Absolute Return Funds Are Not Absolute Wealth Machines

Elaine Meinel Supkis

Today, I want to talk about Absolute Return Funds which is yet another whacky scheme to make money with high rates of return due to high risk while pretending there is not only no high risk but it makes money going up or down! These various schemes are called 'products' and the guys struggling to get money from investors have to keep coming up with better and better schemes every day and these have been proliferating like crazy the last 7 years. This is because the fundamental systems we live with today have been totally destabilized and are not getting better but are actually collapsing!

From Bill Bonner at The Daily Reckoning:

If you went back and looked at all the leveraged buyouts over between 1981 and 2003, according to researchers from Harvard and Stanford, you'd find that the buying firms were almost always harmed by the transaction. Last year, KKR raised $5.1 billion from the public for a company that invests (funds) KKR deals. Despite the biggest bubble in private equity ever, the shares now sell for about 10% less than the IPO price. And over the long sweep, KKR's track record is no better than an index-following mutual fund; it is just more highly leveraged.
*snip*
And a recent S&P study of Absolute Return Funds - funds designed to outperform the benchmarks - showed that none of them hit their targets, after fees. The worst in the group, Baring's Directional Global Bond fund, hoped to produce 4% over the London Inter-Bank Lending Rate, net of charges, thanks to elaborate use of derivatives. Heisenberg himself probably would have been proud to call the funds' formulae his own, so complex were they. But despite the highest rates in the business, what the fund delivered over the last 12 months was a net loss of almost 6%. Of the 21 funds tracked by S&P, only four beat the rate of return an investor could have gotten from cash - without paying any fees at all.

I am a Bill Bonner fan. He is a currency trader who makes money betting against the propaganda so he has to keep a cool head and not fall for sophisticated tricks. Being a sceptic, he seeks contrary information. This is very useful. The Harvard and Stanford study should have been the talk of the town but I didn't see a single story about it at all except at his excellent site! The major media exists to sell stuff and the big brokerage houses pay for a lot of ads in all the major media and so, if a story comes out like this one that hits them in the guts, they deal with it by simply putting it into that huge 'cone of silence' that protects so many scams and deals.

If no one talks about it, it is like the tree in the forest that falls and no one hears. When I took philosophy classes in German, we discussed this truism. I said, 'Well, it all depends on who "no one" is! If a tree falls and it hits other trees, they know it happened. And if a tree falls and the squirrels go running, they not only heard it, they had to flee it. And if a deer was grazing under this tree in the forest and it falls and kills the deer, it is dead!'

And this is how the economic news works: the deaths of millions makes no noise as we refuse to broadcast their dying cries. The US and UK empires invaded Iraq and the whole world can hear the sound of a whole forest of trees falling but this is unusual. Most of the time, it is silent. For example, the pain and suffering of a billion people due to the rising cost of oil and basic food isn't heard at all. All we care about is, can we drive our SUVs despite all this!

This latest news tidbit from Bill's Daily Reckoning site is interesting to me because it shines a light on yet another cock-eyed scheme to enrich investment houses at the expense of savers and investors. 'Absolute Return Funds' seems to be an inside joke sort of name. In other words, the entity that gets an absolute return is...the guys running these funds! The investor gets fleeced. I consider the big trading houses to be whore houses. They pretend they want to have sex with you but they are focused only on lifting your wallet.

Honest trading is fine with me. But when the trading houses are allowed to cook up increasingly crooked schemes, they cause a thing called 'bubbles' and 'irrational exuberance' and then it all falls apart as investors discover they were conned. Because our Treasury and other parts of the government that supposedly oversees Wall Street to prevent this is run by Goldman Sachs and their Vandal hordes, far from protecting investors, they join in the conspiracy to fleece investors.

Bill mocks them all:

Both in theory and in practice, an investor would have to be a moron to want to pay a hedge fund "2 and 20" for the privilege of getting ordinary returns (actually, many funds charge an additional 1% management fee…plus an additional 10% of performance as a commission…bringing the total to '3 and 30').

