Finance Trends Letter

Bloomberg TV just aired a special on Scion Capital founder, Michael Burry that is worthwhile viewing for any trader or investor.  If you missed the program, tune in now for a quick primer on Burry's entry into the investing world and the structuring of his now-famous subprime short CDS trade. This is a great story of how one blogger-turned-investor got his start operating a hedge fund and eventually shifted his focus from common stock value investing to diligently uncovering opportunities in the subprime mortgage and credit markets. If you'd like to get a much more in-depth view of Burry's struggle to stick with his hugely rewarding trade during the height of the real estate bubble, check out Michael Lewis' book, The Big Short .  You'll also want to check out the video of Burry's recent lecture on his "big short" trade and America's financial future at Vanderbilt University.  There you'll find added links to our post on Michael Burr...

Michael Burry , the Scion Capital founder and subprime speculator profiled in Michael Lewis', The Big Short , talks to Vanderbilt students about his now-famous subprime CDS short trade and the perils of America's financial future in this video lecture . Last week on Twitter, I retweeted DDI's notes on Michael Burry's talk , which gave rise to hopes that video of this talk might soon be available. Indeed, that video is now here and it has been making the rounds over the last few days. Be sure to check DDI's post for comments from the Q&A (Burry's thoughts on farmland and capitalist innovation in Silicon Valley) that might have been edited out (?) of this video. Burry's talk adheres to a script early on, but as he warms up near the second half of this presentation on the causes of the housing collapse and the financial crisis, the vibe is a bit more loose and the information presented is excellent throughout. Watching this clip, I get the feeling that we...

We're wrapping up some of your favorite posts (and mine) for this Finance Trends "Best of 2010" features edition. You'll find key interviews with leading businessmen and investors, along with the best of this year's posts emphasizing the strong trends and events that are shaping our country, our investment markets, and our world. Without further ado, here are some key posts highlighting the big picture trends we've witnessed in 2010, some of which may continue to unfold in 2011 and beyond. 1. On a Return to Classical Education . Your educationally-deprived editor muses over the benefits of a Classical education, and how such a foundation in thinking might help us as investors and as citizens of the world. 2. Marc Faber: Final Crisis Yet to Come . Wonderful presentation by Marc at this year's Mises Circle in NYC, offering a crucial take on US monetary policy and the likely outcomes of the Fed's "quantitative easing" experiments. Video and pres...

The rise of global macro investing and the increased importance of weighing macro themes in everyday investing were the subject of this recent Wall Street Journal piece entitled, "Macro Forces in Market Confound Stock Pickers" (Hat tip: Abnormal Returns ). An excerpt from that piece: " The market turmoil has battered many investors over the past few years. But for stock pickers like Neuberger Berman LLC's David Pedowitz, it has made their entire investing approach feel like an exercise in futility. Mr. Pedowitz buys and sells stocks based on research and analysis of individual companies. His investment strategy, he says, has been upended by a tidal wave of "macro" forces—big-picture market movers like the economy, politics and regulation. More and more investors aren't bothering to pore through corporate reports searching for gems and duds, but are trading big buckets of stocks, bonds and commodities based mainly on macro concerns. As a resu...

Michael Burry is best known for his successful subprime CDS short trade during the great housing bubble of the mid-2000s (recently detailed by Greg Zuckerman in The Greatest Trade Ever , and in Michael Lewis' The Big Short ). What you may not know about Burry (if you haven't perused the ex post facto celebratory literature) is that he began his career as a value investing med student sharing ideas & research with fellow stock pickers on popular message boards like Silicon Investor, as well as on his blog, the now defunct valuestocks.net. He then founded Scion Capital, a hedge fund devoted to his own unique brand of value investing and short speculating. As a witness to the relentless rise in real estate prices and the simultaneous plunge in borrowing standards for home mortgages, Burry decided to become a self-taught expert in subprime mortgage lending and the market for asset-backed securities based on these loans. His fund soon shifted its focus to shorting subprime bo...

Michael Burry, the California investor who profited by foreseeing the subprime mortgage collapse, is investing in farmland, small tech companies and Asian stocks, and gold . Bloomberg has the details: " “...I believe that agriculture land -- productive agricultural land with water on site -- will be very valuable in the future,” Burry, 39, said in a Bloomberg Television interview scheduled for broadcast this morning in New York. “I’ve put a good amount of money into that.” Burry, as head of Scion Capital LLC, prodded Wall Street banks in early 2005 to create credit-default swaps to bet against bonds backed by the riskiest home loans. The strategy paid off as borrowers defaulted, letting his investors more than quintuple their money from 2000 to 2008, according to Michael Lewis ’s book “The Big Short” (Norton/Allen Lane). Burry, who now manages his own money after shuttering the fund in 2008, said finding original investments is difficult because many trades...

