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Britain 1, Speculators 0

Robert Peston | 09:17 UK time, Thursday, 8 July 2010

It has been a lousy three months for hedge funds.

I hope I didn't hear you say "diddums" - because it is possible, you know, that a bit of your wealth is being managed by a hedge fund, via your pension scheme.

Trader looks at his screenAccording to Hedge Fund Research's HFRX Global Hedge Fund Index, funds fell 0.94% on average in June and 2.79% in the three months ended June. This was, apparently, the worst second-quarter performance since 2000 when the industry lost 3.42%.

Now I'll admit that there is one aspect of this poor performance that gives me the kind of unworthy pleasure I enjoy when seeing a football team that I despise being thrashed (I think we all know which team I am referring to here - as it happens, its players receive hedge-fund-size wages and it is supported by a disproportionate number of hedgies).

What warmed my cockles were the significant losses incurred by those who bet large over the past few months on a collapse in the pound and in the price of gilts.

Because as someone who lives and works in the UK, I have no serious option but to be a supporter of team sterling. If the pound were to career downward in an uncontrolled way, if investors were to refuse to lend to Her Majesty's government, well that would be a fairly significant problem for the more financially immobile among us.

Of course, hedge funds are the definition of financially mobile institutions. So when the opinion polls before the election were predicting that the UK was heading for a hung parliament, a number of them bet that this would lead to paralysis in government and an inability to take serious measures to reduce the UK's record 11% public-sector deficit.

They weren't alone of course. You'll probably remember those telephone calls I received on the eve of the election from Sir Philip Green and Sir Martin Sorrell putting on record their fears that a hung parliament would result in dangerously ineffectual government (see my note Tory-backed business letter flops).

So for some hedge funds, the formula "hung parliament = fiscal deterioration = collapse in the pound and gilts" looked like a law of nature. And they placed their bets accordingly.

They discounted the possibility that a strong coalition - forged by a determination to cut the deficit - could be created.

And what adds to my amusement about their chronic miscalculation is that they had no understanding at all that a coalition could actually tackle the deficit faster and more credibly than a party with a working majority - because they failed to apply the portfolio theory of investment management to politics, on this rare occasion where it would have been a useful tool.

Here's the point: a government of Tories and Lib Dems could (and will) cut deeper and speedier than the Tories alone would have done (almost certainly), because the reputational risks can be distributed across two parties rather than focussed just on the one.

There's a wider point to be made here about what a confusing and difficult world it has become for hedge funds and short-term investors in general - largely because of the eurozone's financial instability (see my note Eurozone stress tests stress investors).

Right now the eurozone is a raging, boiling ocean of governments pushing and pulling each other over what to do about their members' excessive deficits and their weaker banks, coupled with powerful currents of liquidity added and then suddenly and dangerously withdrawn.

Discerning anything other than the big waves colliding is tricky - and predicting when it will all calm down is well-nigh impossible.

In the middle of all that, even a multi-billion dollar hedge fund looks like a vulnerable small craft.

Comments

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  • Comment number 1.

    If I read this article correctly, the author despises the England football team and has taken pleasure in their defeat, because the players earn a lot of money.

    Well I for one, took no pleasure in it, nor do I despise them, and wish them good luck in the future, both in the matches they play and the income they generate.

  • Comment number 2.

    I wonder if the hedgies have been betting against stocks too, given their recent slump, and maybe the recent stocks recovery signals defeat for them on that score too.

  • Comment number 3.

    Dempster - I think Robert may be referring to Chelsea FC rather than the England team.

  • Comment number 4.

    Check out people like David Tepper. Tepper is a hedge fund manager who in 2009 managed to "earn" $4 billion - yes FOUR BILLION, all for himself.

    The "top" 25 hedge fund managers in the world managed to take home an aggregate of $25.3 billion.

    You may recall that in the UK the entire general election campaign revolved around whether or not to make GBP 6 billion of cuts across an entire economy supporting 60 million people. In other words the UK political classes became obsessed about an amount of money that was roughly one third of the amount of money "earned" by 25 people.

    Does anything about this strike you as odd or unreasonable?

  • Comment number 5.

    #1:

    I think you may be a bit paranoid. The team being referred to is, IMHO, an English club team bought with debt by foreigners.

  • Comment number 6.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 7.

    > What warmed my cockles were the significant losses incurred by those who bet
    > large over the past few months on a collapse in the pound and in the price
    > of gilts.

    For non-native English speakers, "warming the cockles of my heart" is used
    instead of "Schadenfreude" to express enjoyment over his enemy's misery.

    > even a multi-billion dollar hedge fund looks like a vulnerable small craft.

    Let's hope they all sink, then? And there's plenty of work here in beautiful North
    Wales, if any of those unemployed "masters of the universe" are any good at
    building conservatives or mending cracked chimneys in my mountain shack. Fat chance eh - their arms and legs have shriveled from computer work!


  • Comment number 8.

    Too early to call.
    25% public sector cuts will create an unknown level of social and economic fallout, after all, it's a game of two halfs.

  • Comment number 9.

    Robert wrote:

    "Here's the point: a government of Tories and Lib Dems could (and will) cut deeper and speedier than the Tories alone would have done (almost certainly), because the reputational risks can be distributed across two parties rather than focussed just on the one." (my bolding)

    I think you are suffering from an unjustifiably rosy view of the likely outcome of government cutting. Historically governments do not actually achieve the cuts they set out or indeed anything near them. The low hanging fruit that look easy, such as swinging cuts on benefits will take place, but as can be seen yesterday when it come to cutting from people who can fight back, such as major building contractors and councils then judicial review will prevent action (see the education building cuts) and this is just the start of the fight back by the rich!

  • Comment number 10.

    "because the reputational risks can be distributed across two parties rather than focussed just on the one"

    So long as their reputation is intact and the wealthy continue to make money that's alright then. Never mind the millions who will be made unemployed and the general population having to suffer an inreasingly unaffordable way of life.

    (p.s. #1 Dempster. I think (hope) he was referring to Germany. Or possibly Argentina. Bit ambiguous I agree...)

  • Comment number 11.

    I think overall Hedgefunds, private equity, and shortsellers in general have done more to undermine (destroy) Pension Funds than anyone.

    Take Bradford and Bingley.

    Mostly owned by Pension Funds, shortsold into oblivion by profiteering Hedgefunds and market pirates.

    And of course, the long term Shareholders and Pension Funds have been refused any sort of compensation for the residual asset value (as identified, not by me, but by the uk shareholders association ).

    Of course, Santander is now boasting of how much profit it is squeezing from the UK thro these Banks (alliance and leicester and B&B).

    Santander would not have been able to be given B&B if hedgefunds had not artificially and deliberately lowered B&B's shareprice by shortselling (selling Shares they never owned).

    The role of the Treasury and Gov't in giving away a Bank that could have continued as agoing concern is highly suspect, and I think in many ways was an attempt to punish the shortselling market pirates.

