Having a Lahde — the 410 per cent man | FT Alphaville

Having a Lahde — the 410 per cent man

Hedge fund managers and big egos generally go together, but Andrew Lahde manages a new high with his latest investor letter, in which he says his Lahde Capital “has the top-rated performance for all hedge funds in the universe” for the year to August.

Santa Monica, California-based Mr Lahde, to be fair, has good reason to boast: Series A of his fund was up 7.9 per cent in August, 410 per cent for the year so far, outpacing even the stellar performance of John Paulson’s (of Paulson & Co) Credit Opportunities fund.

Like the far larger fund from Mr Paulson, Mr Lahde’s diminutive $60m Lahde Capital makes most of its money by shorting US subprime mortgage-related structured credits, particularly the ABX indices.

Lahde, though, goes further. He predicts “100% likelihood” of a US recession, and this month launched a new fund shorting the CMBX indices, betting that commercial property will also tumble and his “commercial fund [will] act as a hedge for all of the carnage still to come”.

Also, Lahde is becoming even more bearish, if that were possible. He has upped his estimate of US subprime mortgage defaults from 30-40 per cent a month ago to 50-60 per cent.

If he’s right, his conclusion pretty much sums up the likely outcome for the subprime market: “Game over.”

Here’s a taster:

Rising tides lift all boats. Rock, paper, scissors. Tsunami crushes all (except those who bought tsunami insurance and got the hell away from the water). The tsunami is this credit contraction I have been writing about for the past year. It has affected everything. Period…

…Fellow CFAs probably remember learning about the mosaic theory, which distinguishes between plain old inside information and attaining information from different sources and combining them together to reach a conclusion that is virtually as good as ill-gotten inside information. I have so many sources of information, both the factual/statistical type and the anecdotal type. Everything I see tells me the ABX is going to fall further, as is the CMBX, the equity market, the dollar, etc…

…If God comes down and miraculously fixes everything that is going to drive us into a deep recession, we probably still would not lose money on the CMBX trades…

…There isn’t enough lipstick in the world to sell a pool of subprime loans right now…

…Will Bush help? No. His plan would help some 80,000 borrowers out of the two million subprime borrowers whose mortgage payments jump in the next two years. Try again.

Good night and good luck.