Posted on 05/05/2007 5:11:00 AM PDT by shrinkermd
As hedge funds go, it's 1998 all over again--but with a key difference.
Markets are significantly less volatile now than they were nine years ago, when the Russian government bond default sent shock waves through global financial markets and doomed the once high-flying fund Long-Term Capital Management. That's what the New York Federal Reserve Bank says in a report Wednesday about the risks in the market because of the proliferation of hedge funds, which now manage $1.5 trillion of assets and make up more than half of the average trading volume in stocks and bonds.
High correlations among hedge fund returns in recent months "could suggest concentrations of risk comparable to those preceding the hedge fund crisis in 1998," the Fed says in its report....
Could it happen again? The Fed won't say. But while it sounds the warning that the risks of hedge funds have increased since the last big crisis, the Fed deflates some anxiety about the industry's growing influence.
While returns are highly correlated--meaning different types of strategies are performing roughly equally--this trend in 2007 can be explained by low volatility. High correlations in 1998 had more to do with the fact that the funds then had high covariances, meaning they tended to move in the same direction at the same time, adding risk to the system because of the lack of diversification...
The findings come as lawmakers consider whether to impose more regulation on an industry that has largely escaped public scrutiny until recently...
(Excerpt) Read more at forbes.com ...
moving on now...
It is safe to predict a pullback here.
But if the market drops 20% ... might be a good buying opportunity.
Yep and if the market does pull back due to hedge funds, part of the blame can go squarely on the head of the Breck Girl. He's been working for a hedge fund for the past several years.....
I dont know much about these things, but I am not alone. I have heard they are very complicated and that most stockbrokers dont even know how they work.
But, Doesnt Chelsa Clinton work with these thing as a Broker?
Why? PE ratios say the market is slightly undervalued. The dollar slide has made our market cheap compared to europe’s. which makes us a good buy. Most recent economic data (ISM, among others) shows decent growth. Low inflation, low interest rates. etc
I think we could see a pullback because some people have to wonder if one George Soros is using hedge funds to deliberately sabotage the US economy.
The course of the market is driven by more than just fundamental analysis. There is a “psychology” to it, a kind of herd mentality that can change swiftly. If enough people decide this is the place to take profits, then there could be a rush for the exits.
Plus, remember that while EPS is probably the best measure of a stock’s value, even that can be a little deceptive. How businesses report, and even more importantly how they project, earnings can be tricky and subject to certain assumptions becoming reality. Cyclical businesses that depend on strong economic growth in order to make money may suffer should gas prices go up even more than they have already. In fact, to me it seems almost inevitable.
So what are you buying these days?
mutual funds and index funds.
No, wait, NAFTA is going to do in the economy.
No, wait, sending jobs overseas is going to do inthe economy.
No, wait, high oil prices is going to do in the economy.
No, wait, global warming is going to do in the economy.
No, wait, We're All Gonna Die!!!! EEEeeeekkk!!!!!
(barf)
Exactly. Way too many people are buying/selling based on their emotions rather than actual data.
Possibly the Soros-LBJ-E Howard Hunt-Bay of Pigs quadrilateral.
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