    Unfortunately, the actual result was huge losses to UK Pension Funds and ordinary private investors.

    So, the hedgefunds have made their bed, let them lie in it.

    I wonder just how hot it would be possible for the weather to get in Britain ?

  • Comment number 12.

    #1 Dempster
    I don't think he was saying anything of the kind. I believe Manchester or London might contain his intended target.

    As for the ...raging, boiling ocean of governments pushing and pulling each other... - welcome to the EU. Miraculously, these waves rarely collide.

    That's because the big waves are reduced by little interference waves running perpendicular to them. These are the Commission and the smaller nations whose own paroxysms of varying strength have a surreal effect on the whole ocean of EU politics.

    Mostly, that's a bad thing. It swerves decision-making into unpopular areas among the larger fish - like the 'Constitution' - and creates figures like Jean-Claude Juncker and Herman Van Rompuy both of whose various utterances should not see the light of day.

    At times like this, it's a good thing because while the big governments try to 'Do Something' the surreal kicks in and stops them, so Nature is allowed to take its course - which it would have anyway but in a more catastrophic politician-driven sort of way.

  • Comment number 13.

    Ah, political paralysis ?

    No, they are all following the same neo thatcherite policies, as followed by New Labour, and the Conservatives before them.

    There is little or no original thinking in Parliament, this is the trouble.

    Same failed monetarist policies, no real improvements in situation.

  • Comment number 14.

    Oh dear, we can all see where Robert's sympathies lie. Cuts, cuts and more cuts. Is that really all that is required ? What about the danger of cutting too fast and too hard ?

  • Comment number 15.

    I think Robert is a gooner and the "hedgie" team is Chelsea - nothing to do with the lousy performance in the world cup

  • Comment number 16.

    I'll put these points to my brother-in-law over the weekend and see if he agrees. He's a hedge fund manager whose company has recently upped sticks and moved from The City to Geneva.

  • Comment number 17.

    Isn't it interesting how the marketmakers have clubbed together to mark up the stock prices (on admittedly low volumes of trade?)

    Always best to buy when the markets are low, but then, who would play poker on a rigged table ?

  • Comment number 18.

    4. At 10:00am on 08 Jul 2010, DebtJuggler wrote:
    Check out people like David Tepper. Tepper is a hedge fund manager who in 2009 managed to "earn" $4 billion - yes FOUR BILLION, all for himself.

    The "top" 25 hedge fund managers in the world managed to take home an aggregate of $25.3 billion.

    You may recall that in the UK the entire general election campaign revolved around whether or not to make GBP 6 billion of cuts across an entire economy supporting 60 million people. In other words the UK political classes became obsessed about an amount of money that was roughly one third of the amount of money "earned" by 25 people.

    Does anything about this strike you as odd or unreasonable?

    ------------------------------------------------

    "Obscene" is another word that occurs to me. "Immoral", "unjust", and "indefensible" are others. Why have we not yet got it through our heads that the vast amounts of money filling the boots of so few are the CAUSE of so much of the financial hardship and social misery we have seen in our country? Why are we still "intensely relaxed about people becoming filthy rich" when it should now be abundantly clear that the consequences in terms of relative poverty and a broken society are so appalling? People don't get "stinking rich" independently of the society they live and work in; they get rich at cost to others - usually the poorest members of society.
    In this case they do it by gambling with the economic well-being of every man woman and child in this country - and they do so at minimal risk to their own personal fortunes.

    I'm for the barricades.

  • Comment number 19.

    "when the industry lost 3.42%."

    Industries create wealth. Hedge Funds do not.

  • Comment number 20.

    "Tackling the deficit" - you mean planing to cut some public sector budgets without evaluating the unintended and perverse consequences on the economy and thereafter the PSBR.

  • Comment number 21.

    "I hope I didn't hear you say "diddums" - because it is possible, you know, that a bit of your wealth is being managed by a hedge fund, via your pension scheme."

    Only those with pensions and those who 'let someone else get on with managing it'. Trying to ensure we have some sympathy for the hedgies by implying we all have a 'chip in the game'?

    Isn't this a bit contradictory Robert - I mean after (and during) the collapse of LTCM it was decided by the authorities that hedge funds do not pose a systematic risk as only the wealthy invest in them. Aren't you saying this is not the case?

    I hope people know that their pension contributions are skimmed to provide nice ferrari's for hedge fund managers.

    "Now I'll admit that there is one aspect of this poor performance that gives me the kind of unworthy pleasure I enjoy when seeing a football team that I despise being thrashed"

    What's better is watching those players not get paid because there's a 'liquidity problem'.

    http://www.dailyrecord.co.uk/football/world-football/2010/07/08/debt-ridden-barcelona-take-out-125m-loan-after-failing-to-pay-wages-86908-22396505/

    "What warmed my cockles were the significant losses incurred by those who bet large over the past few months on a collapse in the pound and in the price of gilts"

    ..yes, until you realise that it will be you who foots the bill - when a hedge fund falls the banks bail them out (because even the Government wouldn't be so brash as to bail out a hedge fund). However as those of you who take an interest will note - when the banks bail someone out they then take that back from the consumer through higher interest rates and charges.

    This is why the house prices are falling in a climate of a base rate of 0.5%
    http://news.bbc.co.uk/1/hi/business/10551070.stm
    This is the banks sucking the wealth out of the Economy in order to show a profit.

    "And what adds to my amusement about their chronic miscalculation is that they had no understanding at all that a coalition could actually tackle the deficit faster and more credibly than a party with a working majority - because they failed to apply the portfolio theory of investment management to politics, on this rare occasion where it would have been a useful tool."

    In other words - they're gamblers. Well at least it's out now - so folks, how do you all feel about your futures hingeing on the gambles of rich men? - feeling confident are we?

  • Comment number 22.

    Is it possible, I ask, that Hedge Funds depend upon inside information for their profits? Current prosecutions in the US would suggest this is the case.

  • Comment number 23.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 24.

    Hi Robert

    A fine blog, but I would disagree with your remark about the ConDem coalition where you say

    "Here's the point: a government of Tories and Lib Dems could (and will) cut deeper and speedier than the Tories alone would have done (almost certainly), because the reputational risks can be distributed across two parties rather than focussed just on the one."

    This may work in business, but I'm not convinced it works in politics. The experience in Scotland was that when things went pear-shaped for the Labour-LibDem coalition both parties took the hit. The problem is that people invest trust in the parties of a coalition separately when they mark their ballot papers. If that trust is felt to be misplaced, through the failure of the government, people feel let down by the party they voted for - not necessarily the coalition.

  • Comment number 25.

    I thought this was a really good article from Roberto, one way leveraged bets by Hedgies on media driven market events have been easy pickings. The fact that this time the market was not easy to predict and therefore functioning like a proper market is something to cheer about.

  • Comment number 26.

    No you fools, he means manchester united, loads of hedgies wanetd to take them over but failed, the red devils

  • Comment number 27.

