Opportunity Knocks: Hedge Funds Done Puking?

Hank Paulson has set off a number of dominoes thanks to his undeclared war on hedge funds, which became painfully obvious once regulators put new rules into practice..

Forget for a minute that Paulson targeted the wrong people-banks and brokers were the real rogues in this drama. The vast majority of hedge funds are less than 100% net long, a far different proposition than the 40 to 1 leverage the SellSide employed at their high water mark of stupidity.

Paulson's efforts to wreck the ability of hedge funds to manage risk, intended or not, is the real calamity here. It has set off an unwind in the most crowded trade of the past few years. Paulson's efforts to kill the "bad" hedge funds has done far more damage to Main Street than hedge funds ever did...the people railing against hedgistan are not stupid, but just do not understand what has gone down here.

Will today prove to be the ultimate low for stocks like Arcelor-Mittal (MT-NYSE), Freeport McMoRan (FCX-NYSE) and hedge fund favorite Mastercard (MA-NYSE)? Tough to say, but I certainly would not short them here. Many hedge funds failed to hedge and ended up with a basket of highly correlated stocks...shame on them. But they have essentially been put out of business.

I don'tknow if we have seen the ultimate bottom...as ISI's Jeff DeGraaf noted on Fast Money last night, we might be 40% of the way through a 600-trading day bear market. It will take a long time to heal the wounds suffered in the past few weeks and months, but it might finally be time for long only funds to market weight commodities/resource equities, hedge funds who shot against their brothers to begin covering resource equities on weakness, and investors to at least consider putting some money to work if they were fortunate enough to sidestep the bloodbath.

July 10, 2006. The beginning of the end for Hedgistan.
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With the Oil Service Holders ETF (OIH-AMEX) down from $220 to under $100 in just over three months, it is too late to panic. There was a time to hate commodities, but it is long past. Getting the timing perfect is impossible, but you did not have to nail the top if you laid out a bet short, and putting resource equities, emerging market indices or even domestic equities on your sheets here probably won’t kill you.

I might not get it right, but I can’t be any worse than Morgan Stanley or Goldman Sachs, can I? There was a time to be scared...it was four months ago.

Throw a dart..you might just hit something. And it beats sitting under your desk all day.

Just make sure Paulson’s picture is tacked to your dartboard. And take dead aim.
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Back to early 2005 for the OIH

Don’t like OIH? How about coal?

A Dismal World of Coal
Gregor.us
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The content contained in this blog represents the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No Positions

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