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This is very ominous.
According to a a news report, ten European hedge funds have suspended redemptions, to keep from collapsing. In other words, investors are no longer permitted to take their money out. The emergency was apparently triggered by last week's stock market volatility, which was the worst in Europe.
In the worst case scenario, the hedge funds will be worthless, and investors will lose their entire investments, as happened last July when Bear Stearns announced that its hedge funds were almost worthless.
Here's the story:
Up to 10 European hedge funds have suspended redemptions after investors clamoured for their cash when the managers made severe losses.
A London prime broker told The Sunday Times that even before last week’s extreme gyrations, nearly two-thirds of London-based hedge funds had lost between 4% and 10% of their value. A “significant number” had lost much more, he said.
The manager of one of Britain’s biggest hedge funds said: “It’s been an extraordinary week. Even in the crash of 1987 I don’t remember so much carnage.”
Experts warned that the problems among hedge funds were likely to cause more disruption in the markets, especially if many are forced to liquidate positions.
This is exactly the kind of situation that I've been warning about, since it could lead to a full-scale stock market panic and crash.
Unless the stock market bubble starts growing again (which I consider to be very unlikely, though I've been surprised before), there will be additional hedge fund failures.
However, at the time that I'm writing this (about 12:45 am ET), Asian
markets are down sharply, with the Nikkei index down 3.1%. Wall
Street index futures are down about 0.75%. It's possible that the
overall collapse is accelerating. Beware.
(28-Jan-08)
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