This blog post originally appeared on RealMoney Silver on Sept. 16 at 7:22 a.m. EDT.
The hedge fund industry, mired in poor investment returns and under the threat of redemptions, is in an increasingly fragile state. Importantly, prices and performance in many different and historically uncorrelated asset classes are all falling in unison. As a consequence, many of the multi-strategy funds are also suffering more than usual.
Even established hedge funds, like T. Boone Pickens' Partnership, and endowments, like Harvard University's, are alleged to have recently suffered large losses over the last two to three months.
Long/short managers are poorly positioned in the short consumer/long materials and energy trade, serving to contribute to the abysmal overall hedge fund results.
Conventional asset managers are also getting hit hard. A recurring rumor is that
Bill Miller is about to be replaced.
are alleged to have suffered recently (in several profit centers) from their historically close relationship with
American International Group
. Over here and over there (in Europe), several large U.S. non-financial corporations and European banks will shortly announce substantial derivative losses.
( LEH) has liquidated sizeable positions from its prop desk in a wide array of assets over the last few weeks. For example, yesterday Lehman is believed to have disposed of a number of REIT stocks held by its desk, contributing to a nearly 9% drop in the REIT index on Monday -- and an almost 3% drop in the last 15 minutes of trading alone. Late last week, Lehman was dumping its commodities positions.
Of the eight companies I have contacted over the last two weeks, only one (in the bankruptcy/recovery area) saw clear business visibility.
New homebuilding, in particular, has slowed to a crawl. Buyer traffic/interest is virtually nonexistent.
will not lower interest rates at today's meeting as the Fed views broader issues of solvency and liquidity as trumping the level of interest rates for now.
The current Administration has not been meaningfully involved in the
( FRE) rescue or in the AIG discussions, nor has the Administration assisted much in the dialogue and establishment of the new lending facilities implemented over the last three weeks.
Doug Kass writes daily for
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At the time of publication, Kass and/or his funds were short Fannie Mae and Freddie Mac, although holdings can change at any time.
Doug Kass is founder and president of Seabreeze Partners Management, Inc., and the general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Short Offshore Fund, Ltd.