Today five of the most powerful men in the hedge fund world are in Washington speaking to the Oversight committee. The were invited (told) to testify in Washington to the effect that hedge funds had in the economic crisis that is upon us now.
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George Soros Of Soros Fund Management, John Paulson of Paulson & co., Jim Simons of Renaissance Technologies along with Citadel Investment Group’s founder Ken Griffin appeared in front of Committee Chairman Henry Waxman.
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Ironically they agree that there needs to be more transparency from the industry of secretive funds. They also gave different views on whether or not they contributed th the financial crisis. George Soros di say that hedge funds were part of the reason for the financial bubble. Mr Soros wrote in a statement “A deep recession is now inevitable and the possibility of a depression cannot be ruled out,” sent to the Oversight and Government Reform Committee hearing.
This is the ma who is know for betting against the British pound back in 1992 and recently backing Senator Barack Hussein Obama for President.
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The Committee wants to hear from the leaders in the hedge fund industry about the role of these funds as well as their tax status and regulation. Oddly enough when the financial and economic world was falling apart, these gentlemen made on average $1 billion last year. That is also why they were called to appear in Washington.
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“Currently, hedge funds are virtually unregulated,” Waxman said. “They are not required to report information on their holdings, their leverage, or their strategies. Regulators aren’t even certain how many hedge funds exist or how much money they control.”
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I don’t know about you but this is quite fishy. Why is it that these guys can do what they do and not have to be accountable for their actions? Yes I know that many of them are operated outside of the United States, but they trade in U.S. currency and it’s assets.
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I also know that they are not the only reason for the collapse of the financial industry. Most of that blame does have to fall on the managers of those institutions, rating agencies, investment banks as well as the people who over-extended themselves with credit.
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As to the regulations that were non-existing for the last several years. Most of that blame must be put on Congress, the Treasury Dept. and the Federal Reserve. It’s their job to keep things in order. Unfortunately, many of those politicians were re-elected. Barney Frank, Henry Dodds along with Obama who was able to deflect most of the blame during the election. We will have to wait until 2010 before we have a chance to remove some of these lazy, elected government officials.
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David Ruder, a former chairman of the U.S. Securities and Exchange Commission tried a few years ago to force the hedge funds to register with the agency, but failed was also present at the hearing.
“Although hedge funds have been active participants in the financial markets during the past years, they do not seem to have played a major role in the events precipitating the crisis,” Ruder told the hearing.
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The men who were summoned to the hearing today are some of the leaders in the hedge fund industry. These guys are known by playing by the rules. The bad thing is that there aren’t that many rules for them to follow. Many of the hedge funds that we’ve been hearing about going under are the less respectable ones. The ones that don’t really follow any rules and leveraged the hell out of their funds.

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Today the latest retail numbers were released and I’m sure most of you (if not all) weren’t surprised. Let’s be for real, the economy is in the crapper and to expect any retailer (except Walmart of course)to post good numbers in this quarter or even the next.
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The results were devastating and to make matters worse, the rumor out today was that there are more hedge funds redemptions. This is just a continued de-leveraging of the markets. Unfortunately no one really knows how many more hedge funds are going to drag down the stock market. This type of roller-coaster ride is far from over.
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Expect that each time the markets make up some good ground like they did in the last two weeks, hedge funds will take profits and dump their positions. So my advice to my readers are to do the same. In this type of volatility, anyone invested in the markets need to be more of a trader than a investor. Take caution and profit where you can and hold on to a good portion of capitol on the side for when days like this take place.
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There quite a few companies that their stocks have taken a beaten. If you are prepared with capitol, you can pick up some shares at a great discount. As a matter of fact there are too many that fall into this category. Too bad that it would take me about a month to list them.
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I’m sure many of my readers have their selection of stocks that they favor which have dropped in share price, so take your time and if you do get caught in the red, be patient and leave your emotions at the door.

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It’s been rough for hedge funds in the first three quarters of this year. After the average hedge fund lost close to 5% in the first eight months and then to lose another 7% for the month of September alone (according to hedge fund research), It become deadly for many of them in the first week of October.
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At the end of last month, many funds were expecting more than the usual level of requests from their clients/investors to pull cash out. which makes it hard to work on their longer-term trades when they stand the chance of losing capitol to do so. In turn hurting other investors in the fund. The number one reason hedge fund managers have guidelines in getting withdrawals.
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Unless you’ve been living under a rock, you’ve now heard in the last week that many of these hedge funds are in emergency status trying to raise capitol for their clients that want to pull out their money. In the process they’re running in the negative zone. To make matters worse, hedge funds bolster their returns with lots of borrowed money, which makes it harder for them to do what they do best.
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These firms make up a good percentage of why we’ve seen the decline in prices in the last few days. As a matter of fact, if you were watching Quantas Services Inc. (NYSE:PWR) on Tuesday, you would have seen a spike sell volume of almost 4 million shares in a one minute time frame. It’s believed that that trade was a hedge fund liquidating assets.
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Some funds are also trapped in the Lehman Brothers London Unit, which is now a thing of the past. The volatility in the markets has been accelerated by the failures in the financial sector like Lehman Brothers, AIG and Wachovia bank. Let’s not forget to debacle that went on in Congress recently.
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It’s getting harder for hedge funds to make positive gains. Yes, there are some that have had some good returns this year, but they’re getting few and far between. Most of them are down and could start seeing the writing on the wall of their impending doom. With all that is going on in the industry, there will be less firms out there. Of course the big dogs will survive to fight again, but how much capitol will they be able to raise to invest with is another question.

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