    1. At 09:46am on 08 Jul 2010, Dempster wrote:

    If I read this article correctly, the author despises the England football team and has taken pleasure in their defeat, because the players earn a lot of money.

    Well I for one, took no pleasure in it, nor do I despise them, and wish them good luck in the future, both in the matches they play and the income they generate.


    If you read his bio Robert Peston is a lifelong Arsenal supporter, so i'd guess it was Chelsea he whas on about.

  • Comment number 28.

    Re #1 Robert Peston is an Arsenal fan, so is likely to be referring to Spurs or Chelsea rather than England

  • Comment number 29.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 30.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 31.

    The Hedge Fund Managers must get it wrong some of the time Robert, but it is worth knowing that it will not restrict season ticket sales at Arsenal or Burnley.

  • Comment number 32.

    The problem, certainly in PR terms, with hedge funds is that they have moved away from their original purpose - to "hedge" against market/currency movements for other investments/business streams. The popular image is that rather than cushioning against the drop in the value of other investments, they are now trying to manipulate individual shares into failure so that their highly leveraged "bets" against their success will pay off. The whole VW saga where the hedge funds got caught out betting on a drastic drop in the share price, and taking a position to manipulate the market into doing so, followed by the hedge fund manager's indignation that anybody else might be allowed to manipulate the market, was hilarious.

    But Robert is right - final salary pension schemes especially, chasing higher investment returns to try and repair deficits inflicted by the poor market returns of the recent past, are likely to suffer along with the hedge fund managers, and that isn't good news. The message is that both of these parties should be a lot more responsible.

  • Comment number 33.

    http://news.bbc.co.uk/1/hi/business/10552770.stm

    The fools.

    How can you be spurred on by something you don't even know the contents of (i.e. the stress tests)

    These markets will believe anything - such is the deperation for good news.

  • Comment number 34.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 35.

    7. At 10:05am on 08 Jul 2010, Jacques Cartier wrote:
    > What warmed my cockles were the significant losses incurred by those who bet
    > large over the past few months on a collapse in the pound and in the price
    > of gilts.

    For non-native English speakers, "warming the cockles of my heart" is used
    instead of "Schadenfreude" to express enjoyment over his enemy's misery.

    If 'young Bob' is having a pop at the double winning Chelsea side of Last season (big wages do bring success in the premiership) I would like to add to Mr Cartier comments above.

    In a rare interview Roman Abramovich quoted his Russian schadenfreude....he said 'every man is happy when his neighbours cow dies.'
    Maybe Bob and Roman should share a few vodkas together..

  • Comment number 36.

    1#, isn't Robert referring to Tottenham because they are backed by Joe Lewis, the Hedge Fund manager who lives on the beach in bermuda? Could be wrong, but that is what my guess is rather than Abramovich, who has little to do with hedge funds, as far as I am aware.

    Shocking performance from the Hedge Funds, in terms of the GBPUSD they got the low of c 1.42 after the election, should have bought it back. The Gilts, well I am by no means an expert on the bond market, but having been short of euros down to 1.20 from 1.45, didn't take Einstein to realise that the Eurozone as a whole was/is screwed. Those stress test results in a few weeks could be good fun, typical European way though of not actually saying what they entail - nice mess on the way, good old smoke and mirrors...

    But we aren't out of the mire just yet, but we aren't as bad as Europe's outlook, hence why EURGBP has fallen considerably past few months, so lets all have a cheap(er) holiday on the continent!

  • Comment number 37.

    Please all note...that Switzerland is an awfully small country and Geneva is a very tiny city.

    There is simply not the housing/schools/office space and infrastructure there to accommodate all of the UK's banking/hedge fund faternity.

    Bloomberg, 20-Dec-09
    ‘London Banker Exodus to Geneva Runs Into Housing and School Shortages’
    http://www.bloomberg.com/apps/news?pid=20601109&sid=awNIE35abSFY

  • Comment number 38.

    1. Dempster

    No you did not read it correctly. Peston is an avid 'gooner' (thats an Arsenal supporter for the football illiterate) He was talking about Man United as he has many times before. His language while somewhat intemperate is half in jest; you know in that 'we love to hate' tradition. Its what football support is all about. The narrative over recent years has been all about the richest clubs winning everything. Right or wrong its what fans talk about.

    So cut out the phoney pompous outrage. England were rubbish and the nation is largely sick and tired of most of the team anyway.

  • Comment number 39.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 40.

    Hedge funds create nothing new so they will in no contribute positively to the rebalancing of the economy.

    I would suggest that they be offered the opportunity to contribute £500m annually to an independent (i.e. non City based) venture fund that supports start ups, spin outs and early stage companies or we shut them down.

  • Comment number 41.

    Last time I checked, the performance of the average Fund of Hedge Funds fund performance was not significantly different than for non-Hedge funds. The main difference was the Hedge Funds took enormously more out in charges for their sponsors, not their users.

    As for coalitions, Switzerland has had one for over 50 years and is one of the strongest economies in the world with the Swiss Franc particularly high right now. Weak indeed. Hah! Tory grandees shouldn't believe their own propaganda (and nor should you).

  • Comment number 42.

    In terms of cutting the deficit one cannot emphasise too strongly that almost nothing has been done yet. Wage freezes are just coming on line, where cuts will occur has not been decided in most departments and VAT has yet to rise.
    Lets see a few prosperous coalition seats turned into employment blackspots due to defense cuts. Lets see a charismatic police chief ^admit" that he does not have the resources to meet another public disturbance or a police federation rep suggest one of its members lies dead as a consequence of cut backs. then there are the grannies left with inadequate social care. It just goes on and on.
    If cutting goverment expenditure made you popular all the politicians would be doing it. Furthermore its doubly unpopular if you can not give the savings back because they have already been spent.
    And if someone is about to say something about people knowing that we cannot just borrow our way out of problems,can I direct you to our huge level of consumer debt and rising levels of personal insolvency to suggest that many do not share that view.

  • Comment number 43.

    Re. Comment 11 by supercalmdown:
    "I think overall Hedgefunds, private equity, and shortsellers in general have done more to undermine (destroy) Pension Funds than anyone.

    Take Bradford and Bingley.

    Mostly owned by Pension Funds, shortsold into oblivion by profiteering Hedgefunds and market pirates.

    And of course, the long term Shareholders and Pension Funds have been refused any sort of compensation for the residual asset value (as identified, not by me, but by the uk shareholders association ).

    Of course, Santander is now boasting of how much profit it is squeezing from the UK thro these Banks (alliance and leicester and B&B).

    Santander would not have been able to be given B&B if hedgefunds had not artificially and deliberately lowered B&B's shareprice by shortselling (selling Shares they never owned)."

    You are wrong on a couple key points. Firstly the type of short-selling that you refer to is "Naked short-selling" and the majority of hedge funds would not engage in this practice, at least not on a large scale, since it is prohibited (albeit by the toothless FSA).

