Fed Wakes Up To Hedge Fund Risks

[Neodude]

Quote from THE-BEAKER:

yes with hindsight this is obviously easy.

unfortunately no one seems to know what exactly is going on until the asset in question is worthless.

(too many examples to list )

i think the general point here is that hedge fund plc collectively when they all f..k up the market will go into turmoil.

the only thing you can do is put on the usual flight to quality trades.

Nobody said that trading/investing was easy. If anyone expects markets go up for ever with no risk, then they clearly shouldn't be trading. I think too many people have this notion in their minds that they are entitled to have their investments increase in value and that its the governments job to protect them from market down turns. If the markets crash everyone will blame hedge funds, but guess what, no body complains when their mutual fund portfolios are increasing in value because hedge funds are driving the demand for the assets in those portfolios...

Too many people see the markets as one way street. They are quick to blame when things turn bad, but they don't realize what was the reason for the increase in their wealth before a crash in the first place... there is no such thing as a free lunch, unless you believe in politicians.

-Neo

 

[arealpissedgoy]

Most "hedge funds" don't provide any particular purpose except to suck the management fees out of the suckers who "invest" in them.

Most of the new ones are one trick pony shows. Borrow JPY, buy USD Treasuries, use the treasuries as margin to buy US stocks.

The current US market is setting up for a catastrophic collapse surpassing that of the great crash of 1930.

 

[Neodude]

Quote from arealpissedgoy:

Most "hedge funds" don't provide any particular purpose except to suck the management fees out of the suckers who "invest" in them.

In that case mutual funds are on par with hedge funds. The managers aren't altruists, they only care about the fees. The only difference is that hedge funds charge higher fees and provide less correlated results.

-Neo

 

[S2007S]

watch the derivatives market, I have said this many times in the past on here, that market gets little attention. The market is actually so huge they dont even have an accurate number to go by.

 

[S2007S]

Derivatives such as options, futures, or swaps, generally offer the greatest possible reward for betting on whether the price of an underlying asset will go up or down. For example, a person may believe that a drug company may find a cure for cancer in the next year. If the person bought the stock for $10.00, and it went to $20.00 after the cure was announced, the person would have made a 100% return. If he borrowed money to buy the stock in U.S. (in U.S. law the general maximum he could borrow would be $5.00 or half of the purchase price), he would have used only $5.00 dollars of his own money and thus made a 300% return. However, if he paid a 1 dollar option premium to buy the stock at 11 dollars, when it shot up to 20 dollars he could have received the difference (9 dollars) and thus make an 800% return.

 

[S2007S]

Quote from S2007S:

Derivatives such as options, futures, or swaps, generally offer the greatest possible reward for betting on whether the price of an underlying asset will go up or down. For example, a person may believe that a drug company may find a cure for cancer in the next year. If the person bought the stock for $10.00, and it went to $20.00 after the cure was announced, the person would have made a 100% return. If he borrowed money to buy the stock in U.S. (in U.S. law the general maximum he could borrow would be $5.00 or half of the purchase price), he would have used only $5.00 dollars of his own money and thus made a 300% return. However, if he paid a 1 dollar option premium to buy the stock at 11 dollars, when it shot up to 20 dollars he could have received the difference (9 dollars) and thus make an 800% return.

See the risk involved, if the trade goes the other way, your in big, big trouble.

 

[daddyeaux]

Quote from S2007S:

Derivatives such as options, futures, or swaps, generally offer the greatest possible reward for betting on whether the price of an underlying asset will go up or down. For example, a person may believe that a drug company may find a cure for cancer in the next year. If the person bought the stock for $10.00, and it went to $20.00 after the cure was announced, the person would have made a 100% return. If he borrowed money to buy the stock in U.S. (in U.S. law the general maximum he could borrow would be $5.00 or half of the purchase price), he would have used only $5.00 dollars of his own money and thus made a 300% return. However, if he paid a 1 dollar option premium to buy the stock at 11 dollars, when it shot up to 20 dollars he could have received the difference (9 dollars) and thus make an 800% return.

so far, people take for granted the soundness of the counterparties to all these derivative trades, something I dont.....

the Fed. (and their surrogates: JP CITI etc.) may not have the resources or time to handle an elephant that suddenly dies....LTCM was a mouse compared to the money running around now

 

[Enfinity]

Not every hedge fund is making money...how did amaranth do last year, or goldman, or UBS for a more current example? If anything, the market is more efficient because there are more assets capable of going short than the traditional long only investing that have historically dominated the markets.

If you are worried buy 20year munis...what a joke, go find another forum to cry about managers making money when their investors do. People with the money to invest in hedge funds/private equity understand and embrace performance-based compensation, that's generally how the affluent accumulate their wealth in the first place!

A bunch of broke whiners on here!

Quote from daddyeaux:

so far, people take for granted the soundness of the counterparties to all these derivative trades, something I dont.....

the Fed. (and their surrogates: JP CITI etc.) may not have the resources or time to handle an elephant that suddenly dies....LTCM was a mouse compared to the money running around now

 

[anomaly]

The saddest thing is that most of the doomsayers, in this thread and in the property thread etc, actually want this financial meltdown to happen.

The worst among them want it to happen so that, despite the fact that they will be worse off themselves, and despite that lots of their friends will face financial hardship, they will be in a better relative position in society thanks to their oodles of cash at bank and in safe investments.

Others want it to happen to soothe their ego, after all it "should" happen to all these other complacent morons trading so recklessly and getting away with it.

 

[BVM88]

I would like it to happen, as you put it, so this precious planet of ours can have a rest. What good will all this wanton materialism do any of us if we end up without a tree standing or a bird singing. The last thing this planet needs is 100 mil Chinese taking up air travel or 500 mil of them buying cars. In addition, the longer this madness continues the greater the damage to the middle class will be when the mountain of debt eventually clears. Inflation always starts off feeling good but if allowed to get out of hand it ends up ravaging society . 1920's Germany is a classic example of the process of moral decay and disintegration of society brought on by extreme inflation, which is where the US is heading under the Fed IMO.