Hedge Funds – The Bear Market in Liquidity

Traders

QUESTION:

Mr Armstrong,
Always a learning experience when visiting your website.
In view of your recent articles about the difficulties faced by hedge funds(e.g. SAC Hedge Fund being shut down,Largest FX Hedge Fund Closing Down,Commodity Hedge Funds are collapsing) do you consider that the Hedge Fund industry has peaked?
JR

ANSWER: Yes. This is also being caused by the merger of several trends. The banks are above the law, so they attack hedge funds to pretend to be doing something while leaving the bankers free. Next, the global hunt for taxes has reduced the American presence overseas dramatically. Many funds refused to take Americans because of the regulations. This has reduced liquidity and as that has unfolded you see the inability to trade larger sums of cash. Then there are the fees. When I was named hedge fund manager of the year back in 1998, the fees were 20% performance and 5% management. Those feed have dropped with competition and as capital shrinks, the viability of the industry is declining. This was the same pattern I observed in gold going into 1980. Competition increased reducing fees because you were making more money on the float in your account when interest rates were 17% than you were making on the gold. That was the kiss of death to gold and since I saw it was a bear market and rates would also go back down, it was time to retire.