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Watch the Hedge Funds
October 08, 2008 10:47 AM
ABC News’ Bianna Golodryga reports: What's behind these huge
market swings? Pay attention to who’s driving the action. One major industry to
look at -- hedge funds.
It is a $2.6 trillion industry and it’s not rich "fat cats" money. Pension funds are major clients as well. Hedge funds are in a tough bind right now. As one major fund manager said when futures were reacting positively to news of the rate cut this morning, "Today not a soul is expecting a market turn to hold."
Hedge funds are at their lowest level in more than 20 years.
Most hedge funds have been facing frantic massive redemption from clients during
the last three months and are being forced to sell what had been winners. Big commodity-based
companies -- those that have seen huge spikes in stock values -- are taking
massive hits on renewed concerns of a global slowdown.
Hedge fund average returns fell nearly 5 percent last month -- the biggest loss in 10 years. Year to date, they are down nearly 10 percent. Most of these managers charge a high fee, 2 percent annual management fee, a 20 percent cut for any profits. Seeing as they have only 2 1/2 months left in the year to prove themselves, the clock is ticking. One analyst predicts that 10 percent of the 10,000 hedge funds in business may be gone by early next year due to investor liquidation.
This morning they were carefully watching the market's reaction to news of the rate cut. Had they seen a sustainable positive response, they would have been covering their bets. Because the underlying view was that this rate cut did not have legs, hedge fund investors turned back toward their redemption spree. If they sense a turn in sentiment, they will start covering up their shorts as quickly as they sold them off. Their actions will likely be quick, fast and seemingly irrational.
October 8, 2008 | Permalink | User Comments (6)
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Exactly what I was thinking. But don't you think the selloff of the hedge funds is partly because they are over-leveraged?
Posted by: 1percenter | Oct 8, 2008 11:05:41 AM
Here we go again, letting these guys put more fuel on this financial 9/11 meltdown that the GOP/Neo-Con/Right-winger have crushed the country with.
One far-reaching effect of the crash of 2008 caused by the deregulating, supply-side, Big-Business protectors of the GOP is this.
Before this financial tsunami hit the world, all the foreign investors would gooble up any US financial package sight unseen. But the Wall Street execs and their whiz kid MBAs dumped a shell game on them with all their cleverly packaged derivatives and securities. Now the the whole world is crashing; Iceland is about to go bankrupt.
Those people are not dumb and you can be sure that they have learned a great lesson. Wall Street is going to have a very tough time trying to con them again; If they survive this one it will by the skin of their teeth.
And the GOP wants the country to put them in charge for another four years, thats not showing much respect for the intelligence of the our citizens.
Our country cannot stand nor suffer through more of this. It would be a monumental disaster that their present candidates should be in the WH. One is simply too old and the other is totally ignorant of what the job entails.
Brother, can you spare a dime?
Posted by: maximus | Oct 8, 2008 11:29:16 AM
maximus; It's not that simple. There's plenty of blame to go around. It's a global problem. Our US leaders haven't helped anything, however.
Posted by: LongT | Oct 8, 2008 11:53:09 AM
Yes, because greed is universal. Greed without consideration is ruinous; tempered ambition is tolerable, but, considerate asperation can be beneficial to all.
Posted by: maximus | Oct 8, 2008 2:01:07 PM
This divesting is a result of the current political environment. One Presidential canditate is likely to win now. The continued sell off is a vote of no confidence by the investors
Posted by: disillusioned2008 | Oct 8, 2008 6:33:24 PM
Brother, can you spare a dime?
I have a hard time saying for certain who caused this but it seems most are pointing to those high risk loans.I just listen to a clip from Barney Frank asking Mr. Raines if more regulation was needed with fannie and freddie, Mr. Raines answered "NO". So Mr. Obama says more regulation is needed but the dems in charge say no, everything is ok here nothing to see move along. Differing view points I suppose. I am not pointing fingers but I do not think Mr. Raines is a Republican yet he overstated earnings by about 35 billion to increase the size of his and his cohorts bonuses, got a nice paycheck of close to 100 million and still is drawing severence pay of over 100 grand per mo. Not too bad for a democrat. By the way he just bought himself a nice little pad for 5 mil in a fancy hotel in Washington.
If anything this fiasco should teach us all that there is nothing for free, not houses, not healthcare, not even education so beware of which pandering politician whom you pull the handle for, comrade Maximus
Posted by: david | Oct 9, 2008 7:48:29 PM
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