[gampy]

More trouble ahead, more yo-yo markets, I guess.

Will be interesting to see next weeks market activity.

[roccman]

A RAFT of European hedge funds have been forced to introduce emergency measures to protect their businesses from collapsing in the wake of the turmoil in financial markets.

Up to 10 European hedge funds have suspended redemptions after investors clamoured for their cash when the managers made severe losses.

Popcorn please...

[I_Like_Plants]

good catch Rocc.

There's a lot of really scary shit going on financially, and most of it's being covered up, "nothing to see here, move along" etc.

Tomorrow (Monday) should be interesting.

[lateStarter]

Thanks for the update Roc. My only question is how many of these:

Funds with heavy losses reportedly include Corin, Phylon, Addax FX1, Henderson Global Currency, Odey Treasury, Sector ERV, Kinetic Special Situations, Systeia Alternative Risk Trading and Polar Technology, according to Eurohedge, which monitors the industry

are UK specific as opposed to 'Europe'? I suspect that the UK is the next US. The rest of Europe will follow shortly spreading West to East. Hopefully, I can keep riding in front of this crest....

[Twilight]

My only question is how many of these:

Funds with heavy losses reportedly include Corin, Phylon, Addax FX1, Henderson Global Currency, Odey Treasury, Sector ERV, Kinetic Special Situations, Systeia Alternative Risk Trading and Polar Technology, according to Eurohedge, which monitors the industry

are UK specific as opposed to 'Europe'?

My searching reveals that most appear to be based in Ireland for what I assume to be tax purposes, but really:

Corin - ? but some UK
Phylon - UK
Addax FX1 - UK
Henderson Global Currency - UK
Odey Treasury - UK
Sector ERV - Norway
Kinetic Special Situations - US/UK
Systeia Alternative Risk Trading - France
Polar Technology - UK

Take this with a large pinch of salt, everything but indirect references is hidden behind paywalls.

It is to be expected though, London has become the world's biggest financial centre and firms have been choosing it ahead of the "over-regulated" US for some time. The UK's economy will be severely impacted by all this because a large part of it is fees generated from looking after other people's money. Remember that the money flowing through the City belongs to everyone. If we freeze up, hard luck, World.

[Ferretlover]

Oops! Somebody is not happy......

St Paul Pioneer Press 1 Feb 2008 p 5C:
"Investors attempted to draw out 70 percent of capital. By staff
Investor dissatisfaction and a decline in leveraged buyouts in the US have prompted Deephaven Capital Management, one of Minnesota's biggest and best-known hedge fund managers, to liquidate one of its six funds.
Deephaven, based in Minnetonka, will sell the $780 million in assets in its Deephaven Event Fund and return the cash to investors, according to a document filed Thursday with the Securitiesand Exchange Commission. Deephaven also froze redemptions from the fund after investors tried to withdraw 70 of capital, CEO Colin Smith said in a letter sent to clients the same day. Fund Manager Andrew Greenberg left the company. "

[DantesPeak]

Well so many, even here, have stated that hedge fund speculation has pushed up oil prices. I said prove it - and also while your at it show me that hedge funds didn't push down prices. Now the Wall Street Journal says that hedge funds weren't investing in oil futures contracts - and they missed the boat on the big upmove. What say you - all of you who have constantly stated that hedge funds were pushing prices higher?

Energy Hedge Funds Missing Oil Boom Returns Lag Even as Futures Prices Soar,
Undermining Fears of Speculators' Clout By GREGORY ZUCKERMAN and ERIC BAUM, 9 Jun 2008:
If speculators are responsible for driving up energy prices, some of them haven't been doing a good job of profiting from the surge.

Hedge funds that focus on energy failed to cash in on huge moves in oil, natural gas, coal and other parts of the energy patch this year. Some were too cautious, bet against crude oil to protect other holdings or bought stocks of oil refiners and producers, many of which have struggled. Exxon Mobil Corp., for example, is down more than 7% this year.

Hedge funds generally take both bullish and bearish stances on an investment sector, so they don't usually keep up when a market soars.

