DO YOU THINK ITS BAD NOW - WAIT FOR THE HEDGE FUND CLIPPERS

Trillions invested in high flying Hedge Funds will get a buzz cut in 09

I bet many didn’t see this one coming! Worse many don’t even know what the heck it is.

Hedge funds represent over $ 2 trillion invested in the financial markets. So why do we care? Do you recall Long Term Capital Management (LTCM) that collapsed due to exposure to the Russian market in 1998. It rocked Wall Street to its core and the US had to step in and loan them $3.65 billion to keep them alive long enough to liquidate. The problem is today these funds have huge influence within the stock market and investors are screaming for their money back. That is very bad and worse most of the funds are down 30- 40 - 50% or more. The industry is being pushed right off a cliff and managers with billions of dollars invested cannot give investors their money back. Here it comes again - once the investors start screaming to get their money back and the roared loudly last year it causes a vicious circle that causes more panicked investors to ask for their money back too. Like the run on Washington mutual. I will predict now that at least $500 billion will get sucked out in 09 – and the only way to suck it out is to sell it off. What happens if there is a major sell off of stocks and bonds – you know the answer. And it is coming.

We have seen the bailout of our financial industry and the cratering of the stock market and yes I am afraid there is another big boot to drop at the worst time in history. It is projected that at least one third of them will go under. And now for the real treat – these funds have invested heavily in mortgage backed securities (MBS or CMOs), collateralized financial obligations (CFOs) and collateralized debt obligations (CDOs). In fact the rating agencies have already begun to downgrade the instruments just waiting for the Hedge Fund shoes to drop. Over $600 billion is already being set aside to brace for impact although the car already went off the cliff.

If the collapse of LTCM was horrifying back in 1998 what do you think the reaction will be knowing it already began last year? I will predict right now that the huge failures in the Hedge Fund industry will make LTCM look like child’s play – just start counting the numbers from 2008 alone. Q1 and Q2 we will see a run on many of the hedge funds and this just will throw gasoline on an already shaky market.

Many people except insiders have paid much attention to this but I think everyone needs to know when the fan is about to be hit with you know what.