What A Hedge fund Manager Doesn’t Want For Christmas: A Porsche


[Steve Cohen says NO to Porsche, YES to coal]

If you’ve been following the markets recently, you’ve probably been hearing all about “bailouts” and banks crumbling.  You’ve also probably heard Jim Cramer inside every New York cab bellowing “Beware of companies that pay ultra high dividends!  In this economy a defense could be your best offense!“  But you may not have heard that hedge fund managers would rather have coal in their stocking this year than a brand new Porsche.

The reason has nothing to do with a paradigm shift in luxury tastes, rather one of the most spectacular wrong hedge fund bets that occurred just weeks ago, a bet that has led to losses of close to $12 billion dollars.  Funds including Steve Cohen’s renowned SAC capital tried to “short” Volkswagen, unaware that Porsche had a massive option and planned to purchase a majority stake because of looser German disclosure requirements.

Unfortunately for SAC and numerous other hedge funds making that assumption…Volkswagen shares spiked last month after Porsche, a small luxury carmaker that has for several years held a sizable stake in its much bigger rival, stunned the market by saying it had a huge option position in VW and aimed to take a majority stake.

The effect was that Porsche - abetted by lax regulatory filing requirements in Germany - stealthily engineered a so-called short squeeze, in which Porsche’s stock purchases forced VW’s stock price sharply higher. Short-sellers…rushed to buy back stock at massively inflated prices, locking in huge losses for many funds. [CNN Money]

And of course the timing of this bet gone wrong couldn’t have been worse!  That being said, if coal isn’t an option for a stocking stuffer, Volkswagen stock wouldn’t be a bad alternative :)

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December 2, 2008  @  01:30:39 pm By STANLEY STUYVESANT
Finance
Guest of a Guest Comments
STANLEY STUYVESANT December 2, 2008 2:02pm

I’ll take pig ears, thank you very much!

corwin
December 2, 2008 2:12pm

ENOUGH with Cramer

STANLEY STUYVESANT December 2, 2008 2:25pm

Crowin: “You could get burned!”


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