still, Mr. Spitznagel’s approach is unusual for a money manager. To invest with him, you have to believe in a philosophy that is grounded in the Austrian school of economics (which originated in the late 19th century in Vienna). The Austrian school does not like government to meddle with any part of the economy: when it does, adherents argue, market distortions abound, creating opportunities for investors who can see them.

When those distortions are present, Austrian-school investors will position themselves to wait out any artificial effect on the market, ready to take advantage when prices readjust.

Mr. Spitznagel began his career buying and selling bonds in the trading pit at the Chicago Board of Trade in the 1980s. Everett Klipp, his boss and mentor at the time, encouraged him to take a “one-tick” loss to step out of a trade, rather than risking a 10-tick loss in hopes of a bigger profit.

How Wall Street Bankers Handled Sandy

This Bloomberg piece details how those on Wall Street handled Hurricane (Superstorm) Sandy. It’s slightly (perhaps very) disconcerting, as these people turned to $1,000 wine, delivered sushi, and Monopoly games:

“I had to go to the wine cellar and find a good bottle of wine and drink it before it goes bad,” Murry Stegelmann, 50, a founder of investment-management firm Kilimanjaro Advisors LLC, wrote in an e-mail after he lost power at 6 p.m. on Oct. 29 in Darien, Connecticut.

The bottle he chose, a 2005 Chateau Margaux, was given 98 points by wine critic Robert Parker and is on sale at the Westchester Wine Warehouse for $999.99.

“Outstanding,” Stegelmann said. He started the day with green tea at Starbucks, talking with neighbors about the New York Yankees’ future and moving boats to the parking lot of Darien’s Middlesex Middle School.

You have to click to read the rest. Using fax machines? No dumpling bar at JP Morgan? Wall Street had it rough.

Ray Dalio’s Richest and Strangest Hedge Fund

In this month’s New Yorker, John Cassidy profiles Ray Dalio, the founder of Bridgewater Associates, said by some to be the strangest hedge fund in the world.

I found the piece interesting, though I did think Cassidy could have done a better job explaining the nuances of Dalio’s behavior, such as evidenced in this paragraph:

Dalio asked for another opinion. From the back of the room, a young man dressed in a black sweatshirt started saying that a Chinese slowdown could have a big effect on global supply and demand. Dalio cut him off: “Are you going to answer me knowledgeably or are you going to give me a guess?” The young man, whom I will call Jack, said he would hazard an educated guess. “Don’t do that,” Dalio said. He went on, “You have a tendency to do this. . . . We’ve talked about this before.” After an awkward silence, Jack tried to defend himself, saying that he thought he had been asked to give his views. Dalio didn’t let up. Eventually, the young employee said that he would go away and do some careful calculations.

Do you believe the world is mechanical? Do parts come together to work as a seamless whole? Ray Dalio thinks so:

Many hedge-fund managers stay pinned to their computer screens day and night monitoring movements in the markets. Dalio is different. He spends most of his time trying to figure out how economic and financial events fit together in a coherent framework. “Almost everything is like a machine,” he told me one day when he was rambling on, as he often does. “Nature is a machine. The family is a machine. The life cycle is like a machine.” His constant goal, he said, was to understand how the economic machine works. “And then everything else I basically view as just a case at hand. So how does the machine work that you have a financial crisis? How does deleveraging work—what is the nature of that machine? And what is human nature, and how do you raise a community of people to run a business?”

So who invests in Bridgewater Associates, exactly? Not wealthy invididuals:

Part of Dalio’s innovation has been to build a hedge fund that caters principally to institutional investors rather than to rich individuals. Of the roughly one hundred billion dollars invested in Bridgewater, only a small proportion comes from wealthy families. Almost a third comes from public pension funds, such as the Pennsylvania Public School Employees’ Retirement System; another third comes from corporate pension funds, such as those at Kodak and General Motors; a quarter comes from government-run sovereign wealth funds, such as the Government Investment Corporation of Singapore.

A surprise about Bridgewater’s investing tendencies (no U.S. markets?):

Is Bridgewater really any different? Although the firm trades in more than a hundred markets, it is widely believed that the great bulk of its profit comes from two areas in which Dalio is an expert: the bond and currency markets of major industrial countries. Unlike some other hedge funds, Bridgewater has never made much money in the U.S. stock market, an area where Dalio has less experience.

While the piece makes it sound like working at Bridgewater is quite the challenge, I appreciated this nugget:

Dalio insists that money has never been his main motivation. He lives well, but avoids the conspicuous consumption that some of his rivals indulge in. He and his wife, Barbara, to whom he has been married for thirty-four years, own two houses, one in Greenwich, Connecticut, and one in Greenwich Village, which he sometimes uses on weekends. (They are currently building a new house on the water in Connecticut.) Apart from hunting and exploring remote areas, Dalio’s main hobby is music: jazz, blues, and rock and roll. Recently, he joined a philanthropic campaign started by Bill Gates and Warren Buffett, pledging to give away at least half of his money.

Ray Dalio is a man I’d like to meet. We could talk about books and music and photography. And oh yes, the financial markets (I do have a degree in quantitative finance, after all, and work in the financial sector).