March 18, 2013
Weekly Market Outlook
By Keith Schneider
In a record settlement this week, SAC, a hedge fund run by multi-billionaire Steve Cohen, agreed to fork over $600 million in fines to the US Treasury for insider trading, petty cash for someone with a net worth of $8 billion plus or minus. That's not much solace for those on the other side of those trades. His take home pay is often over $1 billion a year. Several of his satellite funds agreed to pay fines as well. SAC has not admitted or denied any wrongdoing with the settlement, but paid the fines anyway. The case is based on SAC's trading of two companies, Wyeth and Elan Pharmaceuticals. Both companies were working on Alzheimer's drugs that ultimately failed. In just a few days in July 2008, SAC went from a net long of almost 4 million shares to a net short position of 4.5 million shares, right before the poor clinical trial results were released. This is unprecedented trading action, even for a hyperactive trading operation. All told, some $276 million was made.
Obviously, SAC traders needed those clinical trials to work besides the fact that they also needed to ingest a strong dose as they obviously forgot what constitutes insider trading. Another factoid regarding Cohen is that he owns numerous works of art including Damien Hurst's 14 foot tiger shark sealed in a glass tank and filled with formaldehyde solution. This is a fitting reminder for his traders and the world at large. The markets are at a place where players will either eat or be eaten. The takeaway is that as much as we hope the market is a level playing field and the Feds are keeping it clean it's really a case of "caveat emptor". Therefor my core belief is that everybody knows more about a company than I do and publicly available information is useful but incomplete. However, elephants leave footprints, sharks show their dorsal fins and big money leaves tracks that can be seen in price and volume patterns that repeat. Trading with proper risk and trade management will result in successful trading. While speaking of patterns the S&P 500 is exhibiting an interesting one right now so lets go to this week's video.
Have a Great Weekend
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