Economist predicts Hedge fund Failures,PANIC, Closed markets

I saw this postred today on Bloomberg.com and thought it worthy to post.
I know most of the markets finished up today, But I think it will be short lived.
what I have been reading, and will post soon is that this is just the start of a series of events which will get worse before they better. It really doesn't matter who wins the election from this standpoint-Whoever it is will have a huge problem to try to fix as best they can

www.bloomberg.com...

This guy sounds Ligit. Not some Hack who says the Dow is going down to 2300

reply to post by ARNOMANNN


From the point in which the economy reaches it's highest peak (14,165.43) to it's current level.. the DOW Jones Average has dropped 40% in value.

40% of the entire value of the 30 largest companies in America.

Mutual funds are invested heavily in these stocks.. Hedge funds are, as are pensions.

Now many people see the "point" basis of the Dow and wonder .. er.. what exactly does that even mean?

Basically, when we see the DOW's point it is ALL 30 companies stocks added together.. it is then divided to reach this "point" that you see.. I believe the number the stocks are divided by is something like .1228 or something close to it.

To see the DOW drop 40% it would imply that as an AVERAGE, the stock prices of individual companies have also dropped by 40%.

Of course 20 prices can be down, 10 can be up and it shows negative.

But what it means in the long term is quite simply... a massive amount of wealth has disappeared. Equity has been lost.

On top of the general price of shares falling threw the floor, we have also seen a rush of investors pulling money out of Mutual funds, and hedge funds moving more and more money into safer investments.. causing the price of shares to drop. Also putting funds at risk of collapse..

Average fund is -25-40% ..

The S&P 500 is a far better gauge of the economy .. representing 500 companies, some larger then those on the DOW.. for instance Exxon is on the S&P (Exxon actually represents 3.5% of the entire S&P....)

And the S&P Has dropped significantly (high was 1,555.10 points).
777.55 points on the S&P is a 50% decline. S&P LOW for this year is 840 points... so you can see how bad the markets are. Especially when you consider the shear amount of money invested in all 500 of these companies.. the equity and funds lost dwarf the DOW many times over.

So you can just imagine what it is doing to these funds.. not to mention to those invested in them. The only reason we have not seen them failing is quite simply people are trying to ride this out. More and more individuals are pulling money from the markets accepting they took a loss, but they want to save as much as they can before the markets drop even further.

The week of Sept. 29th the US was pulling on average $86 billion from mutual funds alone per day!

I don't think we will see closed markets yet, but I would agree if the major hedge funds begin failing (Which I would not be surprised to see come February....) then it will be concrete proof we are in for very hard and difficult times ahead.

The credit collapse presented a systemic risk.

Hundreds of hedge funds collapsing presents another systemic risk.

From what I understand, October-November is the annual period for investors to fund or withdraw from hedge funds. Hedge funds ability to short over the year is doubtful, so they can't hedge. There's a surrender charge if an investor withdraws early, so why invest if they can't hedge and there's a surrender charge?

Hedge funds shutting down would pull Trillions of active trades from the market. That might leave a mark.

Originally posted by Dbriefed
The credit collapse presented a systemic risk.

Hundreds of hedge funds collapsing presents another systemic risk.

From what I understand, October-November is the annual period for investors to fund or withdraw from hedge funds.
Hedge funds shutting down would pull Trillions of active trades from the market. That might leave a mark.

That might just leave a noticeable mark!

The Japanese Yen just got even stronger against the US Dollar. I mean JUST.

The overnight markets have China losing 811 pts, commodities are tanking and US futures are all in the negative.

When Yen breaks certain key support, there will be tons of hedge funds going belly up because they need to dump whatever position they are in to repay the Yen loan.

I really don't want to sound like a fear mongering fool or like a 7 layer tinfoil hat type, but, tomorrow is probably going to be VERY UGLY for US markets and by next week, many people may be wishing they HAD gone out to stock up on beans and rice.

Well we will probably mirror our sister nation Japan. Whatever they fall so will we. After all, they are a mirror of the United States.

[edit on 24-10-2008 by TH3ON3]

reply to post by TH3ON3


Obviously you don't understand. Japanese money is a better investment that US money right now.

Japan will suffer, yes - EVERY country in the WORLD is gonna suffer, but the US is gonna suffer the worst.

Why? Because the rest of them are going to blame us for thier hardships

And they WILL BE RIGHT

Originally posted by redhatty
When Yen breaks certain key support, there will be tons of hedge funds going belly up because they need to dump whatever position they are in to repay the Yen loan.

This is very important. A lot of the huge losses we saw on the Dow were the result of hedges getting margin calls. If the Yen breaks that barrier, the past three weeks are going to look like a walk in the park.

reply to post by redhatty


I understand, I'm just talking about today in our markets. I don't like to look too far ahead it is too depressing.

The danger of pulling a trillion or so out of hedge funds is that they're heavily leveraged both long and short. Pulling a trillion out of hedge funds is like pulling near a hundred trillion out of the stock market.

Originally posted by ARNOMANNN
I saw this postred today on Bloomberg.com and thought it worthy to post.

This guy sounds Ligit. Not some Hack who says the Dow is going down to 2300

the 'guy' is -Roubini, and he's gotten a lot of positive coverage in the markets, the media & here on ATS...

i also think when he talks 'hedge funds' thats code for both the Hedge funds and the multitude of Mutual Funds out there...
and the +8 years of economic insanity out there which created credit swaps, intrest saps, derivatives galore, & Funds of Funds...

when you quip a DOW 2300... you may be more correct than you think...
not that 2300 is the actual number --but that the return to a 'market normal' condition is when 90% of the gambling Hedge funds are out of existance, that 50% of the Mutual Funds have either went under or got merged/acquired by bigger Mutuals...

and the 'market normal' might be nearer the DOW average of Y2k,
but with market operations closer to a 1959 model of the allowable practices and accounting standards.



as a sidebar, the Russia markets are to be closed all next week,
perhaps with the American's IRAs, 401k holdings being redeemed and hollowing out the majority of the Mutual Fund base ($4 Trillion?)
then with no 'buyers'...the NYSE stock market will voluntarily close themselves for a week at a time...until they too become fully electronic as is the NASDAQ