Some of the hedge funds having difficulties may have been among those that bet against the price of long-term oil-futures contracts, while at the same time buying near-term oil futures, says Mary Ann Bartels, an analyst at Merrill Lynch. That strategy backfired in recent weeks when long-term energy-futures prices did better than near-term prices.

The strength in crude this year has caught some veteran traders by surprise, in part because oil inventories have been relatively full. "People seemed to get too scared when it neared $100 a barrel that a pullback was possible and have been gun shy getting back in ever since," said one hedge-fund manager.

WSJ

[roccman]

Yep...

The coming global economic meltdown will have zero to do with speculation.

Nice find Dantes.

[mmasters]

Since when did the WSJ become the beacon of truth?

[copious.abundance]

Ummmm . . . some people aren't reading very carefully. The article isn't saying that hedge funds didn't invest in oil, it just says that many didn't make money doing so.

Hedge funds that focus on energy failed to cash in on huge moves in oil, natural gas, coal and other parts of the energy patch this year. Some were too cautious, bet against crude oil to protect other holdings or bought stocks of oil refiners and producers, many of which have struggled. Exxon Mobil Corp., for example, is down more than 7% this year.

Hedge funds generally take both bullish and bearish stances on an investment sector, so they don't usually keep up when a market soars.

Some of the hedge funds having difficulties may have been among those that bet against the price of long-term oil-futures contracts, while at the same time buying near-term oil futures, says Mary Ann Bartels, an analyst at Merrill Lynch. That strategy backfired in recent weeks when long-term energy-futures prices did better than near-term prices.

[cube]

*calling JohnDenver*

[americandream]

Ummmm . . . some people aren't reading very carefully. The article isn't saying that hedge funds didn't invest in oil, it just says that many didn't make money doing so.

Hedge funds that focus on energy failed to cash in on huge moves in oil, natural gas, coal and other parts of the energy patch this year. Some were too cautious, bet against crude oil to protect other holdings or bought stocks of oil refiners and producers, many of which have struggled. Exxon Mobil Corp., for example, is down more than 7% this year.

Hedge funds generally take both bullish and bearish stances on an investment sector, so they don't usually keep up when a market soars.

Some of the hedge funds having difficulties may have been among those that bet against the price of long-term oil-futures contracts, while at the same time buying near-term oil futures, says Mary Ann Bartels, an analyst at Merrill Lynch. That strategy backfired in recent weeks when long-term energy-futures prices did better than near-term prices.

I think the inference in this thread and its WSJ link was that they (hedge funds in case u think I'm talking about little green men) weren't the investment drivers behind the oil price hike...talk about bein a dimwit!

[MonteQuest]

Ummmm . . . some people aren't reading very carefully. The article isn't saying that hedge funds didn't invest in oil, it just says that many didn't make money doing so.

Duh! Exactly. They were shorting oil.

[copious.abundance]

I think the inference in this thread and its WSJ link was that they (hedge funds in case u think I'm talking about little green men) weren't the investment drivers behind the oil price hike...talk about bein a dimwit!

Dante's Peak said:

Now the Wall Street Journal says that hedge funds weren't investing in oil futures contracts

But that's not what the article said. The article is hidden behind a subscription wall, so I can't read the entire thing. Here is the teaser:

If speculators are responsible for driving up energy prices, some of them haven't been doing a good job of profiting from the surge.

Hedge funds that focus on energy failed to cash in on huge moves in oil, natural gas, coal and other parts of the energy patch this year. Some were too cautious, bet against crude oil to protect other holdings or bought stocks of oil refiners and producers, many of which have struggled. Exxon Mobil Corp., for example, is down more than 7% this year.

The 97 hedge funds that focus on energy investments were up an average ...

Notice that it says "some" of these hedge funds haven't been doing a good job about profiting from the surge in oil prices. Based on the teaser, and based on the excerpt Dante posted, it says absolutely nothing to the effect that no hedge funds have been investing in oil futures contracts.

[americandream]

I think the inference in this thread and its WSJ link was that they (hedge funds in case u think I'm talking about little green men) weren't the investment drivers behind the oil price hike...talk about bein a dimwit!

