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This column originally appeared as two blog posts on RealMoney Silver on Nov. 7.

The single most important contribution I can make to The Edge, my trading diary that is exclusive to

RealMoney Silver

, is to ascertain an important developing (but not yet too visible) trend that might seriously impact the markets.

That is one of the reasons that I write my

surprise list

every year.

One of my major themes has been the

dirty little secret

that the hedge fund and

private equity

industries were far too levered (and so were the fund of funds that supply a lot of their investment capital). Stated simply, many funds have taken uncommon risks to deliver common returns.

For nearly two and a half years, I have been of the belief that, in the fullness of time, the deleveraging of the hedge and private equity funds would have a destabilizing impact on the world's equity markets, something that

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TheStreet Recommends

The Wall Street Journal

finally gets to today in its

lead column


There have been three major investment stories over last four months:

    1. the pronounced drop in equities; 2. the swift contraction in economic activity; and 3. the market disarray (and fallout) that has emerged from crippled hedge funds and private equity firms.

On that third point, here are the top 10 columns from nearly the past two and a half years on the history and the foundations of the hedge fund turmoil:

    1. On June 1, 2006 (May 31, 2006, on RealMoney Silver), " Hedge Fund Industry's Dirty Little Secret" raised the specter that many hedge funds' appetite for risk was in the process of creating a bubble that could rival (if not surpass) the dotcom blowup. 2. On Feb. 14, 2007, "Hedge Hogging in Haste" (exclusive to RealMoney Silver) pointed out that a lot of political types were throwing their hats in an already crowded ring, which could indicate a hedge fund top. 3. On March 5, 2007, " Subprime's Next Victims: Hedge Funds" argued that forced hedge fund liquidations emanating from the leveraged role of the fund of funds industry, the structure of which was eerily reminiscent of the subprime mortgage mess, would make hedge funds the next shoe to drop. 4. On June 20, 2007, "Leverage Works Both Ways" (exclusive to RealMoney Silver) highlighted how the then Bear Stearns (remember that outfit?) hedge fund failure (just one of its hedge funds at that time) embodied the risks to the brokerage industry associated with leverage and debt. We all know how this turned out! 5. On June 26, 2007, "Marking to Market" (exclusive to RealMoney Silver) sounded the alarm that many of the hedge funds' investments weren't marked to market, which only went to create the illusion of profitability. 6. On July 31, 2007, "Is That All There Is?" (exclusive to RealMoney Silver) was one of the first articles on Wall Street to mention the Sowood Alpha Fund biting the dust. 7. On Nov. 23, 2007, " Hedge Funds Losing Their Shirts" warned that the string of hedge fund closures and the likely avalanche of additional closures in the days ahead would only add fuel to the fire of the extremely volatile markets. 8. On March 3, 2008, "The Greatest Story Ever Sold" (exclusive to RealMoney Silver) noted that the ongoing global contraction of hedge funds could wreak havoc on equities and credit instruments. 9. On Aug. 27, 2008, " Hedge Fund Turmoil Takes Its Toll" observed that the weak markets and the poor performance of hedge funds had begun to feed on each other. 10. On Sept. 5, 2008, " Hedgies Get Their Comeuppance" finally saw that the panic in the industry had led to many opportunistic hedge fund managers sitting on their hands while many levered hedgies were being forced to sell, and this was only the beginning of " the great hedge fund unwind" of 2008.

Doug Kass writes daily for

RealMoney Silver

, a premium bundle service from For a free trial to

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and exclusive access to Mr. Kass' daily trading diary, please click here.

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.