    In actual fact hedge funds are obliged to borrow the stock for shorting purposes from the very pension funds that hold it in the first place! Why? Because the hedge funds pay for the privilege of borrowing the stock which is subject to recall by the lender on-demand. Thus, the pension funds themseleves are largely responsible themselves in no small part for stuffing pension fund holders and shareholders of the likes of B&B for their short-term thinking and profiteering whilst lookng the other way as the underlying value of the shares are eroded into oblivion.

  • Comment number 44.

    Well, looking at the comments on this blog the fightback has begun.

    I'm comfortably off with a modest income, and have no desire to be rich. The impending cuts will probably leave me relatively unscathed. But I'm very angry that other people and the younger generation will have their lives ruined and futures blighted because of the failure of the the laissez faire ideologies of the last 30 years.

    The "make money not things" ideology which started to become respectable in the Thatcher era has wrecked this country. Coal, steel, manufacturing: all shadows of what they were. Oil revenues have been squandered on creating a long-term unemployed and now largely unemployable lumpenproletariat.

    The non-industrial capitalists have made vast sums aby attacking and destroying the productive base of this country. They have achieved what even Hitler only dreamed of. And in the process, the new overclass has enriched itself enormously. They have waged war upon the rest of us, and now they want our government to reduce us to poverty to pay for their mistakes.

    Vast wealth has been justified as "rewards for success". But what kind of "success" is it when we can't afford decent wages and pensions. If we can't afford enough people on modest wages to clean the streets, then we can't afford the super rich either. They have not been wealth creators but wealth destroyers. Tax them into oblivion, and if they resist, put them on trial for economic warfare against the rest of us. Because that is what they have been committing. We need a financial equivalent of the Geneva convention!

  • Comment number 45.

  • Comment number 46.

    Dempster @ #1:

    Peston is a Gooner; the list of natural Gooner enemies is long, we know Peston had high hopes for the English team, as, foolishly and in our own rose-tinted way, we all did. I suspect Chelsea, Spurs and possibly Man-Utd are the likely targets of the statement he makes.

    Anyway, a shame for the poor Hedgies. But they were prepared to stake vast sums on a Sterling soveriegn debt crisis that wouldn't have happended, regardless of the election result. The instability ahead of the election was because of the election, not the result. As it happened the extremely aggressive plan to handdle the deficit by the ConDems is music to the markets ears and we have rallied as a currency on that basis against a very helpful overture of the crisis in the Eurozone. So they got the bet wrong; I don't mind saying it.

    Diddums.

    Being as my pension fund has collapsed already and I'm faced with working longer for less pension as it stands, a little bit of hurt on the Hedgies to give them a small inkling of what life is like for the rest of us (and it is just a taste, these guys are still fantabulously wealthy) is welcomed in my mind. Personally I'd like to see them suffer, really suffer, like the rest of us normo's are as we pay the price for their past wrecklessness.

  • Comment number 47.

    When Mrs T set about the deficit she commenced massive programs of privatisation, de-regulation and new build to fire up growth.

    Where are the steps to fire up growth now. There are none. Hope isn't policy, it's incompetence.

    So some home truths.
    1/ Many consumers are not just over leveraged on housing, they are a few percentage points away from default.
    2/ MBSs dependent on consumer solvency are still an integral part of the assets of our financial business'.
    3/ The internet is introducing business models that drive down costs and incomes. This has an unavoidable and lengthy deflationary outcome.
    4/ The biggest statute created cost consumers and business' face is the land prices generated by the Town and Country Planning Act. 21% of factory gate prices or discretionary consumption at 1/3 of it's potential.
    5/ Govt must identify, promote, and if neccessary pay for the infrastructure growth requires. 25 years after BT's offer to build a nationwide residential fiber optic network at cost was rejected, we are still waiting. Korea didn't and flourishes.
    6/ Lower costs increases profits and encourages growth and entrants. Identifying costly and un-neccessary rules and regs on business requires a lot more than a chat with the CBI and Banker's Guild.

  • Comment number 48.

  • Comment number 49.

    Is this what the Germans mean by Schadenfreude?

    I suspect that entertainment can be found by looking at downfall rip offs on youtube for Hitler's view of Chelsea being beaten.

  • Comment number 50.

    "I hope I didn't hear you say "diddums" - because it is possible, you know, that a bit of your wealth is being managed by a hedge fund, via your pension scheme."

    That's odd. I thought most of the pension fund money these days was sitting in "tracker" funds. As these invest in an entirely predictable fashion, they seem just like sitting ducks ready to be ripped off by the kind of market manipulation/speculation that makes the hedge funds all their money.

    On balance I would expect that the more money the hedge funds lose the better for our pensions.

  • Comment number 51.

    The significant word for me is 'bet'. I still have what many would probably consider an old-fashioned view that the purpose of stock exchanges and markets is to facilitate world trade and the general economy. Unfortunately the whole thing has become just a large betting shop unconnected to the world in which the vast majority of people live and work. When you have people trading in shares they don't even own there is something seriously wrong.

  • Comment number 52.

    Robert, please stop the speculation - which team did you mean, one of the Manchester ones or Chelsea?

  • Comment number 53.

    Mr Preston could have been referring to Man U, Liverpool any of the bigger clubs. With regards to the rest of it .... it seems that no matter what happens to the bankers and investors, we ordinary folk pay for it by losing jobs, homes, taking pay cuts or freezes, devalued pensions, and have to pay more for fuel, food, and of course credit. Thanks banking industry! I do wish they could have been hit much harder and made to forego all pay rises and bonuses for the next two years like many other people are to being forced to, but then that would also hit our pensions and the banks would put up interest rates on loans and credit cards even higher.

    The only way forward is to curb the power of the banks in the way they operate, reform the political system in this country, reduce the numbers in the Lords, help those on less than £30,000 a year with less taxes, and make those on high salaries pay their fair share of the agony.

  • Comment number 54.

    There is/is there the possibility that the hedge funds were actually well appraised of most of the labour governments HM treasury currency decisions owing to the numerous leaks that occur in government? Even if this just meant that the hedge fund managers crunched the Red Book PBR forecasts and calculated that the value of sterling was probably going to be unstable as the possibility of a re-elected Labour government being incapable of tackling the budget deficit.

    This could explain why the UK budget deficit is now at 155Bn as lower than was estimated a few months earlier ... as the price of sterling and the size of the budget deficit are to some extent mutually inter-dependent.

    Did the hedge funds lose out also because they have listened too closley to their 'government moles'?

  • Comment number 55.

    #40 Wee Scamp,

    "I would suggest that [Hedge Funds] be offered the opportunity to contribute £500m annually to an independent (i.e. non City based) venture fund that supports start ups, spin outs and early stage companies or we shut them down."

    They're called private equity funds, and they do.

  • Comment number 56.

    One question that people should be asking is whether any institution (hedge fund or not) should be betting legally that country/government/currency can fall dramatically or fail etc.

    These institutions wield significant amounts (often far in excess of the actual values of money they physically hold) and their actions can cause or excacerbate problems that may not have ordinaily deteriorated. I am also suspicious that they would then be encouraged to spread rumours that help that fall to enable them to gain more profit.

