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Before and After....

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Amazing how fast things can turn.....


Before the Fed Meeting.


Tuesday's WSJ:



Hot Managers Start New Funds




The boom in new hedge funds shows little sign of abating. And in recent months, many of the people starting new funds have come from other hedge funds.


One recent high-profile defection is Jeff Aronson, who racked up strong returns for the portion of Angelo, Gordon & Co.'s $11 billion fund dedicated to trading the bonds of companies in financial distress. Mr. Aronson earned a reputation for shrewd dealing in the competitive distressed-debt world, taking stakes in the bonds or loans of ailing companies and reaping rewards when the businesses returned to health. Mr. Aronson plans to start a fund focusing on distressed-company debt.


His departure underscores a challenge that hedge funds?loosely regulated investment vehicles that mainly cater to deep-pocketed institutions and wealthy individuals?have in holding on to ambitious money-managers and traders who aren't top partners: Once a fund achieves a certain level of success, how does it retain talent after it has matured beyond the entrepreneurial roots that attracted its star traders in the first place?


Examples of restlessness among hedge-fund traders abound. In recent months, John Lykouretzos left Viking Global Investors to start Hoplite Capital Management, Lee Hobson left Maverick Capital to start Highside Capital and SAC Capital lost a few folks who went to start their own funds.


Of course, departures aren't new to the hedge-fund world. Top hedge-fund traders often bolt to open up their own shops.


While defections from investment banks and mutual funds to set up hedge funds have gained a lot of attention, many new funds are being formed by restless underlings already in the industry. Of the 1,400 hedge funds launched last year, many were founded by eager No. 2s and No. 3s at existing hedge funds.


Given the ease of starting a new fund, there seems no easy answer to retaining star performers. Both sides "feel hemmed in by compensation issues," says David Moody, a lawyer with Pur rington Moody LLP who has a large hedge-fund practice.


Basically, the restless underlings want a bigger share of the profits. Typically, funds charge a management fee of about 2% and take 20% of the gains. For strong performers, the annual take can be significant. Unable to resolve the compensation issues, some hedge funds, like SAC Capital, seek to profit from talented departees by investing in them or setting up funds for them with shared back offices. But money, ego and control combine to discourage founding partners from making a trader, even a star trader, their equal.


Other hedge funds make it difficult for traders to leave by imposing onerous legal conditions. In many cases, departing managers agree not to give potential investors their track record, since that is considered confidential company information. Often, they also are prevented from soliciting investors in the original hedge fund. These measures aren't always effective.


By the standards of the youthful hedge-fund world, Angelo, Gordon is well into middle age. Mr. Aronson, now 46 years old, joined just a few months after its 1988 founding. But it was during a recent run of company failures?such as of WorldCom (now MCI) and cable-TV concern Adelphia?that Mr. Aronson's skill at trading the debt of ailing companies became evident. In the past 18 months alone, he was responsible for producing $3 billion in returns for investors, according to a presentation made by Mr. Aronson at a conference in January.


"He had more cable than anyone," says Bennett Goodman, who until recently was in charge of alternative investments for the Credit Suisse First Boston unit of Credit Suisse AG. "And he cashed out at the absolute peak. He knew it would all come back."


One of Mr. Aronson's best bets in the recent past came with Exide Technologies, a battery maker. Mr. Aronson accumulated a large position in Exide's debt?at one point after the company filed for bankruptcy, he was the single largest holder of its bank debt. He made huge gains when the bankruptcy court came up with a higher-than-anticipated valuation for a reorganized Exide



And now, after the Fed Meeting.


From today's WSJ:


Bonds May Be at a Turning Point




The one-two punch of the Federal Reserve's stated concern about inflation followed by the higher-than-expected reading on a closely watched consumer-price gauge left global financial markets gasping for air.


"It's bad news," said Larry Kantor, global head of economics and market strategy at Barclays Capital in New York. "This is a major turning point for financial markets."


