<nettime> Soros

["nettime's_roving_reporter" <nettime {AT} bbs.thing.net>]

from: TheStreet.com's MIDDAY UPDATE April 28, 2000

Midday Musings: Tech Strength Continues at Midday;
Hobbled Dow Still Struggling 

By Kristen French
Staff Reporter
4/28/00 1:18 PM ET

The Dow Jones Industrial Average continued to limp  downward
after yesterday's hot inflation data broke its legs, but the  Nasdaq
Composite Index was still bucking upward in relatively thin trade. 

Investors began fleeing the so-called "inflation-sensitive" old-economy 
stocks yesterday as they sought cover in "high-growth" tech stocks. So 
far that trend has held. 

Most market observers said the fact that the Nasdaq has been able to 
hold its head high amid the recent flutter of bad news is very 
impressive and bodes well, at least for the short term. 

That bad news includes a report earlier today that George Soros' firm 
is losing Stanley Druckenmiller and Nicholos Roditi, which some thought 
might mean some heavy selling in tech. 

Druckenmiller ran Soros' $8.2 billion Quantum Fund and Roditi ran the 
$1.2 billion Quota Fund. The two managers had bet heavily on technology 
names starting in the latter half of 1999. The recent selloff in tech 
names hurt the fund badly -- it reportedly lost $3 billion in 
capitalization in the last six weeks. 

For more on this story, take a look at the coverage out of the 
TheStreet.com/NYTimes.com joint newsroom. 

One stock, in particular, was really singing the blues today. 

In the last hour, a federal judge in New York ruled that MP3 
(MPPP:Nasdaq) violated copyright laws by creating a database of music 
available to be downloaded off the Web. The ruling has hammered the 
stock and it was recently down 4 5/8, or 40%, to 7. 

"For a Friday, going into a weekend, and having digested a lot of bad 
news, it's very impressive that the market has been able to hang in 
this tough so far," said Ned Collins, executive vice president of U.S. 
stocks at Daiwa Securities America. 

But no one wants to say that the market has moved entirely out of the 
woods yet as there may be more bad news to be weathered. 

"Next week everyone will be keeping an eye on the April employment 
data. Market players are sitting boxed in by that data. We may see 
activity slow down in the afternoon after the harrowing week we've had. 
And we could see tech back-and-fill a little bit more," said Bryan 
Piskorowski, market analyst at Prudential Securities. 

Financials and insurance stocks were still taking blows after falling 
hard on the inflation news yesterday. The American Stock Exchange 
Broker/Dealer Index was down 1.4%, the Philadelphia Stock Exchange 
KBW/Bank Index was down 2.2% and the S&P Insurance Index was 1.3. 

Leading financials down around mid-session were Citigroup(C:NYSE), down 
2.6, and American Express(AXP:NYSE), down 0.9%. 

Fellow Dow industrials components J.P. Morgan(JPM:NYSE) was down 1.9% 
and Chase Manhattan(CMB:NYSE) dropped 1.4%. 

Insurance giant American International Group(AIG:NYSE) was off 1.5%. 

On the NYSE, Three-Five Systems(TFS:NYSE) was off 8% and Mettler-Toledo 
Int'l(MTD:NYSE) off 14.6%, were posting the biggest losses. 

The Nasdaq was getting extra bounce, meanwhile, from Aether 
Systems(AETH:Nasdaq), and Rambus(RMBS:Nasdaq). 

Rambus' gain was also propelling the Philadelphia Stock Exchange 
Semiconductor Index up 3.2%. 

Technology bellwether Intel(INTC:Nasdaq) was up 2.1%, after the chip 
giant reported Thursday it is accelerating its efforts to promote the 
growth of electronic commerce. Other chip makers, such as Texas 
Instruments(TXN:NYSE) and LSI Logic(LSI:NYSE) were riding Intel's wave. 

Meanwhile, Microsoft(MSFT:Nasdaq) was down 1.4% ahead of the release of 
the government's proposal for splitting up the company after the market 
closes this afternoon. 

Consumer retail stocks were also in trouble, as were drug stocks. And 
utility stocks were down after a strong run up in the last few weeks. 
The American Stock Exchange Pharmaceutical Index was off 1.7%, and the 
Dow Jones Utility Average was off 1.3%. 

The Street.com Internet Sector index was up 35.48 to 892.45, once 
again, boosted by strength in Yahoo!(YHOO:Nasdaq) and 
CMGI(CMGI:Nasdaq). 

Market Internals 

Breadth was narrowly mixed on the NYSE and positive on the Nasdaq, 
while volume was relatively light on both. 

New York Stock Exchange: 1,424 advancers, 1,351 decliners, 553 million 
shares. 41 new 52-week highs, 30 new lows. 

Nasdaq Stock Market: 2,200 advancers, 1,634 decliners, 882 million 
shares. 33 new highs, 60 new lows. 

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from: TheStreet.com's WEEKEND BULLETIN April 29, 2000

Market Features: So Long, Soros: An Inside Look at the End of an 
Investing Era 

By Brett D. Fromson
Chief Markets Writer
4/28/00 7:16 PM ET 

Today marked the end of an era in investing. 

One of the most profitable and best-known global hedge funds in history 
-- Soros Fund Management -- is history. 

While the fund said today that it will remain in operation after a 
"thorough reorganziation," make no mistake. It's over. 

 

After 31 1/2 years of beating the markets in everything from stocks and 
bonds to currencies and commodities, Soros came apart in a mere four 
weeks, according to interviews with George Soros, his departing senior 
portfolio manager, Stan Druckenmiller and other sources close to Soros. 


