The Wall Street Journal - September 05, 2006 (Copyright (c) 2006, Dow Jones & Company, Inc.)
Moody's Investors Service today will publish its first public rating on an individual hedge fund's risk, in a closely watched move that could shed light on a fast-growing industry that traditionally has avoided outside scrutiny. The lightly regulated hedge-fund industry manages more than $1 trillion in assets. As it grows, demands are increasing among some money managers and individuals for closer scrutiny of the risks attached to their investments.
A fund run by Sorin Capital Management LLC, a New York firm that manages $335 million in investor money, has been assigned a rating that places it near the highest category of Moody's newly developed ranking system. Sorin was founded in 2004 by Jim Higgins, a former Bear Stearns executive, and invests in debt products such as commercial mortgage-backed securities and asset-backed securities.
The rating marks a departure of sorts for the ratings service. Moody's, a subsidiary of Moody's Corp., and its chief competitor, Standard & Poor's, a unit of McGraw-Hill Cos., generally rate the quality of a company's debt based on the perceived likelihood of a default. Other services, such as Morningstar Inc., rate the track records of mutual funds based on returns.
In this case, Moody's is rating neither the hedge fund's debt nor its return. It is rating the "operational risk" of Sorin Capital, essentially, how well Sorin runs the nuts and bolts of its business, from its back-office systems to the controls it has in place to avoid experiencing sudden losses. Moody's also conducts background checks on managers.
These issues are of concern to investors in the wake of alleged frauds at firms such as Bayou Management LLC and Wood River Capital Management LLC.
Sorin's fund is one of a handful of hedge funds to have their inner workings scrutinized by big ratings services. Citadel Investment Group LLC of Chicago obtained public ratings on the debt and operational risk of two hedge funds in 2000 from Standard & Poor's and Fitch Ratings, a subsidiary of Fimalac SA of Paris. Citadel still maintains the ratings.
A handful of other hedge funds have sought credit ratings over the years, but have kept the ratings private. And Morningstar has acquired a hedge-fund database to increase its directory of funds to around 6,000.
The slow adoption of hedge-fund ratings highlights the delicate balance these investment vehicles strike as they maneuver between the private and public realms. Hedge funds cater to wealthy individuals and large institutions and don't face the same regulatory scrutiny or disclosure requirements of institutions that cater to small investors.
While many hedge funds want to show their investors and lenders that they run quality businesses, they also don't want to reveal too much information about their strategies and internal operations to competitors or regulators. A recent federal-court ruling that hedge funds need not register with the Securities and Exchange Commission could give some funds reason to remain on the sidelines when it comes to public disclosure.
That could change as hedge funds attract more money from institutional investors, such as pension funds, endowments, and insurance companies. These conservative investment vehicles usually require checks to be performed on a fund before they invest their money.
The ratings companies believe they can profit from the growing desire for scrutiny.
They are staying away from analyzing hedge funds' investment strategies or the riskiness of their portfolios, in part because they see that as difficult to monitor and because many funds would be unwilling to share that information.
"There's definitely a strong desire from investors to understand and assess our operational quality," said Mr. Higgins, chief executive of Sorin Capital, who says he decided to obtain a rating after being approached by Moody's in April.
Mr. Higgins said some sensitive information came up during the ratings company's review, which took place over a few months and involved multiple meetings and conference calls. But he said he believed Moody's would be discrete about handling this information.
Moody's assigned a rating of OQ1-minus to Sorin's fund, one notch below its highest "operational quality" rating that has a scale of 1 to 5.
Moody's new ratings can be viewed on its Web site by "accredited" investors, generally defined as those with a net worth of at least $1 million or at least $200,000 in annual income.
Gary Witt, a Moody's managing director, said the firm is in talks with a few other hedge funds and expects to publish another public rating soon.
To persuade more funds to be rated, Moody's has been offering what it calls "indicative" ratings in which fund managers can get a preview of their rating before deciding whether to proceed.
Mr. Witt notes that this approach would allow funds with less-favorable reviews to avoid public scrutiny. That means there might not be many funds with low public ratings in the near future, "unless this becomes something of a market standard," he said.