    How actually do they help society by doing this?

  • Comment number 57.

    Posts 4 & 18 by Debtjuggler and Andrew Morton are right on the money. Memory fades too easily. We must never forget that it was the bankers' unchecked, unregulated greed that got us into this financial mess and why thousands are losing their jobs and crumbling schools aren't getting rebuilt.

  • Comment number 58.

    Re Comment 43 AppleMacGuy

    Take Bradford and Bingley.

    Mostly owned by Pension Funds, shortsold into oblivion by profiteering Hedgefunds and market pirates.

    --------------------------------------------

    I disagree AppleMacGuy. I believe Bradford and Bingley was sunk by their management's incompetence. The hedgies simply quickened the pace. I quote:

    "Financial commentators need to get things in perspective though. Short selling hasn’t destroyed the banks’ balance sheets and reputations. Bad management alone has done that. Short selling can merely accelerate the discovery process and bring to light the fundamentally poor risk management practiced by people who – given their enormous remuneration levels – should have known better...."

    http://www.jesse-livermore.com/blog/the-dog-ate-my-supper-ill-blame-the-mouse/

  • Comment number 59.

    Then I apologise for not having read it correctly.

  • Comment number 60.

    I read a few comments on here,everyone moaning about hedge fund's etc and can't believe some people's comment's.

    Bank's should not take risks with client money however Hedge fund's are entitled to take risks they have no connection what so ever with your bank and it's current account.

    The Hedge Fund Manager that earnt the 4 billion would have probably paid at least a billion in tax back into the uk economy through income tax coporation tax etc etc which is a billion more than would have been there otherwise.

    Another billion of that has probably been donated to various charitable organisations as although never publicised most Hedge Fund Manager's give huge generous amounts to charity on a regualar basis and in addition most are involved personally with these charities.

    Hedge Fund Managers do not earn there money directly from the UK market they are earning money from investments from all over the world so money which is being brought back to the UK from all over which otherwise would not be coming in.

    The rest of this money will feede back into the economy when he buy's his new house pay's his builder, pay's his plumber, spends his money in shops, pay's for holidays, pays's for restaurants etc, need I go on.

    As for targeting weak companies etc most will only sell short companies that are weak through there own poor decisions and mis management which I believe is more than justified.

    As for shorting the pound it was sold at the time it was overvalued in comparision to other currencies so they sold it which is fair enough.Who do you think bought it back up to where it is,the same people that pushed it down the Hedge Fund managers who when thing's improved had a reason to buy it back up.

    Who do you think buy's your shares?Hedge fund's may short shares but they also buy billions of pounds worth of shares everday in good companies that are run well which in turn increases the value of your pension fund's.

    If they leave the uk then what will be left with,I tell you what billions and billions of less tax revenue.

    Why should the finance industry be targetted.If someone in another industry get's a large bonus they will be allowed to keep it whats the difference.

  • Comment number 61.

    It is astonishing the amount of ignorance posted on this site. I do not think there was a single hedge fund bailed out with government capital. Nor did any single fund or aggregate fund pose any systematic threat to the global or local economies. What's more hedge funds performed in aggregate better than their risk equivalents ie far less risk. The strong absolute returns since the interest in funds has taken off over the last decade will be largely the reason you may get something in your pension. So I would suggest you all just say thank you and move along.

  • Comment number 62.

    Rather a foolish populist load of claptrap. You refer to Industry losses - this is an aggregation of many different styles and philosophies where there is a huge degree of dissent and difference within and between the investment styles that make up the "hedge fund industry". I would have at least expected you to have listed losses compared to a benchmark such that even at an aggregate level the public would be better informed as to hedge fund performance relative to say the FTSE over the same period. (A quick look at the FTSE Sep Future showed the index at 5572.6 close March 31st and at 5118 close June 30th - a loss of 454.6 points or 8.16% over the same period). I do not much care for this comparison because as I stated previously it is too easy to make generalist comments which do not stand scrutiny when put within an arena where people who know what they are talking about are involved. (Out of interest and given the choice - which return would you have preferred over the last quarter? -2.79% or -8.16%?)

    I fail to understand the broader point of this blog. Ostensibly you appear to be putting words on your blog but make no point or any sense. You appear to indicate that all hedge funds are or were Short the Pound and Short Gilts. That is a mindless comment.

    You talk about Hedge Funds being financially mobile. You obviously have forgotten the large number of shuttered funds and gating that occured over the last few years when a large number of funds where caught in a Redemption/Liquidity trap. (Again there is an enormous amount of diverse opinion and styles (along with foresight) within the industry and you should never refer to hedge funds in such a sweeping manner without wanting to appear foolish.)

    Away from your frivilous comments about hedge funds - you appear to be happy (rather early doors) to declare how we have, as a result of the election, a strong coalition government, which is anything other than weak and ineffectual. Brave words - I personally will wait until the coalition is tested when push comes to shove as the pinch of our path to debt deflation begins to impact people on the streets. I imagine that you will likely see a little more dissent from within the coalition ranks once unemployment starts to rise. I think your analogy to a vulnerable small craft was mis-placed in this respect. I would moreover accept the analogy with respect to coalition politics.

    I do agree that the world is reverting to Mean. Financial Markets have had their day in the sun and we are now having to deal with the consequencies of the enormous credit expansion of the last 30 years. This will likely be with us for a large number of years and the volatility associated with navigating these waters (politically and financially) calls for calm and educated thought and comment, not random hip shots.


  • Comment number 63.

    50. random_thought wrote:

    "That's odd. I thought most of the pension fund money these days was sitting in "tracker" funds."

    Bit of a generalisation, but certainly true to say many pension funds allocate some/much/all their equities allocation to trackers. Why? Because they do not believe asset managers are able to deliver outperformance (certainly after fees), and therefore prefer just to follow the index. They do want exposure to some level of equities, though, as this ought over time to deliver a degree of excess return over bonds. The theory is that it cuts the overall funding requirement of the pension scheme over time. Events over the last 10 years call this into question, but over a longer period the theory still holds true.

    Trackers are incredibly cheap to buy. Typical all in costs are 0.2% or less per annum. Costs on actively managed funds will be at least 4x higher. What we're actually seeing is pension funds splitting their exposure between trackers (cheap, no market outperformance), and more absolute return type mandates (hedge type fee arrangements, positive returns in most market conditions).

    Incidentally, tracker funds are a good source of stocks to borrow for hedge funds etc. The lending fees earned by the tracker go a long way to eliminate the administrative costs of the fund, and help keep returns as close as possible to the benchmark being tracked. Stock borrowers like the trackers because they are a reliable supply source. Unlike active managers they don't suddenly sell their holdings and require borrowers to return stock unexpectedly.

  • Comment number 64.