"Dr. Phil" Pearlman examines some of the important psychological trading themes at work in Greg Zuckerman's book, The Greatest Trade Ever , in this latest episode of Market Shrinkology on Stocktwits TV. This particular episode happened to come at an interesting time, given the recent uproar over Goldman Sach's alleged impropriety in structuring and selling certain CDO deals to institutional clients, which Paulson & Co. (John Paulson is the central figure of Zuckerman's book) helped structure as a subprime vehicle they could sell short . I think Phil does a great job of addressing not only some of the ethical questions that have cropped up around Paulson's trade in recent days, but the psychological factors (namely, "disposition effect") that were at work for investors like Paulson, Michael Burry, Andrew Lahde, and others who made their foray into this subprime short trade. What does it take to enter and hold on to a big longer-term win...

The SEC's civil suit against Goldman Sachs , accusing the firm of fraud in structuring certain mortgage backed CDOs (ABACUS 2007-AC1), has been the financial story of the day. According to the SEC complaint, Goldman let a large hedge fund (Paulson & Co.) influence its structuring of synthetic CDOs, which were subsequently sold on to bullish clients (buyers such as pension funds and other large investors) under the premise of their being assembled by an independent party. Wall Street Journal has the details: " According to the SEC, Goldman structured and marketed a synthetic collateralized-debt obligation, or CDO, that hinged on the performance of subprime residential-mortgage-backed securities. The CDO was created in early 2007 when the U.S. housing market and related securities were beginning to show signs of distress, the SEC complaint said. "Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc., with econo...

Michael Burry explains credit default swaps and his subprime short to Scion Capital investors in this November 2006 document shared by Marketfolly: " A big hat tip to Greenbackd for originally bringing this to our attention. Below you will find a very interesting primer on credit default swaps and the subprime mortgage short from Scion Capital's hedge fund manager Michael Burry. Burry of course was recently featured in Michael Lewis' latest book, The Big Short (which we highly recommend reading) for his notable early short position in subprime mortgages. Michael Burry penned his primer back on November 7th, 2006 and it's almost comical now to think about how he was running a value fund focused on equities and then all of a sudden has to explain his short subprime trade and complex derivatives to his certainly surprised and confused investors... " Head on over there to read the full embedded document . Should make for very interesting reading, as by now I'...

There's a great interview in the latest Financial Sense Newshour with Richard Eckert , the former CFO/risk manager at Lahde Capital Management. The interview topic: "The Greatest Trade Ever: An insider's behind the scene view of how a hedge fund made millions out of the credit collapse." For those who don't recall, Lahde Capital is the small Santa Monica hedge fund set up by Andrew Lahde, which profited mightily from short bets on the subprime housing market. After raking in his dough, Lahde famously kissed the hedge fund world goodbye in a widely circulated, and widely discussed, farewell letter to clients. Lahde is also one of the main investors profiled in Gregory Zuckerman's book, The Greatest Trade Ever , a treasure trove of information on the subprime crash and the hedge fund managers who profited in the downturn. As I come to the end of Zuckerman's book, one thing that I'm totally struck by are the obstacles that investors like Andrew Lahde, M...

Michael Lewis, well-known storyteller and author of The Big Short , joins Charlie Rose for a discussion of the financial crisis and the real-life characters in his new book, who saw the collapse coming and profited by shorting the subprime housing market. There are many remarkable aspects to this story, but perhaps one of the most interesting themes to emerge from this discussion is Lewis' realization that the events chronicled so memorably in Liar's Poker were not, as he thought at the time, the end of an era, but rather the beginning of one that only seems to be ending now in 2010. Enjoy the interview, and click over to our related posts for more insight on hedge fund managers Michael Burry , Andrew Lahde , and John Paulson , who profited from the subprime short trade and were profiled in Lewis' and Greg Zuckerman's latest books.

Michael Lewis has a new book coming out called, The Big Short . It's supposed to be an account of the financial crisis and how the "US economy was driven off a cliff", thanks to the drive for cheap housing and the toxic investments Wall Street packaged around this goal. Vanity Fair has published an excerpt from Lewis' book called, "Betting on the Blind Side" , which highlights the subprime-housing short trade of California hedge fund manager, Dr. Michael Burry. " I n early 2004 a 32-year-old stock-market investor and hedge-fund manager, Michael Burry, immersed himself for the first time in the bond market. He learned all he could about how money got borrowed and lent in America. He didn’t talk to anyone about what became his new obsession; he just sat alone in his office, in San Jose, California, and read books and articles and financial filings. He wanted to know, especially, how subprime-mortgage bonds worked. A giant number of individual loans got pi...