The actual 'investors' in these goofy schemes often are retirement funds, pensions and the like. The people investing for these funds are either lazy, incurious or just don't care. They hand out the funds to the big houses and these are then kicked into these various scams which then 'grow'. This is where the government should step in. By outlawing scams that don't grow funds but only grow profits for the investment firms should be illegal! There is really no one protecting the pension funds from being eaten up by excessive and ridiculous fees! And bribing the people in charge of these pension funds is very easy. Worse, pension funds for other industries feed the savings of the workers into these schemes to wreck them or at least, make the money as little as possible because in general, everyone wants retirees to die. This makes profits and saves on costs.

I decided to look at the web pages of some of the entities in this Daily Reckoning article and found tons of information!

First, Baring Assets in Japan:

Many organizations set up as schemes to fleece people love to use the word 'Trust' in their names. Baring is a big organization that has been in the news this last six months as the world's financial systems gets more and more out of whack. This group obviously deals with currency differentials and rates of changes. The theory behind currency speculation is, now that all currencies on earth are all fiat currencies and not attached to anything real at all, their worth is only what everyone decides it is so traders determine worth and not central banks.

Of course, all money is ultimately numbers and these are switched around as people decide where they want to stand in a thunderstorm. The safety factor is how big is a country's umbrella and this is created via interest rates. Of course, the poor Japanese trying to save some money for the future have no umbrella at all thanks to the Bank of Japan. Germany is allergic to no umbrellas since 1924 so they have the world's finest umbrella and everyone is huddling there. The US now has a rather small umbrella so the money isn't flowing towards dollars which has been dropping in value compared to the EU. The financial officers of Barings have, for ideological reasons, betted the wrong way in the currency markets because the guys who own the organization belong to the satanic ritual circles that are frantically chanting for wealth and they don't want to cause a panic so they would rather take a hit than bid harshly against the yen and the dollar.

We must never forget that the heads of all the big houses socialize together and conspire in secret. Barings hopes fellow conspiritors will feed them pension funds so their funds can keep limping along even if it is losing money for these pensions. Just like all the pension funds are being stuck with much of the sub-prime tranches. Yesterday's news that our trade negotiator to China went there to demand the Chinese buy all these wretched funds amused me no end. These conspiritors are desperate. They assure us all, we are rich and richer but then they rush off to China to scream at them to strengthen the yuan and buy our crummy tranches or else we will close our markets to the Chinese.

If you click on the graphs here, they will enlarge. Note that Barings boasts about wealth at the top but at the bottom, the raw numbers are stark: they lost 3.6% in a 'hot' market! What? Heh. What a fine place to put one's retirement funds. Evidently, much of their trading was the dollar/yen sector and they got rather whacked there. I keep harping about this issue, the mystery of why the world's #1 and #2 economies are hosts to the world's weakest currencies for the top 20 nations! This is a sign that something is very, very badly wrong.

It seems these Absolute Return Trust Funds are favorites for the pirates of the Caribbean.

From Invest Off Shore.com:

The primary objective of the Absolute Return Trust Fund—a collective investment Fund—is to protect capital, as well as to obtain consistent results, superior to traditional investments.

By targeting an “absolute” annual performance of 8% to 10%, the Fund surpasses, through its medium-term results, most monetary bond, stock or real estate investment funds.

The performance of the Absolute Return Trust Fund are obtained through the intensive use of “alternate management” through the know-how, competence, and expertise of talented analysts in Europe and North America.

The Fund is structured as a fund of funds; a fund made up of diversified and complementary sub-funds invested solely on liquid and collective management markets regulated by OECD member countries. This multi-management brings stability to the Fund and its high growth potential independently from market trends.

The Fund simultaneously uses many of the alternate techniques available such as insurance policies, arbitration on convertibles, raw materials, currency markets, managed futures and options, long/short equities, macro and global analysis, mortgage-backed securities, arbitration on mergers and acquisition, parallel markets, and the financial tools of guaranteed capital and coupons.

The intensive use of these strategies, which are complementary and uncorrelated, insures the preservation of capital. The Fund is positioned to benefit from both downward and upward market trends and offers monthly liquidity. Its management is globally not connected to the variations of traditional markets (monetary, stocks and bonds).

