Tuesday, December 14, 2010

A Few More Notes on Diary of a Very Bad Year

Just following up on my Review of Diary of a Very Bad Year: Confessions of an Anonymous Hedge Fund Manager. Taylor Conant posted his review at EconomicPolicyJournal.com.

One other interesting thing was that the hedge fund manager in the book (HFM) raises the end game of the bailouts, which so far have had sovereign states agreeing to take responsibility for private debts. (E.g. the guarantees of commercial paper in the U.S., or Ireland's guarantees of banks' debts.)

HFM suggests that someday there will be a concern about financial institutions' solvency - another credit crisis -  but "with no party that's creditworthy enough to be able to step in and soothe people's fears". In other words, a federal government bailout won't be meaningful because no one will perceive the federal government as having the wherewithal to make-whole the creditors of an institution with $0.5 trillion in liabilities.

He also articulates the illiquidity discount well at one point, saying "you need to find people, educate them, and convince them [that something] is actually a good deal."

I'll have a couple good micro-cap investment ideas coming out soon, probably next week.

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