The Hangover II
Amid the glitz and glamour of Las Vegas, there were plenty of sobering prognostications
Last month I — and roughly 2,000 people from the hedge fund industry — attended the SkyBridge Alternatives Conference (SALT) in Las Vegas. The annual hedge fund bash is a high-gloss affair for high rollers, featuring A-list celebrities (guest speakers included Al Gore and Sarah Palin) and ostentatious parties (including a private concert by Maroon 5).
But amid the glitz and glamour of Las Vegas, there were plenty of sobering prognostications. Anyone who attended the conference sessions after a night of too much partying undoubtedly sobered up after hearing various hedge fund heavyweights — including Elliott Management’s Paul Singer and Passport Capital’s John Burbank — declare that the world is once again headed for hell in a handbasket.
Several predicted that the second act of the European debt crisis would be uglier than the first, with a likely Greek default and more trouble for peripheral nations. Burbank forecast another recession for the U.S., as early as this year. The talk at SALT felt a little familiar, much like the nearly identical plot of the sequel to The Hangover, that Hollywood paean to Vegas excess.
On the second day of the conference, news broke that the so-called London Whale, a derivatives trader for J.P. Morgan, had lost the bank $2 billion-plus on big bets gone bad. It was an embarrassing revelation for the bank and its CEO, Jamie Dimon, especially given J.P. Morgan’s sterling reputation for having weathered the financial crisis better than most. That news too felt oddly familiar. (Too bad for the London Whale that he didn’t bet as well as one SALT attendee, who won more than $700,000 at the Bellagio blackjack tables.)
The doomsayers are certainly worth listening to; many were the same people who early on pointed out the problems that led to the last financial crisis. But it was refreshing to hear the more bullish managers who said there are plenty of things to get excited about: mortgage-backed securities, emerging markets, credit and distressed securities. Let’s hope their bets pay off — and that hedge funds have plenty to celebrate next year.