Hedge-fund guy dips his snout in bailout trough

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Markets end week on a positive noteWorld stocks tumble on credit worries

: Mark Gilbert uses this parody to look at the funny side of the dreary and scary days in the financial markets and also hit out at some of the characters

Dear investor,

It's that time of year again when we are obliged to update you on the performance of our hedge fund, Short-Term Capital Mismanagement LLP.

I apologise for the photocopied letterhead, the handwritten envelope and the fact that you had to pay the postage upon receipt of this missive. Austerity is the new black. We at Short- Term are committed to preserving your capital, so we're reusing teabags, stocking the bathroom with one-ply rolls, and Thor, the personal trainer and masseur, is working a three-day week.

First, a couple of legal niggles need addressing. Some of you have suggested that we are trading under false pretenses. Admittedly, it is very hard to be a Global Bottom-Up Long-Short Fund when short selling is as popular as a Florida real-estate agent.

We are sure the regulators had excellent reasons for defending such mainstays of the global economy as jewelry retailer Zale Corp. and freight company Ryder System Inc. They just haven't bothered to share that justification with anyone.

And we are, indeed, under investigation for spreading rumors that American International Group Inc. was too big to fail, that Fannie Mae and Freddie Mac would end up government- guaranteed, and that Goldman Sachs Group Inc. and Morgan Stanley could be entrusted with deposits.

Be assured, though, that we stocked up on the relevant securities before gossiping to our pals. The authorities are fine when we're buying stuff (unless it's oil); they get upset only when we sell (unless we dumps commodities).

Wall Street corpses

As I sit at my desk, resplendent in a Lehman Brothers Holdings Inc. souvenir T-shirt, a Lehman baseball cap and a pair of specially reinforced Lehman money-market trading shorts, I keep asking the same question: Why was Lehman the only lemming allowed off the cliff? We've spent the past few weeks trying to get our assets back from the Lehman administrators. The good news is that we have insurance. The bad news: We bought it from AIG.

We were nervous this week that Congress wasn't buying US Treasury Secretary Henry Paulson's "Rocky Horror Picture Show" cameo -- "It's just a jump to the left. And then a step to the left. Let's do the Timewarp again."

So the team (that would be Patrycja, our Lilliputian receptionist) started hitting the phones and keyboards to flood the folks on Capitol Hill with dire predictions about the consequences of not passing the $700 billion bailout plan. We're pretty sure every trader on Wall Street did the same.

Four-way split

Also, can we finally kill this talk that the bailout could simply be handed to the good people of the US and the credit crunch would be solved? With 309,163,000 citizens at the last count, there would be just $2,264 per person, barely enough for a decent three-bottle steak dinner.

Instead, we believe that the Treasury should stick to its current plan to divide the $700 billion by four. Goldman, JPMorgan Chase, Bank of America Corp. and Citigroup all thank you for your tax dollars in these troubled times.

Be assured, Short-Term Capital Mismanagement does have a contingency strategy, should we fail to get our snouts into Paulson's trough (or decide that the accompanying executive- compensation limits would be incompatible with the style to which I have become accustomed in recent years).

We are in talks with the central bank of Narnia, where our hedge fund is listed, to make credit available. To this end, we have cornered the market in Turkish delight.

Do you have any idea how much a pink sugar-dusted cube of boiled gelatin is worth in a reverse auction? Exactly, and neither does the central bank, so we are supremely confident of our ability to raise funds this way.

Booze, bets and lotteries

Finally, I am delighted to announce that our asset allocation committee (which currently comprises Patrycja and myself) is investigating three exciting new investment strategies designed to differentiate Short-Term from the pack of ailing, failing, underperforming hedge-fund managers out there.

Plan A is to pledge all of the assets with Irish bookmaker Paddy Power Plc, which is making a market on which major city will succumb to riots during the economic crisis -- Patrycja quite fancies a bet on New York at 9/4. Plan B is to buy booze. Our proprietary Gaussian stochastic analysis has determined that the $1,000 we invested in AIG at the start of the year is now worth less than $100, our Lehman shares are worthless, whereas spending the same amount on Duff beer would have generated $214 in cash from recycling the aluminum cans, plus a couple of worthwhile hangovers.

Plan C is top secret. Suffice to say, if you type the word "lottery" into a Google search box, you'll get a pretty good idea of where we think the best alpha opportunities are likely to arise in the coming months. Hey, it beats trying to ride the rollercoaster that is the stock market these days.

Yours,