CREDIT BUBBLE BULLETIN: The tapering countdown

[unhappycamper]

http://atimes.com/atimes/Global_Economy/GECON-01-091213.html



CREDIT BUBBLE BULLETIN: The tapering countdown
Commentary and weekly watch by Doug Noland
Dec 9, '13

This from Bloomberg's Saijel Kishan and Kelly Bit on December 6: "The $2.5 trillion hedge-fund industry, whose money managers are among the finance world's highest paid, is headed for its worst annual performance relative to US stocks since at least 2005. The funds returned 7.1% in 2013 through November ... That's 22 percentage points less than the 29.1% return of the Standard & Poor's 500 Index, with reinvested dividends, as markets rallied to records. ‘It has been difficult for hedge funds on the short side,' said Nick Markola, head of research at Fieldpoint Private, a $3.5 billion ... private bank and wealth-advisory firm

"... Hedge funds, which stand to earn about $50 billion in management fees this year based on industrywide assets, are underperforming the benchmark US index for the fifth year in a row ... Billionaire Stan Druckenmiller, who produced annual returns averaging 30% for more than two decades, last month called the industry's results a ‘tragedy' and questioned why investors pay hedge-fund fees for annual gains closer to 8%."

Let's talk the markets. There are now only about three weeks to go to wrap up an extraordinary 2013. One wouldn't think the calendar should be much of an issue for the markets. Yet market closing prices on Tuesday, December 31st, will determine the compensation for thousands of hedge funds that control trillions of positions (not to mention year-end bonuses for tens of thousands of market professionals worldwide).

The traditional standard has been that hedge fund operators take 20% of a fund's return for the year. Often it's a case of receiving a cash payment for "paper" (unrealized) portfolio gains. For a decent number of funds, market performance over the coming three weeks will significantly impact 2013 returns. A major move in the markets might prove a case of life or death for struggling firms. For the fortunate ones, a big year ensures financial security for years to come. 2013 market gains will add to the already inflated number of global billionaires.