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Taping a "Bernanke on the Record" special that will air on PBS this week, the top U.S. monetary policy-maker defended the aggressive, even unorthodox actions taken by the Fed during the long recession and deep financial crisis.
"I was not going to be the Federal Reserve Chairman who presided over the second Great Depression," Bernanke said.
"When you’re in a situation like this, a perfect storm, sometimes you have to do things that are a little unorthodox, out of the box,"
Arlington Heights Daily Herald – In a typical recession, stocks start recovering about six months before the economy does. The crisis the United States is in right now, however, is anything but typical: Lending is frozen, hedge-fund selling is happening on a massive scale, and economic troubles have spread all over the globe.
As a result, it’s possible the U.S. economy will need to show signs of strength before the stock market stabilizes and regains steam. So with readings getting darker by the day, expect more of the same this week: extreme volatility.
"Volatility’s here, and it’s here to stay," said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research. Last Friday, the Dow Jones industrial average finished down 312 points, "and it seemed like a victory."
Daily Telegraph – Highbridge Capital Management, which is majority owned by JP Morgan Chase and has $25bn under management, is axing 10 per cent of its New York-based staff and plans cuts in Europe and Asia.
The volatility in global stock markets has savaged the performance of some of the world’s best-known hedge funds, raising fears of a collapse in the sector, which could cause a fresh crisis in the financial system.
Big names including Deephaven, Marshall Wace, Citadel Investment Corp, Lansdowne Partners, Third Point and Harbinger, have in recent weeks sustained losses of as much as 20 per cent in some funds.
Investors pulled at least $43bn (£25bn) from US hedge funds in September, according to TrimTabs Investment Research. This is nearly five per cent of the global sector’s estimated $2 trillion in total assets.
West Palm Beach (HedgeCo.net) – State Street Global Markets, the investment research and trading arm of State Street Corporation, released the results of the State Street Investor Confidence Index for October 2008.
Confidence among North American investors fell particularly sharply from a revised level of 75.1 to 50.8. Elsewhere, the declines were less dramatic, with European confidence falling just 1.5 points to 79.6, and Asian confidence declining 0.6 points from 87.1 to 86.5.
“This month we saw a dramatic and unprecedented decline in investor confidence to a new record low, led by investors in North America,” commented Froot. “We saw broad and important reductions of risk across investor portfolios previously at times like the Asian Crisis in 1997 and the Russian-LTCM crisis in 1998. However, even the strong broad-based selling of risk we saw during those events appears small compared with the current outflows. The combination of financial crisis along with truly global macroeconomic risk of deep recession has been causing a complete re-evaluation of risk across a wide investment community centered on US institutional investors.”
Developed through State Street Global Markets’ research partnership, State Street Associates, by Harvard University professor Ken Froot and State Street Associates Director Paul O’Connell, the State Street Investor Confidence Index measures investor confidence on a quantitative basis by analyzing the actual buying and selling patterns of institutional investors.
The index is based on financial theory that assigns precise meaning to changes in investor risk appetite, or the willingness of investors to allocate their portfolios to equities. The more of their portfolio that institutional investors are willing to devote to equities, the greater their risk appetite or confidence.
“When you remember that this measure of investor confidence is not a survey, but rather is based on the actual trades of institutional investors, the readings are particularly striking,” added O’Connell. “The period over which this reallocation was measured in investor portfolios, September 17 to October 15, saw the largest single reallocation away from risky assets that we have witnessed in the data since it first became available in 1994.”
The index is released globally at 10 a.m. Eastern time in Boston on the second to last Tuesday of each month. With $14 trillion in assets under custody and $1.7 trillion in assets under management at September 30, 2008, State Street operates in 26 countries and more than 100 geographic markets worldwide.
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Seeking Alpha – Investors pulled at least $43bn from U.S. hedge funds in September as market turmoil led to unprecedented withdrawals, an analysis by a leading research house shows.
The data from TrimTabs Investment Research – which was to be sent to clients late on Wednesday – come as hedge funds are working to prevent far bigger redemptions by the end of the year, when many funds give investors a chance to take out money.
Withdrawals can lead to a vicious circle in the markets, as funds sell holdings to return money to clients, depressing prices and prompting further redemptions.
The chief executive of a leading alternative investment manager said he expected the hedge fund industry to shrink by 50 per cent in coming months – with half the decline coming from withdrawals and half coming from investment losses.
Conrad Gunn, chief operating officer of TrimTabs, said the $43bn in September withdrawals would mark “the beginning of what we expect to be a series of outflows for the remainder of the year. We expect October outflows to be larger.”
The industry, which manages close to $2,000bn, has experienced outflows during only a handful of months previously, including a small outflow in April of this year.
Bloomberg – Investors withdrew a record $43 billion from hedge funds in September as they fled distressed-securities and stock funds because of poor performance, TrimTabs Investment Research said today.
The estimated outflows were the most since TrimTabs started tracking the industry in 2000, Chief Executive Officer Charles Biderman said in an interview. Investors pulled $14.4 billion from funds focused on troubled securities and $8.4 billion from equity long-short funds, which bet on rising and falling stocks, the Sausalito, California-based company said in a statement.
“We’re told from some of our clients that most of the hedge funds have sold enough equities to cover the redemptions,” Biderman said. “There shouldn’t be more forced selling.”
CNBC – Ongoing hedge fund losses and liquidations spooked markets Wednesday, and some of the biggest names in the mix now are Citadel Investments and Highland.
Hedge funds had their worst month ever in September, with average losses of 6.2 percent, according to an estimate by TrimTabs Investment Research.
All major categories of funds chalked up losses over the month, but emerging markets, long equity funds and distressed strategies had the worst results. The declines came as investors withdrew $43 billion from hedge funds—almost seven times the previous monthly record for redemptions, TrimTabs said.
Citadel confirmed to CNBC that its flagship Kensington and Wellington funds, which hold around $15 billion in assets, are down between 26 percent and 30 percent so far this year.
NPR News- The people who run hedge funds can be famously secretive about their work. Not David Einhorn.
Einhorn founded Greenlight Capital, which manages about $6 billion in assets. He recently waged a very public battle against Lehman Brothers, claiming it was losing more money than it admitted. He turned out to be right.
Now he’s written a book, Fooling Some of the People All of the Time, about his six-year battle against another company, Allied Capital. Einhorn says the experience shows how the media and financial regulators can sometimes fail investors.
Each May, hundreds of Wall Streeters show up at the Ira Sohn Investment Research Conference in New York’s Lincoln Center. They pay up to $3,200 each for the chance to hear advice from big investors like Carl Icahn and Wilbur Ross.
Reuters India- U.S. firm Morningstar Inc will expand its investment research coverage to Indian funds by early next year and hopes to hire 10-20 staff by March, a senior executive said on Monday.
Morningstar, founded by its Chairman and Chief Executive Joe Mansueto in his Chicago apartment in 1984, has made a name for itself by rating mutual funds, hedge funds and stocks and is popular for its star system of rating fund performance.
"India represents a very important investment area worldwide. So we need to be here not only to serve the Indian market but for the global investment community," Jaideep Vivekanand, director of business development for India at Morningstar Asia Ltd, said.
Reuters- Investors pulled a net $5.9 billion out of U.S. hedge funds in April, marking the industry’s biggest outflow in 6-1/2 years as they punished managers for their worst-ever returns at the start of 2008.
According to new data released by TrimTabs Investment Research and BarclayHedge late on Monday evening, investors took $9.4 billion away from individual hedge fund managers and added $3.5 billion to funds of hedge funds, portfolios that spread select a group of individual hedge funds.