The story of how that happened speaks volumes about the ability of the 
market to surprise even the best traders, and the relentless pressure 
of managing money in the most volatile financial markets we have ever 
seen. 

The beginning of the end was April 4. That was the gut-wrenching day 
the Nasdaq Composite collapsed nearly 575, or 13.6%, before whipsawing 
back up to close down only 1.8%. Druckenmiller came into that day 
having already reduced the Quantum Fund's exposure to tech stocks in 
February and March. He had expected a 10% to 15% slide from the Comp's 
March 10 all-time high. 

 

But he made a significant error in judgment on Tuesday the 4th. He 
thought the V-shaped volatility of the day represented the end of the 
10% to 15% correction in the Comp. Instead of dumping more tech stocks, 
as he and his associates thought perhaps they should, he hung tight. He 
could have sold tons of stock later that week as the market rallied. 

Slam!The door to the exits slammed shut the next week, specifically on 
Friday, April 14. The days leading up to that day were lousy, but 
Friday was the kicker. The market crashed that day, and unlike Tuesday 
the 4th, it did not snap back intraday. The Comp fell 10% and ended its 
worst week in history down 25.3% -- 34.2% below its March 10 high. 

The following Monday, Druckenmiller's associate, Nick Roditi, portfolio 
manager of Soros' other big investment vehicle, the Quota Fund, told 
associates that he was quitting the game. Not only was the London-based 
trader leaving Soros, he was getting out of the money management game 
altogether. 

Why? 

After all, he had previously experienced losing years interspersed 
between great years when he made 100% to 200% on Soros' money. The 
answer was that Roditi, whose trading style relies on enormous 
financial leverage -- at times as much as 300% of the underlying 
position -- was burned out. 

Quota had suffered enormous losses the prior week. He just did not want 
to do it anymore. He is rich. He has other business interests. He would 
just as soon live in Africa, his homeland, as in London. 

The End Is NearThe next day, Druckenmiller went into the firm's midtown 
Manhattan office and announced to Soros that he wanted a break, a 
sabbatical. The fund was too big and unwieldy. The year's gains tended 
to come from just a few big bets each year. If one went wrong, they 
could not get out. And the markets were more volatile than ever. 

And even in the best of times, George Soros has never been known as the 
easiest boss in the world. He is well-known for second-guessing his 
portfolio managers, which is his right, because he has about $4 billion 
in Quantum. It was not the first time that leaving had recently crossed 
Druckenmiller's mind. 

So why decide to step away on Tuesday, April 18th? After all, he was 
down about this much last year at this time. He came back from that and 
ended up garnering above a 40% gain for 1999. Why not one more time? 
Because, apparently, he was just too tired to wage the relentless war 
he knew it would take to recover. 

Soros himself had initially considered coming back to take over. 
Tensions were high at the prospect of the 69-year old speculator, 
fearful of a market crash, without his top portfolio managers running 
things again. After all, it had been 12 years since Soros has run money 
himself. 

An uneasy peace was maintained simply by their mutual needs to come to 
an equitable arrangement. Soros did not want his top lieutenants 
publicly cutting all ties to him and Quantum. And they wanted him to be 
generous if they had to leave, now that the firm effectively was being 
taken apart. 

It was not until this week that Soros decided not to come back but 
instead to make radical changes at his cherished firm. He decided that 
Quantum will no longer seek 30% returns. (That explains its new, dowdy 
name -- the Quantum Endowment Fund.) 

He decided also that the management of Quota will be outsourced to 
London-based money manager Michele Ragazzi of Newman Ragazzi. Soros 
will offer his clients the opportunity to stay in the new Quantum and 
Quota funds, but expects major departures. The firm already has raised 
enough cash to pay off every single client who might want out. 

It may be that the only client going forward will be Soros himself. He 
already has decided to break up his money into smaller management 
pools. 

Look for him to spread the money among five to 10 managers, some who 
now work for him and some who do not. The deals likely will be 
structured so that in exchange for him dropping several hundred million 
dollars on these managers and allowing them to take in additional 
clients, he'll get a share of their management fees. If there is one 
thing George Soros will not allow, it is for the market to take him out 
-- i.e., lose all his money. The new, nimbler, more diversified 
structure makes that less likely. 

Much of the weakness in tech stocks in the second half of April may 
have stemmed from selling pressure from Soros. In the third week of 
April, they were blowing out many positions. The selling is over, which 
may help explain the recent bottoming and rally we have seen in 
technology stocks. Call it the Soros bounce. 

Isn't it IronicThere is irony in Druckenmiller's departure. He made 
many of his most spectacular calls by selling into bullish manias and 
buying when there was panic. For example, he bought a ton of stock 
after the October 1987 crash. 

"This time," he said, "I overplayed my hand. I should have sold in 
February. I sold some. I thought it was the eighth inning when it was 
really the ninth." 

"I had an exit strategy," he said. "I was two weeks off, too late. I 
blew it. There was no exit. That was my biggest mistake." 

After he leaves Soros in June, Druckenmiller will remain head of 
Duquesne Capital Management, a small hedge fund he started before he 
joined Soros. 

Druckenmiller said that he has positioned Duquesne so that he can take 
the summer off, and plans to take his family on a trip to Africa. He 
said he will offer Duquesne's investors the opportunity to get out if 
they like. 

Don't expect too many Duquesne limited partners to leave. Druckenmiller 
remains one of the best investors around. 

Who knows, by Labor Day he might be back in business? As Druckenmiller 
said today, investing is "like a drug." He is a known addict. 

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