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Since When Did “Hedge Funds” Stop Hedging?


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#1 .Blizzard

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Posted 27 December 2006 - 02:54 PM

Shorts? Listen, my previous fund got hammered on the short side.”

That is a quote from a fellow sitting at a table squeezed next to me in a major metropolitan Starbucks.

The individual in question, who has a few grey hairs like yours truly, is marketing his fund to two younger men who—based on the sophisticated nature of their espresso drinks as well as the unsophisticated nature of their questions—appear to be fund-of-fund investors.

While I don’t know the man with the grey hairs, I vaguely recognize him from company meetings in years past as a fellow hedge fund veteran.

And what I find interesting about the whole thing is that, based on the quote above as well as snatches of conversation I can’t avoid hearing from three feet away, he is quite vociferously playing down his reputation as a hedge fund guy who actually used to hedge his portfolio with shorts.

He is doing so for the purpose of talking up his current, non-hedged hedge fund to his audience, by which I mean the two fund-of-funds managers who, based on their questions thus far, I frankly would not let invest my dog Lucy’s biscuit money, let alone the millions or billions of fund-of-fund money they appear to be investing on behalf of institutions seeking a slice of the hedge fund pie.

I say this not to disparage fund-of-fund managers as an asset class, but when I hear one of these financial middlemen earnestly explain that “the problem with shorting is that your potential gain is limited to 100% while your potential losses are infinite”—as if that insight just occurred to him, and he had to pass it along before his flash of brilliance got lost in the ether—it does not reflect glory on his peers.

Now, what’s the point of all this? you might well ask.

The point is that hedge fund managers appear to be shedding their short-selling identities in order to attract money, precisely at a time when markets are hitting new highs.

I find this a fascinating, particularly now that Iraq has turned into a full-fledged civil war, whatever the euphemism of the day, while cost pressures are rising around the world and we’ve had a currency panic in Thailand, not to mention the forcible appropriation of multi-billion-dollar natural resources from public companies by a thug masquerading as an elected President in Russia, who not for nothing is probably the single most powerful person on earth.

And since we know that what goes around, as they say, comes around, it seems to me that maybe now that grown men are eagerly disposing of their past life on the short-selling side of the hedge fund equation, we might be closer to a time when it could actually be worth looking for shorts rather than longs.

After all, if “hedge funds” don't hedge, they're not “hedge funds,” are they?



Jeff Matthews
I Am Not Making This Up


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#2 dcengr

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Posted 27 December 2006 - 02:57 PM

Someone is shorting, because short interest is still way up there.
Qui custodiet ipsos custodes?

#3 redfoliage2

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Posted 27 December 2006 - 04:50 PM

It will take turns to be hammered. Bulls are the next starting in January. :lol:

Edited by redfoliage2, 27 December 2006 - 04:50 PM.