PC, With hedge funds, there are many in big trouble. You have to remember that not only are many of these guys momentum geeks, but some place bets in disaster economies. Even worse, most are leveraged, so they could be in deep kimshee. Losing 25-50% is bad, but doing it on margin puts you out of business.
The momentum funds are down but probably not out, yet. We have to remember that the big stocks are just now down for the year, and the big stocks have been the darlings of momentum funds. They should get large redemptions, but that just makes them fully invested if a bounce comes. Another 15% down and momentum once again dies for another 20 years as it did after the 1960s-1970s disasters.
The problem is, if you really thought Citicorp was a bargain at $182, or, more likely, $125, you have a hard time shorting it at $90. Since mutual fund managers and even most hedge fund managers have no idea of what a company is really worth as a business, they can't adjust fast enough to the downside to take full advantage. Yes, one of two will change flags and short the weaker areas, but the majority will stay long and wrong. Also, with the leverage stretched, they may have trouble getting margin for short sales. And, as TD said, the hedge funds will probably tell this group of suckers, tough luck, and dissolve poorly performing funds. After all, 20% of zero isn't a big number. Then they'll adjust their "model" and hook some new fish. The mutual fund cos. will simply can old managers and bring in even dumber ones. "It wasn't our team approach that caused the problem, it was Mr. Scapegoat. Now, he has left to pursue other interests, such as collecting Welfare payments and Mr. Brighteyes is managing the fund on a day to day basis under the tutelage of the same team that screwed up Mr. Scapegoat." <G>
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