Good Bye Hedge Funds

Hedge Funds are going the way of the Dodo bird. Not all hedge funds or alternative investment vehicles, but the days of 27yr old math whizzes raising 500mm and then levering 20X are over. The 2 plus 20 payout is going to be an endangered species. When Blackstone went public last yr, no one was contemplating the peak of hedge fund importance. Now they are in survival mode as prime brokers pull back their lending lines and the system goes through a deleveraging. Everything is for sale and if it has a bid, then short it. Money is being created hand over fist, but credit is contracting at a much faster pace. The power of deflation in credit vs inflation in cash.
The bailout of Fannie and Freddie delay the collapse of some financial institutions, but the US consumer is still retrenching after yrs of sub par wage increases.
The concept of the global economy picking up the slack of a weak US and European economy have been dealt a cold dose of reality. Time will tell if the Chinese shut down for the Olympics and Para Olympics has longer running ramifications. The Asian growth stroy has been put to rest for the time being.
The USD is rallying partly due to a re patriation of dollars from foreign markets which have been crushed this year. China down 50% for example. Qtr end in 3 weeks is also resulting in a deleveraging of positions across the financial spectrum. In addition, the problems of Spain and Italy are putting pressure on the Euro. The Euro is a currency with no country, but speculation has surfaced regarding the Club Med Countries running into trouble fiscally and thus put pressure to reduce the value of the Euro.

Buyers are on strike in the equity markets. As equity holders recently found out-sometimes equities go to zero (FNM, FRE) With corporate debt trading close to 10%, equities are no bargain. Against treasuries, stocks look reasonable, but comparing a AAA to a BBB corp credit is not a fair comparison.