Hedge Funds are Doing REAL Damage!
I read the story on how everybody is nervous on the Euro. What I find completely hilarious about all of this is that for every cent the Euro looses strength it is about 0.50 to 2 cents earnings from many of the big global corporations in the US. Here is my list, Starbucks, Visa, Mc Donalds and so on…
But what was more telling is are the following comments:
It appears that the Europeans are waking up to the reality that our American politians are still not accepting. We better start hunkering down!
and the more important comment:
This is great. We are letting hedge funds (who the author calls "investors") dictate government policies.
Spain just announced austerity measure as unemplyment rises to record levels. Their sin? Debt/GDP of 60%, one (1) percent higher than for Germany. But that’s enough to set Satan’s horsemen on onto the market.
Meanwhile, REAL INVESTORS as hedge funds short selling drives down bond values (even though all payments are being made on time) and real people suffer.
as governments slash spending in the face of a depression. Just like 1934.
We’ve let hedge funds do enough damage. Shut ‘em down.
Folks, I love the market as much as anybody, but this jumping on debt to push down the governments is going to get the hedge funds into quite a bit of trouble. This is starting to turn into the same fiasco as the financial markets.
What bothers me in all of this is that speculators are honest to goodness driving the markets crazy. First it was finance, then it was oil and commodities, then it was gold, and now sovereign debt. While people don’t mind some speculation this rampant up and down bubbling is going to take its toll!
The pendulum is going to swing the other way and it is at that point I say WATCH THE FUCK OUT!!! Yes I swore, but this is starting to make me very very nervous… It is making me nervous because the half life between bubbles is becoming shorter and shorter…
(No Ratings Yet)
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What’s your long-term on gold? As the half-life between bubbles gets smaller, we approach a 1987 moment most likely where not just extreme volume ratios but infrastructure drop the market. Remember in 2008 it was metals in Feb/March, Grains in April/May, Energy in June/July and then finally a “bubble” in dollars as everything finally couldn’t hack it anymore and unwound. Maybe we’re approaching something similar but bigger… might want some allocated gold receipts to fall back on when those banking and money market deposits seem no longer beyond reproach, as in Sept. 2008
My counter-point to this instance is that the CDS is gapping up to track the sell-off in bonds rather than leading it as the leveraged speculator theory might suggest. As in any gamma-inducing, high-speed, mass-correlation, volatile event, on scales as short as intraday or as large as multi-year, the force driving it is the closing of positions, not the opening of highly leveraged speculative positions. The speculative positions are often in the minority and benefit quickly from the exegis of larger, longer-term position clusters being closed out in panic or, as the case is often these days, an automated panic-once-removed.
That, to my understanding, is how the market works, massive inefficiencies build up and then get flushed out, it’s as natural as accidental death or unplanned birth. Shutting down hedge funds isn’t going to do a damn thing to stop financial armageddon, you’d just be taking away a small fraction of the contributing volume. The only thing that can stop financial armageddon is an abandonment of fractional reserve banking for interest-free credit clearing, but considering the entrenched oligarchies involve, I suspect we’ll need the ultimate wash-out first.
Note, while shutting down hedge funds or banning them would be trivial and medio-fascist, preventing “banks” with access to deposits, fractaional reserve lending terms, and the Fed’s ZIRP discount window from doing practically unlimited leveraged speculation and front-running is a different story, that’s endemic enough that it can really exacerbate things. Caps on AUM might be reasonable, my reading of the LTCM story was that they were not only too big to fail, but too big to succeed, their positions simply could not be unwound gently in the event of a margin call. Position limits are also worth considering. Let’s just not throw the baby out with the bathwater, speculation plays and important role in the market, it checks the madness of the herd and at the risk of those doing it.