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Fund Watching Moody's ratings address areas including the following: -- Back office and administration -- Regulatory compliance -- Risk reporting and control -- Legal and financial structure -- Human resources Scale OQ1=Excellent OQ5=Poor Source: Moody's
Success is a State of Mind - - Tommy Bahama Profits always take care of themselves but losses never do. The speculator has to insure himself against considerable losses by taking their first small loss. - - Jesse Livermore The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, nor for the get-rich-quick adventurer. They will die poor. - - Jesse Livermore
Success is a State of Mind - - Tommy Bahama Profits always take care of themselves but losses never do. The speculator has to insure himself against considerable losses by taking their first small loss. - - Jesse Livermore The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, nor for the get-rich-quick adventurer. They will die poor. - - Jesse Livermore
Success is a State of Mind - - Tommy Bahama Profits always take care of themselves but losses never do. The speculator has to insure himself against considerable losses by taking their first small loss. - - Jesse Livermore The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, nor for the get-rich-quick adventurer. They will die poor. - - Jesse Livermore
Success is a State of Mind - - Tommy Bahama Profits always take care of themselves but losses never do. The speculator has to insure himself against considerable losses by taking their first small loss. - - Jesse Livermore The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, nor for the get-rich-quick adventurer. They will die poor. - - Jesse Livermore
September 6, 2006 Free at Last by Victor Davis Hanson Commentary Magazine
A review of The Foreigner’s Gift: The Americans, the Arabs, and the Iraqis in Iraq by Fouad Ajami (Free Press, 400 pp)
The last year or so has seen several insider histories of the American experience in Iraq. Written by generals (Bernard Trainor’s Cobra II, with Michael Wood), reporters (George Packer’s The Assassins’ Gate), or bureaucrats (Paul Bremer’s My Year in Iraq), each undertakes to explain how our enterprise in that country has, allegedly, gone astray; who is to blame for the failure; and why the author is right to have withdrawn, or at least to question, his earlier support for the project.
Fouad Ajami’s The Foreigner’s Gift is a notably welcome exception — and not only because of Ajami’s guarded optimism about the eventual outcome in Iraq. A Lebanese-born scholar of the Middle East, Ajami, now at the Johns Hopkins School of Advanced International Studies, lacks entirely the condescension of the typical in-the-know Western expert who blithely assures his American readers, often on the authority of little or no learning, of the irreducible alienness of Arab culture. Instead, the world that Ajami describes, once stripped of its veneer of religious pretense, is defined by many of the same impulses — honor, greed, self-interest — that guide dueling Mafia families, rival Christian televangelists, and (for that matter) many ordinary people hungry for power.
As an Arabic-speaker and native Middle Easterner, Ajami has enjoyed singular access to both Sunni and Shiite grandees, and makes effective use here of what they tell him. He also draws on a variety of contemporary written texts, mostly unknown by or inaccessible to Western authors, to explicate why many of the most backward forces in the Arab world are not in the least unhappy at the havoc wrought by the Sunni insurgency in Iraq. The result, based on six extended visits to Iraq and a lifetime of travel and experience, is the best and certainly the most idiosyncratic recent treatment of the American presence there.
Ajami’s thesis is straightforward. What brought George W. Bush to Iraq, he writes, was a belief in the ability of America to do something about a longstanding evil, along with a post-9/11 determination to stop appeasing terror-sponsoring regimes. That the United States knew very little about the bloodthirsty undercurrents of Shiite, Sunni, and Kurdish sectarianism, for years cloaked by Saddam’s barbaric rule — the dictator “had given the Arabs a cruel view of history,” one saturated in “iron and fire and bigotry” — did not necessarily doom the effort to failure. The idealism and skill of American soldiers, and the enormous power and capital that stood behind them, counted, and still count, for a great deal. More importantly, the threats and cries for vengeance issued by various Arab spokesmen have often been disingenuous, serving to obfuscate the genuine desire of Arab peoples for consensual government (albeit on their own terms).
In short, Ajami assures us, the war has been a “noble” effort, and will remain so whether in the end it “proves to be a noble success or a noble failure.” Aside from the obvious reasons he adduces for this judgment — we have taken no oil, we have stayed to birth democracy, and we are now fighting terrorist enemies of civilization — there is also the fact that we have stumbled into, and are now critically influencing, the great political struggle of the modern Middle East.
The real problem in that region, Ajami stresses, remains Sunni extremism, which is bent on undermining the very idea of consensual government — the “foreigner’s gift” of his title. Having introduced the concept of one person/one vote in a federated Iraq, America has not only empowered the perennially maltreated Kurds but given the once-despised Iraqi Shiites a historic chance at equality. Hence the “rage against this American war, in Iraq itself and in the wider Arab world.” No wonder, Ajami comments, that a “proud sense of violation [has] stretched from the embittered towns of the Sunni Triangle in western Iraq to the chat rooms of Arabia and to jihadists as far away from Iraq as North Africa and the Muslim enclaves of Western Europe.” Sunni, often Wahhabi, terrorists have murdered many moderate Shiite clerics, taken a terrible toll of Shiites on the street, and, with the clandestine aid of the rich Gulf sheikdoms, hope to prevail through the growing American weariness at the loss in blood and treasure.