They also collect tolls at the Brooklyn Bridge. Actually, this fund is a grab-bag of all the other schemes. Namely, they built a scheme that builds groups of schemes! Isn't that swell? So if one scheme gets caught in the gears of reality and collapses suddenly, they are supposed to be using various dark arts and skills to foresee this and move their money from one to the other, always ahead of any collapses.

This is pure fantasy, of course. If these schemes earn 10% or more every year, this means they are frankly, lying. The only scheme that can do this is when one takes capital and then expends it on labor which then produces goods or services and then gets to sell for a profit in a RISING WAGES environment! Namely, if workers are making money, capitalism thrives and grows. But of course, this always ends up breaking down when investments suddenly vanish into thin air which they do on a regular, unfortunate basis.

The first warnings of this is dropping wages for workers as the capitalists, due to competition, try to increase profits brutally. But this messes up things because they can't raise prices if the basis of all economies, the spending habits of the middle and lower classes, collapses. The secondary scheme is to run up the credit of the working and middle classes so prices can stay up and sales increase. But there is an upper limit to this, too! If wages continue to fall, the ability to pay back loans falls and then bankruptcies suddenly bloom if there is inflation coupled with a fall in wages. In Japan, prices are low and lower due to the crushing of the workers there but there is a bottom to that, too.

Namely, industry and internal sales begin to collapse and as they shrink, the deflation increases so even if the price of commodities rises, the incomes of the working class falls and prices for manufactured goods fall and this is the most vicious of cycles, worse, maybe, than inflation, because the financiers are perfectly happy if their money buys more while simply sitting there! The Japanese rulers show this clearly: they love their little depression! Even if 10% of all workers want to slit their throats, the rulers are unmoved because the present system benefits them.

Here is UBS, another Absolute Bullshit Return fundie:

Range of UBS Absolute Return Funds

UBS offers three absolute return funds, each with different return targets and currency tranches, which are appropriate for investors with a medium to long-term investment horizon:

UBS Absolute Return Bond in EUR and USD
Invests globally, focusing exclusively on bonds
Target return: 3-month money market +2%*
Required investment horizon: around 3 years
Required risk tolerance: low

UBS Absolute Return Medium in CHF, EUR and USD
Invests globally in all traditional asset classes
Target return: 3-month money market +3%*
Required investment horizon: 3-5 years
Required risk tolerance: low to medium

UBS Absolute Return Plus in CHF, EUR and USD
Invests worldwide in all traditional asset classes
Target return: 3-month money market +4%*
Required investment horizon: 3-5 years
Required risk tolerance: medium to high

UBS is in the European news a lot this last few years. They have been buying up banks in Brazil, insurance companies, hedge funds, pension plans, etc. They have been taking over or fighting off take overs. They are part of the massive merging/amassing business that has tremendously transformed business and trade. These deals are swiftly hiding more and more of earth's businesses from they prying eyes of regulators and investigators. I see whole sectors of the planet's economy vanish into the dark every day! It is hard to keep up.

But easy to understand. The global liquidity factor is due to all things being hidden. All these privateers have to do is change the numbers and voila! Money is there! They don't have to bother with any outside agencies like the SEC in America. No government controls them. In England, for example, they park their darker doings offshore in Jersey, for example, and bribe the Royals to keep their lips zipped. The government of England is increasingly agitated about this but if they try to stop it, the finance houses of the world hammers them so they play along hoping this won't end badly.

But it will.

From Associated Press yesterday:

BILLINGS, Mont. (AP) Former Montana gubernatorial candidate Patrick Davison will spend ten years in federal prison after a federal judge sentenced him today (Friday) on fraud charges.

Davison pleaded guilty in November to two counts of securities fraud for orchestrating a Ponzi scheme that bilked investors out of almost seven (m)illion dollars over eight years. In handing down his sentence, U.S. District Judge Richard Cebull said Davison must pay five-point-six (m)illion dollars in restitution to his victims.
*snip*
Prosecutors said victims were tricked to invest in nonexistent securities tied to companies and organizations including Billings Catholic Schools, the Mayfair charity auction, the St. Labre Indian School and the Washington Power Consortium.

