WEST PALM BEACH, FL (www.hedgeco.net) – Hedge funds have been accused of basically causing problems in the global economy even when there is no evidence to support such claims. During the financialcrisis of the Asian Tiger economies, some of the Asian leaders charged that Hedge funds were responsible for the currency crisis, which engulfed much of the region. It took an IMF study on the matterto finally clear such charges. Some have also charged that the current energy problems were the result of hedge fund speculative activities.
It is now known that Hedge funds were not the cause of skyrocketing oil prices, economists now believe that the problem is growing from the demand dynamics of global energy consumption. With economic booms in countries such as India and China and other countries, the demand for oil has reached historic proportions, with crude oil now trading near the $60/per barrel range. Now comes some suggestions from economists that there is some connection between the global real-estate and housing bubble and Hedge Funds. Economists are now including hedge fund activity in their theories why the long-term interest rates have remained low in divergence with the short-term interest rates. Marshall Blume, from the University of Pennsylvania’s Wharton School of Business, noted in an academic research that, “If hedge funds are helping to keep interest rates low in defiance of the Fed’s efforts, they are contributing to the housing boom that some believe is becoming a speculative bubble.” Economists now believe that hedge fund activities are helping to drive yields down.
Despite eight increases by the Fed�s fund rates since last June, the yields on the ten-year treasury benchmark still remain at low levels, falling from 4.38 percent in January 2004, to 4.24 percent in December, and now reaching 3.89 percent on June 2 before rising back to 4.11 percent. While the Chairman of the U.S. Federal Reserve, Alan Greenspan has warned of the risks associated with the explosion in the number of new hedge funds coming to the market, Greenspan has not publicly charged that hedge funds were causing the problem.
Some economists however believe that there are connections between hedge funds and the current boom in the real estate markets. Richard Marston of the Wharton School said, “There are a limited number of arbitrage opportunities, it�s not herd mentality so much as everyone is looking for good ideas, and they often come up with the same ideas.” Another economist, Richard DeKaser, the chief economist at Cleveland’s National City said, �Data from the Commodities Futures Trading Commission suggests there could be a connection between speculative interest in the bond market and the direction of interest rates.� These theories and analysis have however failed to illustrate such connection.
Paul Oranika
Editor-in-Chief
HedgeCo.Net
Email: Editor@hedgeco.net
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