    @51 Phil

    In his 1954 book "The Great Crash of 1929", the Harvard Economist JK Galbraith describes how Wall Street pretends to be there to facilitate investment, wheras its real purpose is to enable speculation. Galbraith wrote: "Wall Street, in these matters, is like a lovely and accomplished woman who must wear black cotton stockings, heavy woolen underwear, and parade her knowledge as a cook because, unhappily, her supreme accomplishment is as a harlot.”

    BTW If you don't want ordinary people to end up paying for this mess, check out the "Other Taxpayers' Alliance". They're on Facebook too - spread the word!

    http://www.taxpayersalliance.org/

  • Comment number 65.

    I understand the point of shares, allowing companies to raise capital for expansion.I understand the point of bonds and gilts in raising long term capital for large companies and governments. Both these can add value.

    Can someone explain to me the point of short selling shares, other than making lots of money for a privileged few who are adding nothing to our economies.

    If all the hedge funds disappeared tomorrow I am not sure that we would really be any worse off. The picture of the 'giant vampire squid sucking the profits out' springs to mind.

    I have a friend who has a large company and they produce a food commodity, he has been told by his bankers that he will soon be able to trade in these commodities on a new market, bearing in mind that a tiny oversupply will already hammer the price down and a tiny percentage undersupply can already double the price he is thinking that it will now become almost impossible to manage and plan his company against speculators. Who stands to gain, certainly not him, the only people who will gain are the same ones who always do.

  • Comment number 66.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 67.

    #55. JayPee

    They're called private equity funds, and they do

    Oh no they don't. PE companies rarely touch start-ups and particularly those involved in techy stuff. They're more involved in buying out existing and preferably profitable companies. Old fashioned Venture Capitalists still work with start-ups etc but these are now few and far between, don't provide a lot of funding and nowadays tend to be run by people with little knowledge of markets or technologies.

    As a consequence the UK's company birth rate is pathetic and their survival rate is poor.

  • Comment number 68.

    Let us see, one of the games of the banking casinos, hedge-funds, is not doing well now that the odds have been made clear. Nothing worse than an informed investors for the bankers. So you lost 30% of your retirement account the last time your money was in such funds and they are disappointed that you haven't signed up again. The backing of unsecured dirivities is not enough to intice you back? The gambling houses do not stay in business because you make money, it is because they do. Seems the governments do not want to protect you against what has happened once and feels that robbery by computer is not a crime. Remember poor performance has no impact on the bonus. This sounds like the bankers laying the gound work for another bailout.

  • Comment number 69.

    @ 57. At 1:30pm on 08 Jul 2010, byline wrote:

    > it was the bankers' unchecked, unregulated greed that got us into
    > this financial mess

    Don't get me wrong - bankers are scum. But the Con-dems are telling me that it's
    the nurses' and policemens' pensions that have caused this trouble - which way
    round is this?

  • Comment number 70.

    61. At 1:40pm on 08 Jul 2010, Alex_HF wrote:

    "It is astonishing the amount of ignorance posted on this site. I do not think there was a single hedge fund bailed out with government capital. Nor did any single fund or aggregate fund pose any systematic threat to the global or local economies."

    LTCM, LTCM, LTCM - read your history boy!

    ....or do you mean this time?

    well this time isn't over yet.

  • Comment number 71.

    60. At 1:38pm on 08 Jul 2010, Ben wrote:

    "Bank's should not take risks with client money however Hedge fund's are entitled to take risks they have no connection what so ever with your bank and it's current account."

    LTCM, LTCM, LTCM - Goldmans, Merril, Barclays, Lloyds - they were all there.
    Where do you think the initial loans come from.

    I love it when people start their piece with "I can't believe the lack of understanding of some people" - and then follow it up with the most amazing gibberish.

    "The Hedge Fund Manager that earnt the 4 billion would have probably paid at least a billion in tax back into the uk economy through income tax coporation tax etc etc which is a billion more than would have been there otherwise."

    Gods teeth man - do you think they're really making it from a printing press or something???
    That money already existed, they just diverted millions of pennies from millions of unsuspecting investprs to create their bonuses.

    Never watched superman III and Gus Gormans 'dollar fraction' scam? - you should do because that's exactly how hedge funds work - he even bought himself a ferrari with the winnings! (nobody will notice)

    "The rest of this money will feede back into the economy when he buy's his new house pay's his builder, pay's his plumber, spends his money in shops, pay's for holidays, pays's for restaurants etc, need I go on."

    ...or goes to Monaco to buy a yacht....whoops!

    "Why should the finance industry be targetted.If someone in another industry get's a large bonus they will be allowed to keep it whats the difference."

    because other industries have something to show for their investment at the end of the day

    Hedge funds are simply skimming machines - like the ones trying to clear up the oil spill.

    Don't people think before they leap to the defence of the hedge funds? - or do you like being a mug?

  • Comment number 72.

    50. At 12:59pm on 08 Jul 2010, random_thought wrote:

    "On balance I would expect that the more money the hedge funds lose the better for our pensions."

    I'm afraid Robert is right - many pensioners are invested in hedge funds without their knowledge. It's called diversification and through share classes it allows pension funds to invest in underlying hedge funds.

    That's how they can skim - because it's fractions of pennnies per pensioner - but all you need is 5 million of them and you're in the Ferrari showroom at lunchtime!

  • Comment number 73.

    41. At 12:16pm on 08 Jul 2010, FifthDecade wrote:

    "As for coalitions, Switzerland has had one for over 50 years and is one of the strongest economies in the world with the Swiss Franc particularly high right now."

    Now is that because they have a coalition - or because of their historical neutrality and Nazi gold?

    Before you start singing the praises of Switzerland - have you tried buying a house there? - if you think the UK property market is inaccessable - then you want to experience the swiss one.

  • Comment number 74.

    43: No, at the time I watched as the volume sales of B&B shares hit 44000000 on one day.

    Due in large part, to naked shortselling, not borrowed stock !

    The corruption of Wall Street has afflicted the World.

    Zombies are the answer.

  • Comment number 75.

    60: Dodgy fund managers wiped out B&B (in which I had Shares), and many thousands of people had PIB retirement Bonds, which were also classified by Mr Clokey as worthless (he saw them as a sort of permanent shares).

    The only compensation is that some of the exploiters also lost their money when they bought in at twenty pence.

    Zombies definitely.

    First choice was an Asteroid, but you know, no one learns from an asteroid.

  • Comment number 76.

    Robert,

    Are we supposed to be happy that the hedge fund managers are getting more cuts than they wanted?
    How many of us have private pensions?
    How many have pensions that have not been destroyed?
    How many people in this country can't afford them?
    How many people in this country will never find work again?

  • Comment number 77.

    In the middle of all that, even a multi-billion dollar hedge fund looks like a vulnerable small craft.

    Floating in an ocean of oil doesn't seem like a good idea. From what I've been hearing that isn't so good for the boat. Even worse for the health of the sailors.

  • Comment number 78.