To string the investors along, Davison a former financial adviser for UBS Financial Services doled out interest payments to them while pocketing most of the money for his personal use, prosecutors said.

Note the several important threads here: the con man was a respected political figure. He tried to get his filthy paws on the levers of power so he could continue and expand his schemes. Instead of investing in real entities, he skipped that part and went straight to the total fantasy set-up. He then had to gain the trust of many people and then get them to give him their money to 'grow'. This is because thanks to the guys running the Federal Reserve, money doesn't grow in banks! If interest rates were realistic instead of servicing Wall Street and others, we would get a suffient rate of return that we wouldn't need billious financial advisors trying to trick us into trusting them. If we could trust the Treasury, we wouldn't need these other schemes.

And of course, the criminal in this story learned his trade at UBS.

While seeking UBS information (this stands for 'U Bullshit Suckers'?) I came across a story that came over the wires thanks to Bloomberg news:

From Bloomberg:

Last month, Zurich-based UBS AG, the world's largest wealth manager, hosted a seminar in Thun, Switzerland, for senior central-bank reserve managers from 78 countries. They represented institutions with a combined $4.8 trillion in assets, or 88 percent of the world's foreign-exchange reserves.

In a confidential poll, UBS surveyed its guests about several key issues, including predictions about where U.S. interest rates, bond yields and the dollar will be at year's end, and anticipated changes in asset allocation over the next decade.

The reserve managers' responses made it clear that the world's biggest pool of cash ,b>will be invested more aggressively than in the past. That means they will buy fewer U.S. government securities, which is bad news for U.S. interest rates.

Shall I laugh or cry? Or maybe put on my veils and go pay a visit to my friends on the other side of the Wall of Reality? They watch this stuff with happy fascination. For all wealth ultimately comes from the Darkness. Frantically, the wealthy elites of the planet are buying up everything and CONCEALING IT. Instead of a stock market crash, we see all world stock markets soaring as these rich CONSPIRITORS bid up the price of nearly everything so they can put them into secret, dark, hidden funds that they, themselves, control.

Simulatenously, they are selling shares in these funds to us. We can get the profits in this madcap rush to turn all public organizations, private. But as soon as this is done, the door will slam shut. When purchasing abilities fail, instead of stocks losing value, nothing will happen except workers will be laid off!

Then the rich can have their lovely depression and we will have no say in the matter! I keep warning people, rich people love depressions. It makes them rich without any interest paid, no labor, nothing. If you read the history of depressions, they talk about money under the matress (note the dark connotations and the fact that childhood monsters live there). This means, if you do nothing with money, not even banking it, you make a profit! How lovely if one has money!

From CNN:

In London: The dollar remained depressed, with yesterday's twin warnings on the US subprime market casting a pall over the outlook for the US economy and, in turn, the US currency.

The dollar has been the victim of a frenzied rout after rating agencies Standard & Poors and Moody's placed billions of dollars worth of US subprime bonds on review for possible downgrades.

Daniel Katzive at UBS (OOTC:UBSLF) (NYSE:UBS) said signs of renewed stress in US credit markets have given rise to talk of possible rate cuts in the world's biggest economy.

Note how the British press admits the dollar is 'depressed'. When the Great Depression happened, the US produced 100% of its own energy. So we cut trade with the world in a misguided attempt at keeping out cheaper imports from Germany and England as the pound and DM collapsed.

Paying off loans is nearly impossible in a depression! Getting loans, equally impossible! Interest rates can drop to 0.5% and no one will be able to use it! Ask the Japanese working classes! Note how Japan's rulers love their depression and do absolutely nothing to stop it! So it will be with these guys.

Also note the secret meeting which UBS, an organization trying to lure investors into making crappy deals with them, is held. Someone spilled the beans, though! I wonder, what dreams did this anonymous rich person have? Did he or she hear the screams, 'Sieg Heil'? Did they see visions of communists shooting the royals?

WELL, THEY BETTER HAVE THESE NIGHTMARES!

