What did Walter know and when did he know it?

Henry Bodget has a new posting on UB Bank’s letter to its investors “explaining” how they lost so much money with Bernie Madoff. The letter is quite interesting in itself but here are some salient points extracted by Blodget:

  • UBP says one of its Madoff funds got DAILY trade tickets from Madoff. If so, this meant that Madoff was constructing the fraud on a daily basis instead of a monthly basis, as some have assumed. This must have been time-consuming. It also almost ensures that others were involved. (Bernie Madoff did this himself every afternoon? Please.)
  • The SEC blessed Madoff’s strip-mall auditor, Friehling & Horowitz, year after year, despite David Friehling, the only non-retired CPA in the three-person shop, telling the CPA people each year he wasn’t conducting audits.
  • Like Thierry de La Villehuchet and other Madoff observers, UBP “was assured” that Madoff’s broker-dealer arm helped his minute-to-minute market-timing ability.  This makes it all the more notable that the largest Madoff feeder, Fairfield Greenwich, never mentioned this (in the documents that we have seen).  Was this because using material non-public market information to make money for clients sounds shady, and FGG didn’t want to sound shady–even though this was obviously a critical investment point for many Madoff investors?
  • Like Fairfield Greenwich, UBP notes that market timing played a key role in Madoff’s returns.And like Fairfield Greenwich, UBP offers no explanation of how Madoff was so adept at this timing when so few other managers are.

8 Comments

Filed under Uncategorized

8 responses to “What did Walter know and when did he know it?

  1. CEA

    “UBP offers no explanation of how Madoff was so adept at this timing when so few other managers are. ”

    Chris, there are NO managers who are adept at market timing. Not one. Ever. People might have a “run” (see: Bill Miller, Legg Mason), but there are no managers who market themselves as “market timers”.

    • christopherfountain

      I like to make the same point to clients who want to “time” the real estate market. See a house you like and want to live in, put in a reasonable offer and see what happens. To wait for the magic moment when prices bottom will do you as little good as, say, Walt Noel did with his clients’ investments.

  2. CEA

    It’s one of the banes of my existence too – people who think they can time the bottom, as if all markets “rebound” in a V-shape, and there is one precise point at which you are a genius, and all other possible points you have somehow been snookered.

    You know the saying: Bulls make money, bears make money – but pigs get slaughtered.

    One day, you must follow up on that builder-who-wouldn’t-accept-80%-of-asking. I would like to know how long he holds out. Not selling when you can is even more ridiculous than not buying when you should.

    As a buyer, you plan on holding long-term (presumably), so over 5 years you’ll do fine if you bought.

    As a seller, you plan on holding short-term (presumably), so over 5 years you will not do fine if you hold out.

    A short-term plan typically costs more in the long-run; a long-run plan typically costs more in the short-run. Or so my investing experience has shown thus far.

    And hey – the Noels live on Round Hill, part of that “corridor”! I wonder if they can say their losses were caused partially by that?….

  3. Noel, Noel, Noel, Noel

    The Noels made the NY POST Page Six today with the news they rented their Mustique house and are not liked there…

  4. Towny

    It is said, some of the feeder funds (and others-so far unamed)were big movers in their own right and possibly using Bern as a dealer/broker, hence his ability to front run their action. Bern was or maybe was, paying an origination or finders fee commission as a “kickback” to those (others) who sent him orders. They in-turn took the kick, knowing full well he was fronting.

    Whats being overlooked is that Bern is the godfather of IT for the entire financial sector. There is alot of leeway in one tenth of a second.

  5. Towny

    Anyway, the biggest financial scam the world has ever seen is not Bern Madoff. It is DC increasing the M3 44% and counting. Aiding that scam is that they havent published any data on it, in a number of years. Do they think its a secret?

    The real scam is how Washington changed the data used for CPI, and the fuzzy economic indicators that eminate from that cesspool.

    Is there nothing left to beleive in?

  6. CEA

    The Fed publishes a ton of data. I also have the currency component +75% July-December. This is where I get my monetary data from.

    http://research.stlouisfed.org/fred2/categories/24

  7. Towny

    CEA
    my bad.