In addition to raising short-term interest rates another quarter-percentage point to 2.75%, the Federal Reserve Tuesday flagged concerns about inflation for the first time in years. In the statement that accompanied its decision on rates, the policy-setting Federal Open Market Committee said that "pressures on inflation have picked up in recent months and pricing power is more evident."


The comment sent bond yields higher across the world as the investors realized the ideal conditions of low interest rates amid benign inflationary pressures were morphing into an environment that was much less friendly.


"Eventually this sweet spot had to end," Mr. Kantor said.


Data released yesterday morning showing a faster-than-expected pace of inflation brought this point home, sending Treasury yields to multimonth and in some cases, multiyear highs.


The shortest of the actively traded Treasury coupons hit an intraday high of 3.92%, its most lofty level since August 2001 and up more than 0.8 percentage point since the beginning of the year. The benchmark 10-year note, meanwhile, reached 4.69%, a nine-month high.


Treasurys managed to claw back a good portion of yesterday's losses, as selling eased and bargain-hunting emerged, said market participants. The 10-year note closed up 7/32, or $2.19 for every $1,000 invested, to 95 9/32, pushing down the yield to 4.600%; and the 30-year bond was up 21/32 to 107 18/32 with a yield of 4.858%. The longer-term trend for Treasurys, though, is for lower prices and therefore higher yields, they said.


However, emerging markets couldn't catch a break. The spread on the benchmark JP Morgan Emerging Markets Bond Index Plus widened by 0.10 percentage point after the FOMC flagged inflation in its statement on Tuesday. Yesterday morning it widened another 0.12 percentage points from late Tuesday as selling from hedge funds and dealers emerged after the CPI report.


"The news we've gotten over the last 24 hours raises the probability that the Fed raises rates in [half-percentage-point] increments," rather than the slower quarter-point pace that has prevailed since it first started tightening policy in June 2004, Mr. Bryson said.


This not only has negative implications for U.S. bonds, but also for those in riskier emerging-market debt that has benefited enormously from historically low U.S. rates.


Investors frustrated by the low returns in safe-haven securities such as Treasurys have increasingly turned to riskier assets to secure higher yields for their portfolios.


And much like its reach into global bond markets, "the Fed left no stone unturned" when it came to international equity gauges, noted David Rosenberg, economist at Merrill Lynch in New York, in a note to clients. "In Asia, all but two major markets fell in overnight trading," he said, noting that Malaysia and Taiwan managed to stay afloat yesterday.



So maybe it will be tough sledding at The Hamptons this summer.


Who knows???


Maybe there will be some "words" uttered over the weekend:


March 25 (Bloomberg) -- Japan's Ministry of Finance expressed concern over the sharp drop in U.S. Treasuries last week. A spokesman was quoted as saying that several MOF officials were considering "concerted intervention", citing the need for "price stability". Many Japanese banks, the largest holders of U.S. Treasuries, close their fiscal year on March 31.


March 26 (Bloomberg) -- Ottmar Issing, ECB chief economist, dismissed Mr. Schroeder?s challenge to abandon the EU Growth and Stability Pact. On Sunday, Mr. Issing again warned that the ECB was ?concerned about following Mr. Greenspan's bubble policies? and that expanding deficit spending was ?taking the EU in the wrong direction,? he added. He also noted that Euro strength was paramount to the region's ability to secure discounted prices for key commodities, such as crude oil, which is trading at record highs in U.S. dollar terms, but remains historically inexpensive in Euro terms.


March 26 (Bloomberg) -- The U.S. next week is forecast to say the economy added less than 200,000 non-farm jobs for a second straight month in March, according to a Bloomberg survey of economists. In contrast, German joblessness probably rose 75,000 in March, a Bloomberg survey of economist showed. The statistics are released on March 31. "Recent data indicate the economic outlook is less bullish'' in the U.S., said Kevin Jamdis, manager of the FirstOneOut HedgeFund, with $3.2 billion under management. "The Fed may have to cut rates at the next meeting in May", he said. "The amount of short positions in U.S. Treasuries is near a record". Jamdis recommends semiconductor and Internet stocks in order to participate in the "inevitable meltup".