I have them. The dream world is very connected to the money world. This is why money men and women talk about fear or Bernanke can say that we create inflation via our imaginations. They all worship this great powerful connection. The threat to not buy any more US debt is a very powerful threat. This is probably why Bush and Paulson of Goldman Sachs sent an under secretary to China to scream at the bemused Dragon to buy our bonds or else. China holds already nearly half a trillion of our government bonds. Ditto Japan. Both have us in their grips. The only route out is for the US to offer higher rates.

Savers in America will love this but this will further kill the real estate markets and other things. It also means the carry trade between the designer depression in Japan and the hyper-inflationary US will worsen. And this will fuel the carry trade! And this will mean the stockmarkets will soar! And this is exactly what happened before the Great Depression! Geeze!

From the Bloomberg article:

Central banks traditionally have invested their reserves in highly liquid, low-yielding securities, such as U.S. Treasuries and equivalent German government bonds. The goal is to have quick access to the funds to defend a currency under attack, cover short-term debt obligations, finance imports and counter any runs on domestic banks.

Yet, having amassed reserves well in excess of prudential needs, central banks are under increasing pressure from politicians and public-interest groups to earn higher returns on their hoards by investing in riskier assets.

To that end, several countries, including China, Singapore, the United Arab Emirates, Kuwait, Norway and Russia, have established or announced their intention to set up sovereign wealth funds.

We should arrest Paulson and his gang in the Treasury. Their official line right now, one they put out in their official documents, is 'no one knows what soveriegn wealth really is.' They are, of course, lying. This is to hide the fact that the US, far from doing well, is suffering badly.

From the Telegraph:

Disregard all hysteria. The ailing Greenback will not collapse this year, not in ten years, not in twenty years, not in half a century. There is no credible currency against which it can collapse. (Unless you count gold). None of the world's rival power blocs have the economic and demographic depth to challenge American dominance.
*snip*
Yes, we have a dollar rout on our hands. The markets have suddenly begun to discount a nasty crunch in the US as the subprime debacle spreads through the credit markets. The prospect of rate cuts by the Federal Reserve is drawing closer, knocking away the dollar's yield prop. Investors have switched reflexively to the euro as the default currency.

This cannot last. It assumes that Europe has "decoupled" from America and now has the umph to go it alone. German finance minister Peer Steinbrueck played to this illusion on Monday when he professed to "love the strong euro" - (directly contradicting testimony he gave to the European Parliament earlier this year).

Whether or not Germany is really that immune to an exchange rate of $1.38 to the dollar (Professor Peter Bofinger - one of the country's five "Wise Men" - insists adamantly that it is not), it is in any case a foolish error to treat Germany as if it were a proxy for the whole eurozone. In reality, it has become the nemesis of Euro-land. While the Teutonic Tiger is indeed springing back to life after a decade-long slump, it is doing so by conquering market share from the Club Med bloc in what amounts to a beggar-thy-neighbour shift within the euro-zone. This has a zero-sum flavour to it.

Beggar-thy-neighbor can become crater-thy-neighbor very rapidly. And this is when a depression takes over. We have a depression already. Prices of manufactured goods are dropping thanks to China's workers entering the world's markets coupled with the collapse of buying power of American and Japanese workers. The author of this stupid article that misunderstands depressions profoundly was published by a big organization. The dollar doesn't have to be replaced by anything at all! It can simply cause all other currencies to collapse alongside it! This happened when the British Empire went bankrupt after WWI. Instead of shrinking its imperial obligations, it invaded..Iraq! Disastrously! It could no longer hold China which immediately began to be torn apart by war lords and a communist insurrection that finally won.

The need to keep the pound powerful meant destroying all the world's trade. The pound had to piggy back on the deutsche mark and the dollar. The DM went down in flames and the dollar became the world's top currency only the British refused to believe this and demanded Washington help them save the pound. This caused a collapse of the world's banking systems as the Brits tried to bring the pound back to $4.00 against the US dollar.

