Tick Tock, Which Hedge Fund Will Blow?

The Hedge Fund Industry has benefited greatly from the 5 year bull run off the March 2009 lows. As the saying goes, "A rising tide lifts all boats." Hedge funds can leverage their capital 10, 20 even 30 times, and this leverage can create large returns when the times are good. This is what happened in 2006 and 2007, when every institution was clambering to buy Mortgage Backed Securities, Housing Stocks and Bank stocks. We all know what happened when Bear Stearns and Lehman Brothers collapsed, causing the Great Recession. Well, history is repeating itself once again as big institutions are heavily leveraged with the Yen carry trade; where they are short the Japanese Yen and long US stocks and futures contracts. Over the past month we have seen the volatility kick in as this trade begins to unwind. If everyone runs for the exit door at the same time, then you get intense selling pressure. Over the next few weeks I wouldn't be surprised to hear of an institution going bust from being long the market at the highs and now being forced to liquidate its positions. As Nick Santiago often quotes Mark Twain, these words apply quite well today, "history doesn't repeat itself, but it does rhyme." The one thing we do know is there will always be a trade on one side of the market or the other, our only job is to read the charts correctly and enter trades at the highest probability of times!


Evan Poechman

InTheMoneyStocks.com