“If there’s something you’d like to try, if there’s something you’d like to try,
Ask me I won’t say no, how could I?”
— Morrissey
And allow me to be (among) the first offer a warm, embracing, “welcome” home to one of our erstwhile heroes: Raj Rajaratnam: founder of high flying hedge fund vessel Galleon Capital Management, and, for the last eight or so years, jailbird in a Federal Medical Correctional facility near Boston. He’s home now, at his tony apartment overlooking the East River on Sutton Place. And though his activities remain constrained by the terms of his sentence/release, his stretch is, for all intents and purposes, over.
It’s so good to have you back, Raj. And if you feel up to throwing one of your legendary parties, please feel free to count me in. Back in the day I came close, but never quite qualified, for inclusion on the guest list. But time and events, while taking the bite out of us both, have in consequence narrowed the spread of our social status. So if you’re so inclined, please refer to our purloined quote, and
“Ask me I won’t say no how, could I?”
For better or worse, we’ve managed to make our way through the ‘10s without Captain Raj’s steady hand on the helm of the mothership. So much so (and given the widely acknowledged but nonetheless astonishing and growing ADD that plagues our industry) many of you don’t even know who he is.
So let’s inform, update and refresh, shall we? Raj put together Galleon: one stone cold baller of a long/short equity hedge fund, in the early ‘90s, long before such a move was considered passé. He put up one heck of a run, generating superior returns for his investors and placing himself in the early Pantheon of alternative investment billionaires.
But somewhere along the way (and it may have been earlier than is widely understood), he became (shall we say?) a bit sloppy with his compliance. During business hours, he became ravenous for any edge he could acquire. He put dozens of folks on his payroll to hoover up any useful information they could find, some of which would have been better for him and his crew not to know. Or, knowing, not to invest upon.
And after hours? Well, given that we strive to keep this a family publication, the less said about the topic the better. However, those wishing to learn more might want to give a listen to the following Raj-commissioned rap song, which, beyond informative, has the distinction of being unambiguously the worst rap song ever laid down on a recording device:
https://www.huffpost.com/entry/galleon-rap-song_n_4789970
It all came crashing down on Captain R one very early morning in October, 2009, when the dudes in the hoodies came rudely barging into his crib near Turtle Bay, and escorted him on one of the most shocking perp walks that these aging eyes have ere witnessed. News spread across the hedge fund ionosphere like wildfire. Raj had been arrested. And charged. And it didn’t take long for sordid details, too numerous to describe in this space, began to emerge.
Perhaps the most e-gregarious of them all was the revelation that the big man had infiltrated the Goldman Sachs Board of Directors, through the person of one Anil Kumar, a globally respected Senior Partner at the venerable consulting firm McKinsey and Company. Immediately at the conclusion of a meeting during which the Goldman Board had approved a much-needed but overpriced financing deal with Warren Buffet (who, in trademark fashion, took them to the cleaners, but, in fairness to my friends at Goldman, this was in the midst of the crash and the firm was about to go down – perhaps taking the whole global financial system with it), Kumar lobbed a call into the Galleon trading desk, letting them know that the deal went down. The call came right at the close, but with enough time for the Galleon team to purchase like 100,000 calls on Goldman stock.
This was hardly the finest moment in hedge fund history, and, upon its revelation, many paid the price. Others of course were busted in the Insider Trading sting, some with justification; others not so much. But to see one of the stone cold whales of hedge fund waters, along with (among others) a buttoned down McKinsey elder statesman caught with their pants down in such shocking fashion, was disconcerting, and, unfortunately, an image nearly impossible to un-see.
And Raj was a billionaire. And didn’t need to do this. There’s a lesson somewhere in here for us all.
But now he has done his time and is (or shortly will be) free to mix in with the general population, including those that ply their trade in the alternative investment universe he helped create.
