Wondering if there is a clear understanding now....

[Art G]

http://www.early-retirement.org/forums/f28/are-hedge-funds-destroying-the-economy-37396.html

I started this thread back in July to discuss how naked shorting could affect the market. It was met with some resistance and misunderstanding over how what someone else was doing could affect you nonetheless. Just wondering if the picture is any clearer now?
I'd prefer to re-open this thread without all the arguing, but instead a realistic look at what can be done about hedge funds in the future.

 

[FinanceDude]

It seems that huge sucking sound is the hedge funds all going down the drain......

 

[ziggy29]

It seems that huge sucking sound is the hedge funds all going down the drain......

Yes -- but the question is, even if the hedgies are in trouble now and have deleveraged us into a tanked market, are we going to allow the same kind of practices in the future when it's time for them to start getting greedy again?

In other words, how much in the future will they be allowed to blow huge amounts of air into nascent bubbles and help prepare us for another ugly popping of a bubble?

 

[al_bundy]

we've had hedge funds for decades now and even back in the 1920's. they all follow buffet's 3 I's trend.

 

[ziggy29]

we've had hedge funds for decades now and even back in the 1920's.

Yes, but it also seems like the more we relax regulations on them, the more they blow up and the more they cause collateral damage to the economy.

 

[FinanceDude]

I don't see any more regulation coming down the pike than before. I hate to say it but the Feds are acting like a bunch of hypocrites. Parading folks before Congress is nothing more than politicking. If there were SERIOUS about stopping future problems, the Justice Department or Attorney General would be swinging a wrecking ball right now.

When was the last time we had an AG with real balls, Bobby Kennedy?

 

[wcv56]

Depends on how you would like your investments, rigid or flexible.
Few Mutual funds are like CGMFX and the best fund mangers of yester years
seem to run their own hedge funds now. Cramer preaches you cannot buy and hold
blue chips or any other asset class for that matter. Best bond funds seem to trade
quite active now days also. Passive vs Active, active with little limits seem better with only limits being margins I would prefer, but that is just me.

 

[Art G]

I would like some answers from the powers that be as to why they refuse to reinstate the uptick rule.

 

[al_bundy]

you can have all the short selling rules you want, but the companies getting shorted and their stock wiped out deserve it

 

[brewer12345]

I don't see any more regulation coming down the pike than before. I hate to say it but the Feds are acting like a bunch of hypocrites. Parading folks before Congress is nothing more than politicking. If there were SERIOUS about stopping future problems, the Justice Department or Attorney General would be swinging a wrecking ball right now.

When was the last time we had an AG with real balls, Bobby Kennedy?

Elliot Spitzer apparently had some real brass ones...

IMO:

The run up in leverage levels in hedge funds was partially fuelled by loose capital markets, but mostly done by the prime brokers. The prime brokers were mostly run by the Lehmans, Bears, Goldmans, etc. of the world, who were not regulated as banks or subject to much in the way of oversight. I can tell you from personal experience that JP Morgan's prime brokerage was much more conservative than those of the non-bank prime brokers, for example.

We are now in a world where the prime brokers have either imploded, been bought by banks, or have become banks. As such, all of this activity now comes under the purview of the bank regulatory authorities. Without a single new regulation being passed, the prime brokerage lending activities of the remaining players will be far more conservative than they were in the past. I do not expect this to change for a long time, if not ever.

The bad news is that the leverage in the system from this source ain't coming back. The good news is that once the grand liquidation is over the pain should be pretty much over with.

 

[Art G]

you can have all the short selling rules you want, but the companies getting shorted and their stock wiped out deserve it

So, you think all stocks are fairly priced now?

 

[al_bundy]

stocks are never fairly priced except when you average the prices over the long term of say 3-5 years. go back to 2004 - 2005 and you will see companies losing 30% or more of value in a short period of time as well.

back in the 50's someone made a chart of how the business cycle and a bull market works. first tech goes up and then the money rotates to other sectors with energy and industrials being the last sectors to run up. over the last 5 years you will see tech first making crazy returns and then the stocks being sold off even though there is still double digit growth.

look at the commodities last few months. first they are down up to 70% since July in some cases and now they are up 50% in the last 2 weeks.

 

[Art G]

Nonetheless, the naked shorting done by hedge funds and brokerages have way overly artificially knocked down the true value of many companies. I still think there is a big confusion between naked shorting and shorting stocks and how the uptick rule being lifted created a situation allowing naked shorting to destroy much of the market. Some day, someone will make a movie.
The brewster could explain it, but I doubt he will.

 

[al_bundy]

the ratings agencies are just as much at fault

first they rate junk bonds AAA then they change their standards and take thestock price into account of the bond's rating. how much you want to be the big banks made them do that so they could short the junk mortgage lenders back in 2005 - 2007? only now that everyone is shorting the big banks it's suddenly not fair.

 

[Art G]

Oh, the ratings agencies are definitely at fault. I wouldn't say just as much though. There's a big difference between intent to deceive and the absence of adjusting to it. One case it was proactive, in the other they were not reactive.
I don't know that I would blame the big banks. I might prefer to put the blame on the government agencies and government officials.

 

[Art G]

The boss of a successful US hedge fund has quit the industry with an extraordinary farewell letter dismissing his rivals as over-privileged "idiots" and thanking "stupid" traders for making him rich.

So long, suckers. Millionaire hedge fund boss thanks 'idiot' traders and retires at 37 | Business | The Guardian