Anyway, the euro has already replaced the dollar. So long as oil prices go up, the oil nations will let people pay in dollars but they themselves will no longer HOLD dollars. They will immediately buy euros and this is why euros rise in value. This is stressing Europe in significant ways because a strong euro means exports die. This leads to layoffs of workers who then can't tap the value of a rising euro because they will be unable to buy anything. During the Great Depression, for example, all world currencies began to collapse against the dollar. This caused inflation in their lands but here in America, the dollar bought more and more. The price of wheat or silver fell 30-50% over four years! The price of cars or rail service collapsed!

If you had money, you were in the money. If you didn't have money, you stood in bread lines.

From Intelligence Daily:

The Department of the Treasury today held a post-disaster exercise in conjunction with the local community in Tampa Bay. The post-disaster exercise received very little media coverage but has now been confirmed to have taken place, according to the newsroom at Tampa Bay NBC affiliate WFLA-TV. WFLA-TV was issued a press release by the Department of the Treasury and the local county regarding the drill. For whatever reason, WFLA decided that this post-disaster exercise did not deserve much attention and was not covered on their TV news broadcast.

We all expect a 'terrorist attack' about a year from now. This is a necessity since there has to be some cover for ending the last remnants of 'democracy' here. If we get a dollar crisis, this will have to be dealt with via dictatorship, I presume. The falling dollar is no joke. It is going to hammer us at home just as it is causing huge waves abroad. The destabilized financial systems at first are great money makers for the big houses like UBS but this is now failing as we see in this story. THEY ARE NOT MAKING MONEY. Or rather, their hedge funds are failing but they still have huge amounts of money pouring in from people selling us oil and Chinese goods. This money can't stay in dollars and the entities flooding the bourses with this loot are very anxious to earn more than 6% against the dollar. They have to beat inflation.

This destabilization process troubles our wealthy masters which is why they secretly met with the UBS board of directors to figure out how to make money while not collapsing the US into a Japanese-style depression. Namely, nothing will move if the US consumers vanish. And we can and will vanish, as consumers, if things continue.

I had arranged this lovely story about hedge funds called 'Absolute Return Funds' and got sidetracked by today's evolving news stories. Sigh. Everywhere I look, I see assurances in the mainstream that all is well and there is no way the US could be falling off a cliff. They all point to the rising stock market as proof. This is going up faster and faster every day!

Which is always does right before a depression.

From ASX, Australia, an Absolute Return hedge fund:

Some of the investment techniques available to Absolute Return Funds include:

1. Short selling – where the manager borrows a security and subsequently sells the security with an obligation to purchase back the security and return it at a later date. This technique is utilised where the manager believes the security is overvalued or as part of a hedge or arbitrage strategy.

2. Hedging – where the manager utilises two or more securities that are likely to move in opposition to each other, thereby mitigating risk.

3. Arbitrage – where the manager attempts to profit from a temporary pricing inefficiency or discrepancy in either an individual security or a securities market. This technique may involve short selling and/or hedging.

4. Low liquidity or distressed securities – where the manager attempts to earn returns through investments in low liquidity or distressed securities outside the investment mandates of traditional fund managers.

5. Leverage – where the fund manger borrows or gears the assets of the fund to increase the size of the investment portfolio and potentially earn greater returns.

Absolute Return Funds have been one of the fastest growing investment products over the last decade with more than $1trillion of assets under management world-wide.

This sounds like a hell hound set of wealth creation methodologies. Digging up dead animals and eating them. Throwing up what was eaten so it can be re-eaten (don't ever get sick around dogs, they love this very much and will eagerly watch any vomiting). Being carrion eaters, dogs can sniff out dead things from far away no matter if they are buried or not. And they make money on 'discrepancies'. The more people make mistakes, the more money these guys presumably make. The main thing is, they need destabilized systems to function.

The rapid rise in hedge funds is a signal that the systems are destablized and nearing collapse. The money flowing to these heged funds is a sign that money can't survive in normal ways but has to go out on the limb to 'grow'. This is always a feature of a system nearing collapse. The actual date of this collapse can't be accurately gaged only because there are so many players in this game. And many of them are very much run in the dark. And the darkness is spreading rapidly because this is the only way various players in this game can 'win'.