The worst part of the story, in Ajami’s estimation, is that the intensity of the Sunni resistance has fooled some Americans into thinking that we cannot work with the Shiites — or that our continuing to do so will result in empowering the Khomeinists in nearby Iran or its Hizballah ganglia in Lebanon. Ajami has little use for this notion. He dismisses the view that, within Iraq, a single volatile figure like Moqtadar al-Sadr is capable of sabotaging the new democracy (“a Shia community groping for a way out would not give itself over to this kind of radicalism”). Much less does he see Iraq’s Shiites as the religious henchmen of Iran, or consider Iraqi holy men like Ayatollah Ali al-Sistani or Sheikh Humam Hamoudi to be intent on establishing a theocracy. In common with the now demonized Ahmad Chalabi, Ajami is convinced that Iraqi Shiites will not slavishly follow their Khomeinist brethren but instead may actually subvert them by creating a loud democracy on their doorstep.
In general, according to Ajami, the pathologies of today’s Middle East originate with the mostly Sunni autocracies that threaten, cajole, and flatter Western governments even as they exploit terrorists to deflect popular discontent away from their own failures onto the United States and Israel. Precisely because we have ushered in a long-overdue correction that threatens not only the old order of Saddam’s clique but surrounding governments from Jordan to Saudi Arabia, we can expect more violence in Iraq. What then to do? Ajami counsels us to ignore the cries of victimhood from yesterday’s victimizers, always to keep in mind the ghosts of Saddam’s genocidal regime, to be sensitive to the loss of native pride entailed in accepting our “foreigner’s gift,” and to let the Iraqis follow their own path as we eventually recede into the shadows.
Along with this advice, he offers a series of first-hand portraits, often brilliantly subtle, of some fascinating players in contemporary Iraq. His meeting in Najaf with Ali al-Sistani discloses a Gandhi-like figure who urges: “Do everything you can to bring our Sunni Arab brothers into the fold.” General David Petraeus, the man charged with rebuilding Iraq’s security forces, lives up to his reputation as part diplomat, part drillmaster, and part sage as he conducts Ajami on one of his dangerous tours of the city of Mosul. On a C-130 transport plane, Ajami is so impressed by the bookish earnestness of a nineteen-year-old American soldier that he hands over his personal copy of Graham Greene’s The Quiet American (“I had always loved a passage in it about American innocence roaming the world like a leper without a bell, meaning no harm”).
There are plenty of tragic stories in this book. Ajami recounts the bleak genesis of the Baath party in Iraq and Syria, the brainchild of Sorbonne-educated intellectuals like Michel Aflaq and Salah al-Din Bitar who thought they might unite the old tribal orders under some radical anti-Western secular doctrine. Other satellite figures include Taleb Shabib, a Shiite Baathist who, like legions of other Arab intellectuals, drifted from Communism, Baathism, and pan-Arabism into oblivion, his hopes for a Western-style solution dashed by dictatorship, theocracy, or both. Ajami bumps into dozens of these sorry men, whose fate has been to end up murdered or exiled by the very people they once sought to champion.
There are much worse types in Ajami’s gallery. He provides a vividly repugnant glimpse of the awful al-Ghamdi tribe of Saudi Arabia. One of their number, Ahmad, crashed into the south tower of the World Trade Center on 9/11; another, Hamza, helped to take down Flight 93. A second Ahmad was the suicide bomber who in December 2004 blew up eighteen Americans in Mosul. And then there is Sheik Yusuf al-Qaradawi, the native Egyptian and resident of Qatar who in August 2004 issued a fatwa ordering Muslims to kill American civilians in Iraq. Why not kill them in Westernized Qatar, where they were far more plentiful? Perhaps because they were profitable to, and protected by, the same government that protected Qaradawi himself. Apparently, like virtue, evil too needs to be buttressed by hypocrisy.
The Foreigner’s Gift is not an organized work of analysis, its arguments leading in logical progression to a solidly reasoned conclusion. Instead, it is a series of highly readable vignettes drawn from Ajami’s serial travels and reflections. Which is hardly to say that it lacks a point, or that its point is uncontroversial — far from it. Critics will surely cite Ajami’s own Shiite background as the catalyst for his professed confidence in the emergence of Iraq’s Shiites as the stewards of Iraqi democracy. But any such suggestion of a hidden agenda, or alternatively of naiveté, would be very wide of the mark.
What most characterizes Ajami is not his religious faith (if he has any in the traditional sense) but his unequalled appreciation of historical irony — the irony entailed, for example, in the fact that by taking out the single figure of Saddam Hussein we unleashed an unforeseen moral reckoning among the Arabs at large; the irony that the very vehemence of Iraq’s insurgency may in the end undo and humiliate it on its own turf, and might already have begun to do so; the irony that Shiite Iran may rue the day when its Shiite cousins in Iraq were freed by the Americans.
