This post “graduated” from the category Web Links. I’m doing this short post bit to Web Links for personal reasons…follow-up without having to traipse to some bookmarking site.
And in Chicago, Ken Griffin is smiling because he went out for funding for these kinds of deals ahead of time.
UPDATE: Paul Kedrosky takes a shot at housing pessimism while noting Citadel made a potentially bullish move on the sub-prime market with the Sowood purchase. I won’t speculate as to whether that’s true, other than to say Kedrosky is a smarter cookie than I. But…
Citadel was born in arbitrage – specifically convertible bond/equity arbitrage. There are a lot of people in that market, and while Griffin’s group may well be top notch, I can’t imagine the spreads are as wide as they were in the late 80’s/early 90’s. You have to look elsewhere, and they certainly have. And there is still such a thing as hedging – a big sub-prime prime portfolio purchase could be used as either an arbitrage or hedging play against:
Again, just ideas – and I’ll credit some folks I discussed this with as well. You can’t deny Jim Rodgers his peace either – this chart is hard to argue with. Also note that the fact the Sowood portfolio was purchased at a deep discount means less leverage (or opportunistically priced leverage) for Citadel – leverage is something that got Sowood and other funds into so much trouble in the first place.
UPDATE: Why broker/dealers? Maybe this will help.