23 Mar 2020
Headlines like this from the Daily Mail on the 21st March do not help soothe the public mood, and especially those whose pension and saving funds have seen huge losses.
Once again, the spectre of hedge funds trading has raised it’s very unhealthy head again.
Hedge funds are financial partnerships that use pooled funds and employ different strategies to earn active returns for their investors. These funds may be managed aggressively, they can also make use of derivatives and gearing to generate higher returns.
According to Bloomberg, Hedge funds are marketing this month’s sell-off as a once-in-a lifetime opportunity to take advantage of unprecedented price dislocations across stocks, bonds and commodities. Their success in luring investors to jump in amid the market collapse sparked by the deadly pandemic –- a shock some are calling a black swan event -- may depend on how well they have navigated the chaos so far. Some have barely lost money, while others have seen drops more in line with market selloffs.
“Liquidity and capital are king right now,” said Adam Blitz, chief investment officer of Evanston Capital Management. “Managers with capital to invest can play offense at a time when most are forced to play defence.”
Shorting is a tactic hedge funds will use; it is legal and sees sellers borrow shares of stock that they do not own (typically from their stockbroker's account) and sell those shares at the current market price. The goal is to re-buy those shares of stock at a lower price in the future and then return the borrowed shares to the lender. The average 'punter' cannot do this.
When the ‘masses’ can see billions lost (price dislocations in hedge fund speak) from their pension funds while Hedge Funds simply suck those all back up as a mega gain, I think a case could, even should be made to stop the practice.
In addition, at a time when we are seeing such a shutdown of normal life and businesses and continued stock market dead cat bouncing chaos, stock markets globally could be shut down for a period of 3 months, the same time as the ‘vulnerables’ have been asked to self-isolate.
The longest shutdown in history was on 31 July 1914 when the NYSE closed for 4 months until 12 Dec 2014.
They later introduced a rule that shares could not be traded less than the closure price on 31 July when it re-opened and by 1 April 2015 shares were trading without price limits.
However, during the closure there were 'unregulated trading operations being established' and the thought of a closure in today’s Global market is unthinkable, not only in terms of Equity valuations but the impact on Govt Bonds and borrowing. Something which will need to be fluid in terms of dealing with Coronavirus and Brexit ahead.
But Mr Odey could donate the £115m to the NHS?
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