Sep 15/15 – Citadel top ticks the market?

2015-09-15 7am EDT  |  #Chuck Prince #Citadel #Citibank #Ken Griffin #Lehman

Holy crap. Time stamp a ticket. I don’t know if it marks a top in HFT (high frequency trading), or hedge funds, or even financial markets, but yesterday’s announcement that hedge fund Citadel Investment Group committed to the paying the highest rent ever recorded in NYC, and maybe even the world, has to be some sort of top.

According to Crains, Citadel took down 200,000 square feet of office space at 425 Park Avenue in New York City for $300 a square foot. Citadel’s CEO Ken Griffin made a new high tick by a whole $100, eclipsing the previous high of $200 a foot.

This is the stuff of tops, no two ways about it. Big shiny new headquarters buildings (Apr 02/14 – Pimco and the top in the bond market?), naming stadiums (The Enron Field Curse – Business Insider), or committing to the most expensive rent ever recorded – all are signs there is only one way to fall.

If I were a Citadel investor, I would send in my redemption notice yesterday.

An auspicious anniversary

Yesterday was the seventh anniversary of the collapse of Lehman Brothers. I thought it was pretty fitting that Ken Griffin’s news hit on this day. How quickly they forget.

Today Citadel is paying $300 a square foot for the swankiest office ever built. Seven years ago they were down 55% for the year and wondering how they would get through the next day.

And you might be thinking that this time is different. There are no signs things are getting out of hand. But let me remind you the excesses are always obvious only in hindsight.

Have a look at the Lehman chart:

In a period of a little more than a year, Lehman went from hitting new all time highs to bankrupt. The market was woefully inefficient at discounting the impending doom.

And it wasn’t just Lehman. Remember Chuck Prince’s disastrous run as CEO of Citibank?

This buffoon led the charge into idiocracy with a shameless smugness that still makes me laugh.

Now I am not suggesting we will experience a repeat of 2008. In fact I think the chances of the next crisis resembling the last is almost zero. Generals always fight the last war and traders always hedge for the last crisis. The next one will look nothing like the 2008, but the one thing that will be same will be the quickness it sneaks up on us. Don’t take any comfort from the fact financial securities prices seem to be “well behaved.” Lehman and Citibank also seemed just fine in early 2007. Supposedly “smart” CEOs like Chuck Prince were confidently navigating their way through the “benign economic environment”.

Today’s global financial system is even more precariously perched than 2007. There are imbalances that make even the most optimistic economist admit the needed adjustments will be challenging.

I am not even sure the “crisis” will have declining prices. Given the increased Central Bank stimulus of the past seven years, there is a chance the eventual crisis is an uncontrolled explosion to the upside. Half of the developed world has negative short term interest rates. We just don’t know the long term implications of this unprecedented monetary stimulus.

Stay open minded, and on alert for signs of changing financial conditions. Ignore anyone who tells you they know how this story ends. Remember Chuck Prince also thought he had all the answers…

Thanks for reading,

Kevin Muir

the MacroTourist