Anything can happen......

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I just LUVVVVVV 'late slides.'


Especially at the end of the week.

Before a long weekend.


That's when the 'Big Hands' show their bottom cards. And they want out.


Intraday tests of Dow 10,500 and Naz 2,000 failed again. Just like yesterday.


The BKX bankster index closed at a fresh 5-month low.


The XBD borker-dealer index also closed down, very close to breaking triple-bottomed chart support.


New lows (NYSE + Naz) totaled 133 at 10 minutes before the close. Internals are still sick.


My story is that having retraced more than halfway from Dow 11K to 10K, the market will proceed on down to test Dow 10K. And I don't expect Dow 10K to hold. Really, the 2002 lows need to be tested again, in what may become a giant six-year a-b-c pattern.



:ph34r: Psycho bearish! :ph34r:

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Close: The indices opened higher, amid upbeat corporate news and waning inflation fears, and traded in positive territory most of the day until pre-holiday uncertainty prompted some late-day profit taking... As volumes tailed off during the last half hour of trading, both the Dow and the S&P edged below the flat line, as the latter failed to celebrate its five-year, all-time high (1527.46) anniversary with an uptick... Increased earnings guidance from GE and NOC provided an early floor of support for equities that hinted at better than expected profits in a rising interest rate environment...


General Electric (GE 35.76 +0.26) raised Q1 EPS guidance to $0.37-0.38 while Northrop Grumman (NOC 53.66 +0.88) raised FY05 guidance and boosted its quarterly dividend 13%... But GE had the largest impact on overall market sentiment as a 0.7% rise in its share price subsequently helped it reclaim the lead from ExxonMobil (XOM 59.00 -1.09) as the world's largest company by market cap... Meanwhile, there were a couple of economic reports that also played a role underpinning a positive tone that helped virtually every sector finish to the upside...

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"Several well known U.S. technical strategists have either turned bearish on U.S. equity markets during the past few days or likely will turn bearish in the short term:


John Murphy turned bearish on March 9th. See the March 10th edition of Tech Talk for background.

Dennis Gartman stated yesterday, ?We wish to sell equities short here in the U.S. and in Australia and/or New Zealand?.

Richard Russell?s PTI market indicator is close to giving a sell signal. Any weakness below current levels by the Dow Industrials will trigger the signal.

Ned Davis Research ?Big Mo? indicator remains positive, but is close to signaling a sell signal."



Last year same time..

After the Distribution Phase, What Happens?


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LEXR beats its sales guidance from last week by $8m (4%) - no big deal but you'd think they would have known then. expecting rev of 200M next qtr, hard to say what ests are because I don't think they were updated after the warning. details probably less important than the fact that business at least stabilized, so very short term the legal decisions will drive the stock. i held the shares i picked up ah yd, hope they don't turn into a rotten Easter egg.

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"Several well known U.S. technical strategists have either turned bearish on U.S. equity markets during the past few days or likely will turn bearish in the short term:


John Murphy turned bearish on March 9th. See the March 10th edition of Tech Talk for background.

Dennis Gartman stated yesterday, ?We wish to sell equities short here in the U.S. and in Australia and/or New Zealand?.

Richard Russell?s PTI market indicator is close to giving a sell signal...



Last year same time..

After the Distribution Phase, What Happens?



Actually Richard Russell's PTI gave a sell signal yesterday, Thursday.

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Simple swing trading tool some friends of mine use to trade 401(k) accounts w/ Rydex funds:


Money Flow Index (MFI) on the SPY is 15.25, a new 52-week low.


The MFI on the DIA is at an all-time record low of 5.20.


During the bear market of 2001 - 2002, it was always a good idea to cover shorts at these levels.


I learned the hard way, since epic short squeezes usually occurred about 75% of the time when the MFI got this low. This time, I'm paying attention to it, and I'm not taking any chances.


So I took off all my shorts at the close today, FWIW....


Not that they did a whole lot anyway......

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