When it comes to ironies, Ajami is clearly bemused that an American oilman, himself the son of a President who in 1991 called for the Iraqi Shiites to rise up and overthrow a wounded Saddam Hussein, only to stand by as they were slaughtered, should have been brought to exclaim in September 2003: “Iraq as a dictatorship had great power to destabilize the Middle East. Iraq as a democracy will have great power to inspire the Middle East.” Ajami himself is not yet prepared to say that Iraq will do so — only that, with our help, it just might. He needs to be listened to very closely.
Success is a State of Mind - - Tommy Bahama Profits always take care of themselves but losses never do. The speculator has to insure himself against considerable losses by taking their first small loss. - - Jesse Livermore The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, nor for the get-rich-quick adventurer. They will die poor. - - Jesse Livermore
Success is a State of Mind - - Tommy Bahama Profits always take care of themselves but losses never do. The speculator has to insure himself against considerable losses by taking their first small loss. - - Jesse Livermore The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, nor for the get-rich-quick adventurer. They will die poor. - - Jesse Livermore
I really hate these morons who believe this crap. They should have the mess beaten out of them. If you run across one of these idiots, break their nose for me.
By RealMoney Staff 9/11/2006 1:50 PM EDT Click here for more stories by RealMoney Staff
Today, we remember our friend, Bill Meehan, a RealMoney contributor who perished in the World Trade Center attacks five years ago today.
Aside from his work with TheStreet.com, Bill was the chief market analyst at Cantor Fitzgerald, and his office was on the 105th floor of the World Trade Center's North Tower. He was 49 years old.
Known for his savvy commentary on the financial markets, Meehan gained a worldwide following among investors by explaining the Dow's gyrations in a style that had the color and energy of a vintage Rolling Stone article.
In response to a reader request, we've decided to republish one of Bill's most popular columns, "Instructions for Life," which was originally posted at 10:07 a.m. on Dec. 22, 2000.
Instructions for Life By Bill Meehan Special to TheStreet.com Originally posted at 10:07 AM ET 12/22/00 on RealMoney.com
Well, it looks as if there's a good chance that Mr. Market might provide a little holiday cheer for the bulls heading into getaway day. Especially if the Fed Head plays Santa Claus early, as was so widely rumored yesterday.
I decided to share some words of wisdom that I received Thursday morning for my final piece of the old millennium. They're purported to be from the Dalai Lama, who's obviously far smarter than I am, and he's unquestionably one of the world's great spiritual leaders. Besides, I'm in full agreement with his "Instructions for Life." Not only that, but my ex-wife tells me that there's an abundance of good karma coming my way if I share them with you within 96 hours.
You, too, might benefit by passing them on to all of your friends, relatives and acquaintances. I wouldn't be surprised if doing so, and also following them, won't improve your personal, professional and spiritual life. Here they are:
Take into account that great love and great achievements involve great risk.
When you lose, don't lose the lesson.
Follow the three "R's": Respect for self, respect for others, responsibility for all your actions.
Remember that not getting what you want is sometimes a wonderful stroke of luck.
Learn the rules, so you know how to break them properly.
Don't let a little dispute injure a great friendship.
When you realize you've made a mistake, take immediate steps to correct it.
Spend some time alone every day.
Open your arms to change, but don't let go of your values.
Remember that silence is sometimes the best answer.
Live a good, honorable life. Then when you get older and think back, you'll be able to enjoy it a second time.
A loving atmosphere in your home is the foundation for your life.
In disagreements with loved ones, deal only with the current situation. Don't bring up the past.
Share your knowledge. It's a way to achieve immortality.
Be gentle with the Earth.
Once a year, go someplace you've never been before.
Remember that the best relationship is one in which your love for each other exceeds your need for each other.
Judge your success by what you had to give up in order to get it.
Approach love and cooking with reckless abandon.
And, I'll end with one (or is it two?) of my own rules:
Concern yourself only with the things you can change, and remember that you can always change how you perceive any difficulties.
Success is a State of Mind - - Tommy Bahama Profits always take care of themselves but losses never do. The speculator has to insure himself against considerable losses by taking their first small loss. - - Jesse Livermore The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the man of inferior emotional balance, nor for the get-rich-quick adventurer. They will die poor. - - Jesse Livermore
In response to your Yahoo article, I am long ORCL as well so it is nice to see more institutional support...
Can't say I agree with the overweight in Energy though. IBD's top 10 today talked about how both the International Energy Agency & Energy Department cut GLOBAL oil demand forecasts. BP's Alaskan Pipleline also projects to be back up to 100% by mid-October which would increase domestic supply by say 3%.
If it all comes back to ECON401 and supply & demand, I'm seeing a shift to the right for supply and a shift left for demand. Oil is trending lower for the short term so for me I'm staying away from the Exxons and Valeros.
Of course this could all change is a hurricane hits, but I'm no weatherman.
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