But Raj, upon your return, you will find market conditions almost unrecognizable. For one thing, valuations have tripled since your early morning East Side perp walk. Yields on the 10-year note are about 40% of where they were when the Federales arrived, and, in much of the world, negative. I’m guessing you’re not looking to jump back with both feet into the money management game, but to whatever extent you are considering such a move, please know that the terrain is much more treacherous than it was before your Icarus-like rise and subsequent fall.
And now, with the post Labor Day resumption of meaningful investment activity upon us, even you might find the action beyond perplexing. Global equities and bonds have been bouncing around like sub-atomic particles, tethered to the combined forces of historically accommodative monetary policy, and a great deal of hoo ha speculation as to the resolution (or lack thereof) of trade tensions. In terms of the latter, whither this dynamic is heading, and where it stabilizes, is anyone’s guess. However, with respect to the former, we might be in a position to offer some relative clarity.
For one thing, another Fed rate cut, week-after-next, appears to be in the bag. Further, by all accounts the Europeans are teeing up some big monetary love (likely to be announced this week during Super Mario’s penultimate turn at the ECB podium). Equities, while not exactly burning up the field over the last several quarters, are currently on bid, due to constructive signals emanating from these two big force fields: trade and interest rates.
I am beyond weary of anything to do with trade. We are being played by both sides, plagued by rhetoric from the U.S. and China that I suspect has little to do with where we stand in terms of a deal, much less the final resolution of same.
However, with respect to interest rates and financing trends, the messaging is clear. Expect more accommodation from the custodians of global monetary policy. From this perspective, we were the recipients of a couple of perhaps unearned rewards this past week. The August Jobs report clocked in at disappointing levels, and the numbers would’ve looked worse absent the fleeting contribution of some new census gigs.
Moreover, and while drawing scant attention, domestic manufacturing PMI is now below 50, historically a sign of ill winds in that critical economic realm. Globally, the numbers are worse, and if anyone thinks that this is something that will be neutral to interest rates, I suggest they think again:
To us unreformed, unrepentant statisticians, this is about as elegant, voluptuous of a dual curve fit as our frail minds and bodies can handle. And anyone who thinks that the blue line is poised for a 180 should contact me. Happy to lay side action with you. On generous terms.
But I don’t see how one can look at this graph and find a path towards higher interest rates. Anywhere on the horizon. Anywhere in the world. Quite to the contrary, and particularly given entirely feasible negative trade outcomes, the blue and orange lines are as likely to continue their descent into the netherworld.
Raj, my Raj, I expect that even you would find this situation puzzling to say the least. But in the spirit of justice-tempered-with-mercy (you have, after all, completed your payment of your debt to society), I’d suggest that you want to avoid the short side of equities as long as this condition persists. And it most certainly will ensue for a period that extends past the point when your rehabilitation and integration into the ebbs and flows of daily civilian life has run its successful course.
Also know I’m giving my non-felonious clients the same advice. Don’t be short stocks here. Or bonds.
I’m not sure about the specifics of your parole terms, but I wouldn’t be the one to discourage you from any inclination you might be forming about re-entering the realms of money management. That is, if your fires of this nature still burn. Maybe I could even help you on the risk management side. After all, I’ve dealt with shadier characters than you.
But my advice to you, first, last and always, would be to keep it down Broadway, OK? No more burner phones, no more clandestine payments to un-named associates spanning the globe. No more post-meeting electronic communications with Board Members from any publicly traded company under the sun.
I offer this all up, free of charge, in the spirit of rekindling what was a very remote connection between us back in the day. One that amounted to about a once-a-year “Hi Raj” “Hi Ken” pleasantry when I happened to encounter you.
Heck, as a public service, I’ll even write and record you a proper song, which won’t eradicate the wretched after-tones of that “Good Ship Galleon” atrocity, but will do little harm in any event.
If you want more, you know where to find me. But you’ll probably have to pay me.
And of course, there’s one other condition I feel compelled to impose. You MUST invite me to your parties.
I have no intention of missing out on the ritualistic ceremonies a second time.
TIMSHEL