    33. At 11:36am on 08 Jul 2010, writingsonthewall wrote:
    http://news.bbc.co.uk/1/hi/business/10552770.stm
    The fools.
    How can you be spurred on by something you don't even know the contents of (i.e. the stress tests)
    These markets will believe anything - such is the deperation for good news.
    ----------------------------

    The markets are rigged, that's why. Shorters were hit.

  • Comment number 79.

    64: A very nice quote, very appropriate.

    It amazes me how many financial workers look down with contempt on every one else.

    They seem to believe that because they have managed to cook the books, and manipulate markets and funds, that they have some Godsgiven right to continue to do so.

    They seem to believe that they are above the Law.

    What is worse, they actually do seem to be being allowed to continue sleight of hand frauds, selling worthless or poor quality Bonds as good etc, etc with no limitations.

    They are laughing at us all.

  • Comment number 80.

    60. At 1:38pm on 08 Jul 2010, Ben wrote:
    If they leave the uk then what will be left with,I tell you what billions and billions of less tax revenue.
    ------------------

    We're willing to take the risk! You guys taught us that taking risk pays off.

    Go to Switzerland, hedgies, go - your buddies are already there!

  • Comment number 81.

    65. At 2:15pm on 08 Jul 2010, RichYork

    Your friend should be reading the award-winning journolist Johann Hari about speculating on food:

    "How Goldman Sachs gambled on starving the world's poor - and won"

    I'll leave out the link 'cos moderators can be funny about that kind of thing sometimes.

  • Comment number 82.

    #62 lp,

    Great post, though you'll be howled down I suspect.

    I read the blog again, and note that there is an implicit linkage between the poor hedge fund performance and lack of any collapse in GBP/gilts. Nor is there any sense as to when (if?) any hedge fund that did bet against GBP/gilts is still running such a position. Intuition suggests to me that such a position would be run until the election result was known (ie the alleged worst case of hung parliament arose), then close it out. Such a position was never going to become more profitable than it was on the Friday post-election.

    The impression given is that GBP/gilt plays are a key contributor to the overall negative performance of all hedge funds. I doubt they do much more than impact the roundings frankly. I'm sure individual funds may have made lots of money or lost it betting on GBP direction. However, the hedge fund industry manages about $1.6 trillion, meaning a 0.1% performance impact equates to $1.6 billion. It would take some very big bets on GBP to get anywhere near that level.

    I think people confuse the physical location of many hedge fund managers with their investment horizons. UK/GBP/gilts do not figure large in that. Combine hedge fund losses, a non-story about GBP not collapsing, and throw in a bit of football: makes for a good populist blog.

  • Comment number 83.

    65,

    The POINT of short-selling is to make money if an asset goes down in price (as opposed to long-selling, where you make money if an asset goes up in price.)

    The EFFECT of short-selling, despite what many seem to believe, is that bubbles become LESS bubbly, peaks aren't as high, and therefore crashes aren't as bad as they are in markets where short-selling is banned.

    Now, whether this justifies the ludicrous amounts of money that hedge-fund managers can get away with charging is another argument...

    ... but let's not assume that just because someone is trousering a thumping profit means that there is no contribution to overall stability.

  • Comment number 84.

    65: Well, it is a method of selling something someone else owns, to make a profit. The actual owner will at present usually find the value of their Shares falls when shortsold.

    On a small scale this doesn't matter.

    On the Huge scale they used against B&B, it can destroy a company, wipe out the Savings of the existing Shareholders and Pension Funds etc.

    I can feel that these issues will become academic.

    Fire, Food and Shelter will be more important.

  • Comment number 85.

    It is more likely that Green and Sorrell are expressing their hopes rather than predictions.

  • Comment number 86.

    Nice blog Robert.
    Winding up hedge funds, football fans and posters. More of the same please.

    As to the hedge funds, I am naively optimistic that people are now starting to take control of their own investments rather than using the parasitic professionals to look after their cash and I am pretty sure that down the line this will lead to a better allocation of resources and a better result for the country.

  • Comment number 87.

    #65 Rich York,

    "...they produce a food commodity, he has been told by his bankers that he will soon be able to trade in these commodities..., bearing in mind that a tiny oversupply will already hammer the price down...he is thinking that it will now become almost impossible to manage and plan his company against speculators. Who stands to gain, certainly not him"

    I have to disagree, I'm afraid. Your friend currently faces significant risk of losses if he makes his product, and is subsequently faced with oversupply at the time he wishes to sell. If a futures market is developed, he can sell his supply forward, ie before he's made anything, if the forward price looks attractive, ensuring he at least covers his production costs. Furthermore, he can use the market price indicated by forward dated futures to gauge market sentiment for the likely supply situation at the time his product will be ready for sale. That information can be used to judge what level of production to aim for. For instance, if forward prices are very low, it implies oversupply, therefore cut production targets. If very high, run flat out. And, like I say, at the very least he has a quasi-insurance policy that allows him to set a floor on his selling price vis a futures contract.

    Surprising as it may seem, commodities futures are generally not dreamed up for bank traders to play with, they come out of demand from the players in the industries concerned. They provide a very useful price discovery mechanism. To give an example using a company much beloved on this blog, Cadbury are one of the biggest players in the cocoa futures market. Also true of sugar I believe. Banks etc provide a useful source of liquidity in futures markets.

  • Comment number 88.

    58. At 1:30pm on 08 Jul 2010, alexvan wrote: "Bradford and Bingley... shortsold into oblivion"
    Re Comment 43 AppleMacGuy "The hedgies simply quickened the pace...Short selling can merely accelerate the discovery process..."


    Assuming you've thought this through, AMG, you believe that "merely accelerating" is beneficial. You need to justify that belief. I can accept that accelerating a good thing is worthwhile. But merely (?) accelerating a bad thing is surely bad.

  • Comment number 89.

    69: Their friends and potential future employers the Bankers and the CBI have told them what to say.

  • Comment number 90.

    Robert

    Not knowing where to send this but I thought it might interest you
    Are the government moving the goal posts on Capital Gains Tax?
    See the attached addenda to the 2010 Finance Bill

    http://www.publications.parliament.uk/pa/cm201011/cmbills/003/amend/pbc0030707a.1-6.html

  • Comment number 91.

    Ordinary House prices are determined by peoples salaries.
    Salaries fall, house prices fall.

    But buy to let and landlords !

    Landlords rely on, RENT.

    Rent comes out of peoples salaries.

    Salaries fall they cannot pay more rent.

    Lower rent lower market book value (if done properly).

    Guess what House prices will, FALL.

    In about two years, this won't matter.

  • Comment number 92.

    #63 JayPee

    I agree that Tracker Funds were a great idea to start with - low overheads and almost as good a return as an active fund. What concerns me is the effect of MOST funds becoming tracker funds (which is certainly the case in the US, and I believe is largely the case in the UK). This just does not seem a stable situation - tail wagging the dog etc. If you know that tracker funds are going to hold on to say BP shares, then dump them predictably when the time comes to adjust the portfolio to match the new composition of whatever index they were tracking, then it must be possible to win some heavy bets against them.