Dante's Peak said:

Now the Wall Street Journal says that hedge funds weren't investing in oil futures contracts

But that's not what the article said. The article is hidden behind a subscription wall, so I can't read the entire thing. Here is the teaser:

If speculators are responsible for driving up energy prices, some of them haven't been doing a good job of profiting from the surge.

Hedge funds that focus on energy failed to cash in on huge moves in oil, natural gas, coal and other parts of the energy patch this year. Some were too cautious, bet against crude oil to protect other holdings or bought stocks of oil refiners and producers, many of which have struggled. Exxon Mobil Corp., for example, is down more than 7% this year.

The 97 hedge funds that focus on energy investments were up an average ...

Notice that it says "some" of these hedge funds haven't been doing a good job about profiting from the surge in oil prices. Based on the teaser, and based on the excerpt Dante posted, it says absolutely nothing to the effect that no hedge funds have been investing in oil futures contracts.

I don't think that actions of short or failed long hedgies are really an issue in the debate over rising oil prices. You're being disingenuous to say the least.

[mefistofeles]

Hedge funds usually invest in directionality, in other words most of the time they follow popular trends except with far more leverage. In other words they tend to follow the pack.

The vast majority of oil experts at the start of the year were predicting lower oil prices.

If hedge funds did bet on energy I would imagine that the vast majority probably bet against energy. Think of most of the people you know in the investment world, they certainly didn't think oil would have this spectacular run up.

Alot of people were saying that oil was overpriced,blah, blah.

In this kind of environment what would most hedge fund managers do? Invest in oil. Probably not, especially with all the "experts" saying that oil had topped out.

[kublikhan]

What say you - all of you who have constantly stated that hedge funds were pushing prices higher?

You called? I answer. Index speculators have been pumping up the price of oil. Check out this graph of the increasing amounts of index investment money pouring into commodities:

Or listen to a hedge fund manager's testimony before congress:

"You have asked the question 'Are Institutional Investors contributing to food and energy price inflation?' And my unequivocal answer is 'YES.' In this testimony I will explain that Institutional Investors are one of, if not the primary, factors affecting commodities prices today. Clearly, there are many factors that contribute to price determination in the commodities markets; I am here to expose a fast-growing yet virtually unnoticed factor, and one that presents a problem that can be expediently corrected through legislative policy action."
"What we are experiencing is a demand shock coming from a new category of participant in the commodities futures markets: Institutional Investors. Specifically, these are Corporate and Government Pension Funds, Sovereign Wealth Funds, University Endowments and other Institutional Investors. Collectively, these investors now account on average for a larger share of outstanding commodities futures contracts than any other market participant.
"These parties, who I call Index Speculators, allocate a portion of their portfolios to "investments" in the commodities futures market, and behave very differently from the traditional speculators that have always existed in this marketplace. I refer to them as "Index" Speculators because of their investing strategy: they distribute their allocation of dollars across the 25 key commodities futures according to the popular indices - the Standard & Poors - Goldman Sachs Commodity Index and the Dow Jones - AIG Commodity Index."
Why would an investor want exposure to a long-only index of commodities? Perhaps for portfolio diversification, as commodities are uncorrelated with the rest of the portfolio, or as a way to play the growing demand for commodities of all sorts from emerging markets, as a hedge against inflation, and so on. Mainline investment consultants began to suggest a few years ago to their clients that they get into the commodity market on a buy and hold basis, just like they do with stocks and bonds.
And they have done so in a very large way. As the chart below shows, at the end of 2003 there was $13 billion in commodity index funds. By March of this year, that amount had grown 20 times, to $260 billion. Masters also shows that this corresponds with the stratospheric rise in commodity prices. In many commodity futures markets, index speculators are now the single largest participant.

Price of Oil

[mefistofeles]

You called? I answer. Index speculators have been pumping up the price of oil. Check out this graph of the increasing amounts of index investment money pouring into commodities

I would argue its really a symptom of Rampant monetary growth. The has sent trillions of dollars overseas to the arab states and China and India. China alone has 1.3 trillion dollars worth of reserves and a rapidly growing economy.

