Hedge Funds Make The Most Profitable Single Trade Of All Time

The Financial Times reports that Lahde Capital, a California hedge fund, is the latest firm to be identified in the small group of US funds which have made the single most profitable trade ever by using derivatives to short subprime-linked securities.

According to the newspaper, Lahde Capital, which was only established last year, has now made a return of over 1,000% in 2007. Together, the hedge funds are said to have made around $20bn from the trade, $12bn of which has been bagged by New York-based Paulson & Co.

A deeply troubled Andrew Lahde, the founder of Lahde Capital, told investors in a recent letter that 'our entire banking system is a complete disaster. In my opiniion, nearly every major bank would be insolvent if they marked their assets to market'. Lahde is also said to have mentioned that he will be investing some of his own profits into gold and other precious metals.

In the meantime, according to Goldman Sachs, hedge funds are shifting their Asian investments out of Japan, because of lower returns and poor corporate governance.

Continuing with more doom and gloom, The Organisation for Ecoomic Cooperaion and Development has now come out and said that the total losses resulting from the US subprime lending debacle could eventually top $300bn. If so, there's significantly more pain to come in the financial markets.

Reuters reports that French investment bank Natixis has said that its exposure to subprime has cost it some $602.6m in the third-quarter.

And The New York Times reports that Commerzbank CEO Klaus-Peter Muller has suggested that banks scored several own goals by the manner in which they have unveiled their subprime-related write-downs. He told the newspaper that 'one of the miseries of the whole story is that we sliced the news on this topic like a salami sausage. The public kept on receiving bad news, which was not a very professional way of handling it'.

Bloomberg reports that Bank of America is to now take the lead to try and get that $80bn SuperSIV fund up-and-running by attracting in smaller firms who will kick in some of the required finance. The fund, which is designed to help restore liquidity in the short term debt markets, was conceived by the bank along with Citi and JPMorgan Chase.

The news agency also reports that Barclays has come out and indicated that its 2007 pretax profit will come out broadly in line with analyst estimates at around $14.7bn. Profit will therefore be little changed from 2006, basically due to writedowns taken by investment banking arm Barclays Capital.

Finally, The New York Post reports that the next 'shoe to drop' in the financial markets will most likely be 'the painful decline' in the value of hundreds of billions of dollars worth of triple-A rated bond issues backed by mortgages and similar assets.

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