  • Comment number 93.

    > 60. At 1:38pm on 08 Jul 2010, Ben wrote:
    ...
    The Hedge Fund Manager that earnt the 4 billion would have probably paid at least a billion in tax back into the uk economy through income tax coporation tax etc etc which is a billion more than would have been there otherwise.



    Hahahahahaha!
    Oh wait, you were being serious?

    So Ben, assuming said manager didn't pay an army of accountants to ensure he paid less tax than his scretary that year, please tell us-
    If the £4billion had gone to several thousand investors and workers instead, each and every one of them would have paid no tax would they? Exactly how would that have come about? Did the hedge fund manager who 'earned' this money only utilise cash that was destined for people who were exempt from such things as VAT? If so and he can back up such a claim with paperwork then perhaps he actually has earned it!

    Also, where do you really think those billions not paid in taxes were spent? On goods and services in the UK etc where they would have circulated in the economy and reduced any requirement for credit to do the same job? Or on massive yachts, vastly expensive cars, private jets and luxury villas in the Seychelles with little to none being pumped back into the countries it was extracted from?

    Billionaires don't 'spend their money in shops'. They spend their money in exclusive places we lesser mortals will never get access to. Boutiques and private companies who come out and measure them for their suits in their own homes. Companies and self employed individuals that cater soley to the super rich and who also are part of the tax-avoidance-let-someone-else-pay-for-it sector of society, or at least aim to be.
    They go to countries like Uganda and get entertained by dictators, where they purchse their most expensive items for the minimum amount of sales tax they can get away with. Why pay 20% VAT and car tax in the UK for a half million dollar car that can be exported to a foreign country with no VAT and only pay a few thousand in back handers to a corrupt regime?

    The one hundred richest people in this country paid a combined income tax less than James Dyson on his own last year. Do you think they did so by not getting paid and relying on their savings? By going to the local Tescos and getting some good deals? Or did they do it by paying accountants and tax lawyers to ensure they pay as little as possible?

    This is more 'trickle down' theory that smacks of someone who wants the theory to be true in order to justify their own dreams of one day being super rich too. Well you can stop beating yourself up. Dream away without fear of looking selfish- neither you nor I nor anyone else on this board is ever going to get close to the sort of rich you are trying to justify. But they want us to think it is possible, because how else can they ever get away with what they are doing?

  • Comment number 94.

    69. At 2:34pm on 08 Jul 2010, Jacques Cartier wrote:
    @ 57. At 1:30pm on 08 Jul 2010, byline wrote:

    > it was the bankers' unchecked, unregulated greed that got us into
    > this financial mess

    Don't get me wrong - bankers are scum. But the Con-dems are telling me that it's
    the nurses' and policemens' pensions that have caused this trouble - which way
    round is this?

    -------------------------------------------------------

    The Con-Dems are rewriting history faster than it can be made. What you are now seeing is the government spin-maching working at full throttle to try and make sure we forget about Fred Goodwin and his ilk and turn on each other.

  • Comment number 95.

    LTCM was a flash in the pan that was liquidity issue solved by rapidly injecting capital into the system from the banks not the Fed. It was just organised by the Fed. The last two years has been a structural breakdown of the financial system of which banks are at the heart. And yes they have had the free option of excessive risk and re-strike the new bonus year at Jan2 and would all out of business without the central banks and treasuries of the world. Again does not apply to hedge funds.

  • Comment number 96.

    So politics has now gone back to being a little bit boring as the LibCon coalition has managed to calm markets and looks extremely effective and efficient.

    Not a bad record after only a few weeks in power and following the turbulent years of Labour which seem now to be in the far distant past.

    However we are in a calm period in the middle of a not too bad summer so we should enjoy it while it lasts and recharge the batteries.

    I agree that the coalition has been the saving grace from what could have been another crisis but it is only a short term measure until the real cuts have to start.

    Who then would dare rock the boat within what is now seen to be a popular and dare I say trusted coalition without being hounded out by the people? This is what they wanted and it's what they've got.

    Like many I know it will be tough times ahead but so far I trust the decisions that our politicians are having to take.

    If these have baffled those gamblers in the markets then that has to be a sign that those gamblers aren't quite as clever as they thought.

  • Comment number 97.

    And again ..I would rather you just said thank and then be on your way.

  • Comment number 98.

    @ 61. At 1:40pm on 08 Jul 2010, Alex_HF wrote:

    > It is astonishing the amount of ignorance posted on this site.

    Then why heap more on it?

    > The strong absolute returns since the interest in funds has taken off over
    > the last decade will be largely the reason you may get something in
    > your pension.

    Some blockheads still think they can gamble their way out it. Get a proper job.


  • Comment number 99.

    11. At 10:12am on 08 Jul 2010, supercalmdown wrote:
    I think overall Hedgefunds, private equity, and shortsellers in general have done more to undermine (destroy) Pension Funds than anyone.

    Take Bradford and Bingley.

    Mostly owned by Pension Funds, shortsold into oblivion by profiteering Hedgefunds and market pirates.

    -------------------------------------------------------------------------

    Actually Pension Funds perpetuate the problem in this example. The stockpile of assets they sit on, are made 'available' to broker/dealers such as Morgan Stanley, JPM, Goldman Sachs, who lend them to the hedge funds so they can shortsell the stock who pay a borrowing fee to the broker deal who splits it usually 60/40 with the pension fund. The pension fund managers rub their hands with glee, because this enhances their return and is the only way they can profit (read offset) from the falling price of a stock by letting someone borrow it and sell it short because they are 'long term investors' themselves.

    I've worked at so many places now that do not give the proverbial rodents bottom about the risks when they are managing other people's money.

  • Comment number 100.

    #82 - cheers.

    absolutely agree - hedge fund returns somewhere around zero to do with GBP & or Gilts. These are (in the scheme of things) circus sideshows which you toy with but largely leave alone. Gilts certainly are relatively thinly traded (compare/contrast the gilt future against the US Ten Year) and trying to put a position on in size can be hugely frustrating and even more frustrating to unwind. The last decent Gilt trade was QE and that was a Long Trade - messing about with Short Gilt positions over an Election is a low delta trade from a Risk/Reward Basis - I am sure that there was likely some shorting and certainly I would guess that there was a pick up in the CDS trade - but then that could be for genuine protection purposes as opposed to scandalous speculation. Short cable positions post the result was a pretty decent trade if you had deep pockets for a couple of days but again no way would you have been maintaining that short through May, June & July.

    Hedge Fund losses are much more in keeping with downturn in numbers coming out of the US - tanking equity markets and the ramp up in yields have caught a lot of people with their pants down. Everything depends on your perspective. If you believe in Goldilocks then you have just been mauled by the bears.

    Unfortunately the UK, though very important to me on a personal basis is simply not important on an investing basis and speculating on UK events is for pocket change not serious money.

    Like you said, this empty article makes for a populist blog and reading some of the comments in the reply section is sadly amusing.

 

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