Panic of the Rich Rolls On ...

That wonderful investment innovation, the hedge fund, continues to leave its scat all over the investment Universe. I suppose we can call them, "Sons of Portfolio Insurance", as their "professional" managers were supposed to provide steady, reasonable returns in any market. Such claims were sheer quacksalvery, as that is impossible in the size for which they were paid colossal sums. And now that they have predictably failed "in the crunch", the rich are panicking. I suppose they are afraid they will have to give up that art collection ... or the helicopter to the Hamptons ... or ... gasp ... have to go back to work.

Certainly the mega-genius hedge fund managers and traders and derivative gurus fear they might have to learn a new profession. So they are panicking in a pulsing stampede which reappears whenever some fear can be conjured ... or re-conjured ... or re-re-conjured.

Such happened yesterday, as fears of a "Recession" were touted as causing selling. Uh ... have not the pundits been saying the US recession began in the first days of 2008 ? So are they wrong now or wrong then or ? They cannot be right in both instances, as that is a "disjunctive" [aka either - or] syllogism.

FT: "Investors pulled at least $43bn from US hedge funds in September as market turmoil led to unprecedented withdrawals, an analysis by a leading research house shows. The data from TrimTabs Investment Research – which was to be sent to clients late on Wednesday – come as hedge funds are working to prevent far bigger redemptions by the end of the year, when many funds give investors a chance to take out money." ...

"The chief executive of a leading alternative investment manager said he expected the hedge fund industry to shrink by 50 per cent in coming months – with half the decline coming from withdrawals and half coming from investment losses." ...

"JPMorgan Chase has estimated that hedge fund outflows could total up to $150bn over the coming year. As investors take their money out of hedge funds, the funds have to sell assets.
But because they use so much borrowed money, the amount of potential asset sales is far larger. For example, JPMorgan expects that an outflow of $150bn will lead to sales of about $400bn. "

So we should expect the wild rides to continue. Beware of excessive margin.

Hmmm ... I see the President of France reads this blog. I see he has called for regulation and supervision of hedge funds.

Books

Civil War Soldiers by Reid Mitchell provides a huge collection and synthesis of actual opinions, views and fears that Union and Confederate soldiers included in their letters home. These are first hand accounts of that war, which was the first industrialized, modern war in the world. I finished reading this book in my home town last week and rate this book 5 stars.

Word of the Day

"Transvalue" - verb, transitive [$10]; and "Transvaluation" - noun.
Transvalue means to re-estimate the value of, esp. on a basis differing from accepted standards; reappraise; reevaluate.
Sentence: Transvaluation of mortgage securities to a long term, hold to maturity basis determined from actual losses and cash flows from the current panic sale pricing should help lenders begin to make new loans to home buyers by preventing instant "mark-to-market" losses on performing loan pools.