Between The Lines

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What Investors Can Learn About Football Transfers And Why It’s Hard To Feel Sorry For Hedge Funds Who’ve Dropped The Ball On broken-football-netsNokia

On Monday evening there was an incredible rush in the European football transfer market. Some of us fans were left crestfallen as our only world class player left our boyhood club for Manchester United. The window for signing players closed at 11 PM on Monday and as a consequence there was a cascade of related transfers due to the world record signing of a player called Gareth Bale by Real Madrid. Real then sold on several players contracts in order to lessen the blow of the €100 million initial fee their new player would cost. By the time the transfers into the UK’s premier league were all added up the league’s clubs had set a new record…

In total, £140m was spent on ‘deadline day’ in England, sending total outlays during the summer transfer window to £630m, a new record. The previous record was £500m in 2008. Despite £85.3m coming into England from Real Madrid thanks to their world record purchase of Tottenham’s Gareth Bale, the top flight still spent £400m more than it recouped in sales.

Now football long since lost its “game of the working class” title, even the cheapest day out to a single match for a ‘Dad and Lad’ in the UK is at least €100 by the time you’ve accounted for the full day’s entertainment. In these austere times (for many of the working poor) the concept of austerity immediately reared its head in the mainstream media. But it’s a different comparison we’d like to concentrate on; how the football world is representative of the ‘trickle up’ experienced in so many other sectors of business (and life in general) for us ‘ordinary Joes’…

On the day the world record for a player was set a small club called Kettering town went out of business. It isn’t the first and in won’t be the last as the power and control lies with an elite group of clubs and broadcasters who have failed to recognise their responsibility to the ladder, or pyramid of football in the UK.

Sounds familiar? For sure, it’s an ironic and perfect representation of the ‘too big to fail’ support that banks were given initially when they were close to collapse and continuously in the form of monetary easing. The ‘Q.E. to infinity’ has ensured that any new prosperity stays locked in an elite circle at the top of the pyramid, whilst very little positive impact is felt the lower down the ladder.

But the real cruel twist is that similar to the football pyramid, the losses and costs are socialised. We all pay for an elite to enjoy the riches; the football fan pays his satellite television subscription to enrich elite players in a similar method to how bank rescues are socialised onto us all. Small wonder that few will shed a tear for any hedge funds who’ve lost capital on their positions in Nokia…


Hedge funds take a bath on Nokia

Hedge funds who had bet on a collapse in the telecom group Nokia awoke to a harsh lesson on Tuesday, whilst their rush to unwind their positions left the stock eyeing a record daily gain. Nokia shares, down 93 percent from a 2000 high of 65 euros, rose  by 57 percent at one point in the day as the firm sold its handset business to U.S. group Microsoft.

Close on 12 percent of Nokia’s stock was out on loan from long-term holders of the stock, an indication of the demand by hedge funds to borrow the stock to engage in a ‘short’ trade.

According to the latest regulatory filings with Finland’s market watchdog, U.S. fund Discovery Capital Management LLC had the biggest net ‘short’ position on Nokia, at 2.26 percent of the firm’s shares outstanding. Viking Global Investors LP, Maverick Capital LTD, Blue Ridge Capital LLC and Lone Pine Capital LLC were also amongst Nokia’s biggest short-sellers.

Based on the number of shares shorted and Tuesday’s spike in the price, the losses for hedge funds for the day could represent up to 640 million euros ($843 million)..that’s just over six Gareth Bales in units that us ordinary Joes relate to….

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