Tuesday, October 28, 2008

Boone Pickens Almost Entirely in Cash; Fidelity Job Cuts; Legg Mason Stock Craters

Hmm, they did not mention this during the 60 Minutes interview [60 Minutes: T Boone Pickens] but like almost all of us who have never seen a market like this where nothing works and every strategy ever devised is useless - Pickens has gone to nearly all cash in his hedge fund. So we have Citadel at 30% cash, SAC Capital at 50% cash, Pickens at nearly 100% cash... I keep wondering when the value mutual funds make a stand and start buying things at 3-5 PE but apparently they are either not willing or getting redemptions as well. The problem is many value mutual funds are being destroyed as well - legendary Marty Whitman of Third Avenue Value (TAVFX) is down 51% for the year - no different than Ken Heebner despite running just about completely different strategies; one runs a deep value methodology and one runs a growth concentrated methodology. Both yield same results. So this is probably why the value mutual funds have stopped buying - we think they are somehow outperforming but they're being systematically impaled just the same. Whitman (who is 84 years old) says this is the worst market he has seen; even worse than 1974.

Summary: No methodology is working.
  • Roughly half the investors in T. Boone Pickens' BP Capital hedge fund have asked to withdraw their money after losses of about 60 percent this year, a source familiar with the situation said on Tuesday.
  • The source confirmed that Pickens had moved the fund almost entirely into cash a few weeks ago to allow investors flexibility in riding out the volatility of recent global market turmoil.
Legg Mason (LM) stock is cratering
  • Legg Mason Inc., the U.S. money manager with the worst-performing stock this year, fell to an 11-year low on concern that the bear market and investor outflows have hurt profits more than analysts expect.
  • ``Earnings will be pretty bad because of poor fund performance, outflows and problems in their money funds.''
  • Legg Mason declined $2.48, or 18 percent, to $11.42 at 11:11 a.m. in New York Stock Exchange composite trading. Earlier, the stock fell to $11.09, the lowest since April 1997. The company has plunged 84 percent this year, more than any publicly traded U.S. asset manager.
  • Legg Mason has also been dragged down by outflows from its stock and bond funds, as managers including Bill Miller have trailed benchmarks.
Fidelity is rumored to be about to axe 10% of workforce
  • Fidelity Investments said on Tuesday it was reviewing its costs and staffing as speculation swirled that the world's biggest mutual fund company may make steep job cuts in response to the worsening financial crisis.
  • Mutual fund newsletter Ignites said on Monday that Fidelity was preparing to cut as many as 4,000 jobs, or about 9 percent of its workforce, in two rounds starting this quarter.
They're not the only one
  • Janus Capital Group (JNS) last week said it was slashing about 115 jobs, or 9 percent of its workforce, and AllianceBernstein Holding (AB) said it would make an unspecified number of cuts, the biggest in its 40-year history.

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