Steel prices in Asia are 50% higher than a year ago and 30-50% higher than the year before than and the year before that. You get the picture.

A few hundred billion in the commodities markets. I think you're really looking at comparatively minimal inflows.

Look at the mortgage markets:

FHLB Bank loan to Countrywide.

So what you're saying is that between Microsoft's take over bid for Yahoo and single loan to FHLB Bank loan to Countrywide you have 40% of the commodities market covered.

If anything the commodities market is dwarfed by much larger capital market.

The market for mortgage backed securities is roughly 6.1 trillon or about 17.4 times as large the total commodities index.

Then of course you have foreign central banks holding Four Trillion Dollars worth of reserves.

Of course let's not forget about the rampant 15%+ monetary growth in the US and Eurozone for the past five years. That alone would explain why the commodities markets have boomed. After six years you find that the money supply has multiplied by 2.4 times.

Is there a bubble maybe, but there is ALOT of hot money in the world only a small fraction has gone into the commodities markets. Compared to other financial markets and what foreign central banks are holding the commodities market are comparatively undercapitalized, considering how important commodities are.

In fact I would say the commodities rally hasn't even started because the vast majority of the world's money hasn't discovered commodities.

[mefistofeles]

I think the key to stopping this tide of inflation would be super high interest rates. We need 12-14% rates here in the US. People need to save, conversely we need extreme fiscal discipline in order to insure that Congress doesn't bankrupt the US during such a high interest rate period.

Of course some would argue that sort of cure would be far worse than the disease,maybe. But the situation in the world is extreme and drastic steps need to be taken in order to take the wind of the economy and create a nice 30's style depression to contain the situation. Anything else will result in hyperinflation.

As I said in my last post, we haven't even seen the begining of the great commodities boom if the Fed doesn't act quickly and drastically.

[kublikhan]

A few hundred billion in the commodities markets. I think you're really looking at comparatively minimal inflows.
Look at the mortgage markets:
FHLB Bank loan to Countrywide.
So what you're saying is that between Microsoft's take over bid for Yahoo and single loan to FHLB Bank loan to Countrywide you have 40% of the commodities market covered. If anything the commodities market is dwarfed by much larger capital market. The market for mortgage backed securities is roughly 6.1 trillon or about 17.4 times as large the total commodities index.
Then of course you have foreign central banks holding Four Trillion Dollars worth of reserves.
Is there a bubble maybe, but there is ALOT of hot money in the world only a small fraction has gone into the commodities markets. Compared to other financial markets and what foreign central banks are holding the commodities market are comparatively undercapitalized, considering how important commodities are.

I got some volume data on ICE, both future contracts and OTC. The OTC data is imprecise because it is tracking commissions not contracts, and because it is not tracking Brent specifically, but it should give us a general idea of what kind of traffic they are experiencing.

ICE Brent Crude futures contract(does not include WTI or gas):
May 2005: 78,996
May 2006: 113,931
Febuary 2007: 214,566
March 2007: 235,467
April 2007: 214,855
February 2008: 258,784
March 2008: 283,890
April 2008: 259,242
May 2008: 304,656

ICE OTC average daily commissions:
April 2004: $140,619
April 2005: $275,649
April 2006: $483,343
April 2007: $747,787
April 2008: $1,268,742

Look at the volume data here for ICE. the OTC commissions went from $140,619 in 2004 to $1,268,742 in 2008. We are talking about a nine fold increase in volume in only 4 years. I would hardly call that kind of increase minimal. Brent futures went up nearly 4 fold as well.

I think the key to stopping this tide of inflation would be super high interest rates. We need 12-14% rates here in the US. People need to save, conversely we need extreme fiscal discipline in order to insure that Congress doesn't bankrupt the US during such a high interest rate period.

Of course some would argue that sort of cure would be far worse than the disease,maybe. But the situation in the world is extreme and drastic steps need to be taken in order to take the wind of the economy and create a nice 30's style depression to contain the situation.

No arguments here. But I am also worried that the cure might be worse than the disease.