You Think it's Bad Now - Wait for the Hedge Fund Clippers

By Bill Glynn

Trillions invested in high flying hedge funds will get a buzz cut in '09. I bet many didn't see this one coming! Worse, many don't even know what the heck it is. Hedge funds represent over $2 trillion invested in the financial markets. So why do we care? Do you recall Long Term Capital Management (LTCM) that collapsed due to exposure to the Russian market in 1998? It rocked Wall Street to its core and the U.S. had to step in and loan them $3.65 billion to keep them alive long enough to liquidate. The problem is today these funds have huge influence within the stock market and investors are screaming for their money back. That is very bad and, worse, most of the funds are down 30-40-50% or more. The industry is being pushed right off a cliff and managers with billions of dollars invested cannot give investors their money back. Here it comes again - once the investors start screaming to get their money back - and they roared loudly last year - it causes a vicious circle that causes more panicked investors to ask for their money back, too. Like the run on Washington mutual. I will predict now that at least $500 billion will get sucked out in '09 - and the only way to suck it out is to sell it off. What happens if there is a major sell off of stocks and bonds? You know the answer... and it is coming. [more...]