MARKETS SET TO PLUNGE
ON APR. 2
Hedge Funds, Institutional Traders
Behind Huge "Joke" Buying Spree
Mr. Livermore Goes Long
By HARRIS SCHWED
NEW YORK -- Today's huge, across-the-board stock market rally that sent every major U.S. index up more than three percent and resulted in big European gains was the result of a "massive" April Fool's Day joke, traders have admitted.
The joke, which began only half-amusingly early this morning at a Connecticut-based hedge fund, quickly caught momentum in the close-knit hedge-fund community. Not long after, institutional traders began to get in on the joke, whilst European traders delivered the coup de grace in a spree of buying. The end result proved "extremely funny" to all those who took part, as nearly all admitted they would "switch gears on Wednesday."
Among those taken in by the joke were retail investors in Muncie, Ind.; small speculators in Oneida, N.Y.; commodities traders in Chicago; and the entire adult populations of Hong Kong and Shanghai.
"Whooo!" shouted Piers Brosnihan, a junior hedge-fund trader at Stamford-based Dewey, Shortem & Howe LLC. "Oh, man! I can't believe they all fell for it! Boy, are all those (small investors) in for a surprise tomorrow when they check their portfolios about 3 p.m."
It was at Dewey Shortem where the April Fool's Day joke was launched. Dewey Shortem managing director Fred Argyle, the superior of Brosnihan's superior, had spent the wee hours scheming to find a way to get back at rival hedge-fund director Lloyd Frontiero, of Cos Cob-based Rainy Day Now LLC. Frontiero, Argyle believed, had purposely avoided him at the previous night's Help America's Struggling Children charity fundraiser. Not only that, but Frontiero had outbid Argyle in an auction for a weekend skiing in Whistler, British Columbia.
"After getting a tip from Lloyd's secretary's college roommate, I was pretty sure Lloyd was short on a whole bunch of financial stocks," said Argyle, who was embittered over Frontiero bragging about a considerable winning put he had made against the Bear Stearns Cos. "So I figured I'd get the bastard right between the eyes with a concerted and devious long press on financials. Then, I started thinking about it. The market's been so choppy that a big one-day rally, only to disappear the next day, would be a great joke. So I talked it over with the guys and we threw the whole goddamn portfolio long."
"It really was a brilliant idea," agreed Frank Johansson, managing director of Dolphin Cove-based Leverage This LLC. "Once I heard about it from Fred, I was like, 'Hell, yeah, let's go for it.'" The next thing I know, we're up like $80 million and we'd successfully closed out all our short equity positions before anyone in New York managed to notice. By 2 p.m. I was on the phone ordering six cases of 1985 (Louis Roederer) Cristal (Champagne)."
"I'm going to party like it's 1999," Johansson added.
Among the big winners yesterday was stock speculator Jesse Livermore, known for his sharp prowess in figuring out market trends before they happen. Livermore said he expected such a scheme to take place, and cleverly unloaded his short positions over the past week. By Mar. 31, expecting a spate of mutual funds to engage in window dressing, Livermore had made considerable long bets on blue-chip and financial stocks. On Apr. 1, when stocks unexpectedly rose, the scheme netted him millions on paper. However, Livermore -- like many others interviewed for this story -- said they immediately planned to switch gears.
"I'm going to ride it all the way to the bottom," Livermore said gleefully.
Despite the admission from big Wall Street players that the market's huge jump was a one-day thing, many investors refused to believe the increase was actually a huge joke.
"A joke? Oh, that's complete crap," said Morton Henries, an investor from Pierre, S.D., as he touted his success with one particular equity. "I told everyone this stock would go up, and it did. See? Look there, on the chart. There's a cup-and-handle pattern! At least, I think it's a cup-and-handle pattern. Anyway, the point is, it's going up, and it wasn't the result of any stupid hedge fund."
"A joke? Oh, that's complete crap," said Ma Jin-tao, an investor from Shenzhen, Guangdong, as he touted his success with one particular equity. "I told everyone this stock would go up, and it did. See? Look there -- on the registry index -- there are three eights in the registration number! Only clever and connected people could have managed that. Anyway, the point is, it's going up, and it wasn't the result of any stupid hedge fund."
"Dew neh loh moh on all filthy gweilo hedge funds and the stinking foreign devils who run them!" Ma added.
The particular equities Henries and Ma were discussing will fall 8.9 pc and 13.8 pc, respectively, on Apr. 2, sources in the hedge-fund world said.
As for the market itself, analysts said Wednesday's anticipated losses would likely run between 4 pc and 6 pc, and worse on the broader indicies, with the "true whirlwind" to hit about 3 p.m. Eastern time. The drop will likely begin in pre-market trading as hedge funds and institutional trading floors cash out their long positions and switch back to shorting the markets, with said shorting positions increasing as the day goes on. Most traders interviewed said they plan to end the day aggressively shorting stocks, and then spend between 4 p.m. and 6 p.m. trying to get a table at Masa.Posted by Benjamin Kepple at April 1, 2008 08:51 PM | TrackBack