In the Belly of the Beast #2

The first speaker was in his 60's and had grown his investment business from 1 million to 17 billion over the years with a 14% return, 7 down quarters and two down years. A successful guy. He offered some general observations that everyone can learn from. The major one is that complexity and effort limits risk. Reward increases when the problem is difficult and you work hard. This is true even with MIT analysts. Hard work on hard problems gives you a great advantage. Second, no combination of growth and taxes will solve the current insolvency problem; something is going to bleed. Third, inflation does not work as a policy; it destroys the middle class. Fourth, the Orderly Liquidation Authority in Dodd-Frank will be a disaster. Incidentally, one of the companies he looked at last month had, on its books, 75 trillion dollars in derivatives. Trillion.

The next speaker was younger and had just sold all of his debt/equity portfolio and bought bonds. He was "surprised at the lack of engagement" to deal with the problem of sovereign debt. He said that hedge funds are, essentially, "a zero sum game." His emphasis will be on the European bank market where there will be bargains because of the debt crisis. He feels that the equity markets must be reorganized because small ownership with new managers with new options and reasons to develop and sell works well in rising markets but poorly in negative ones.

More to come.