The various negotiations of the various nations concerning trade such as the G8 are in collapse. The Doha rounds of the WTO have collapsed. Arms negotiations are collapsing. All sorts of international schemes are collapsing as all players scramble for the high ground, for leverage, for control. This Aussie hedge fund likes to talk about their 'strategies' but it is all simply a matter of everyone aping each other and hoping money will flow into their accounts from frantic investors seeking some shelter as the global banking system collapses.

Central banks everywhere are raising rates except for the most singular case of Japan. Japan, the first of the indusrial nations to enforce a depression on its own people, is driving everyone else to make up for their own collapse. This benefits them in their trade differentials. They are indifferent to the collapse of the yen because it buys more and more in Japan. The sudden demand of the Iranians that the Japanese use their yen in Iran is a very startling development. The desperate Absolute Wealth hedge fund hell hounds smell a chance to make money and they are now going to bid up the yen. What will the Bank of Japan do now? If they raise interest rates, the funds betting on low value yen and cheap loans from Japan will be cratered. Uncertainty and stress will rise.

Here is another Absolute hedge fund in New Zealand:

Absolute return funds will have a place in KiwiSaver portfolios.

As the KiwiSaver infrastructure matures the range of offerings available to KiwiSaver investors will grow, and will eventually include absolute return and alternative investment products such as hedge funds.

“A 2004 report presented to the New Zealand Superannuation Fund by Eriksen and Associates recommended an increase in the benchmark weighting to alternative assets,” said
The New Zealand Absolute Return Association Inc Chairman Anthony LImbrick.

“Since then the fund has diversified into alternative investments including an allocation to hedge fund products.”

The association believes that as the KiwiSaver investor becomes more sophisticated, as has happened with Australian investors under their compulsory superannuation framework, KiwiSaver portfolios will come to resemble scaled-down versions of the New Zealand Superannuation Fund.

The central bank of New Zealand was forced to raise rates to over 6%. I believe they are seeing inflation there. But not their neighbors in Japan! All the financial organizations are taking on more and more hedge funds and these things are so very unstable, it isn't funny. We can see, with world markets seemingly going up, how they can go bankrupt instantly with no warning at all. Since they are occult as well as diverse, there is no one thing one can track to judge the health or condition of any of theset scheming funds.

Here is a Superannuation Fund:

And what are these things now? I checked it out. There is such a proliferation of newly-coined names and things out here it is very hard to track which is why, when I read about a new name, it pays to go check out the history of these things.

From the Treasury of the government of Australia:

Let me start by making an observation about the growth of the superannuation sector and some comments I hear from time to time about government policy in this area. There is no doubt that superannuation is one of the very high growth sectors of the Australian economy.

Superannuation contributions grew by around 20 per cent last financial year, with assets growing by around the same amount. This is not a flash in the pan: superannuation assets have grown around 12½ per cent a year on average over the last 5 years.

Superannuation assets total over $330 billion. And the prospects for continued solid growth are very high. New projections by the Retirement Income Modelling Unit, to be published shortly, suggest superannuation assets will grow to around $595 billion by 2005 and around $1.5 trillion by 2020, with superannuation assets higher than annual GDP. Some private sector researchers project even higher growth.

Despite this virtual boom, I am aware of comments, including sometimes by individuals in the superannuation industry itself - and even sometimes expressed directly to me - that there is a lack of confidence in superannuation.

I find such comments extraordinary. No industry could have achieved such strong growth, and could expect such strong prospective growth, unless consumers were confident that superannuation was in their best interests.

This is all about retirement funds. The US has doubled taxes on SS withholdings which has significantly reduced the paychecks of workers in the middle and lower classes and the excuse was, this money was to be saved and invested for the retirements of the baby boomers only this didn't happen. It was used to cut taxes for the rich. Since Reagan, the US government has run very deep in the read and accumulated not $8 trillion in savings but $8 trillion in debts! So the baby boomers will be hammered by high interest payments on trillions of debts rather than living off the accrued wealth from that same amount in savings.

In other countries, seeing this, they came up with other schemes. I have no idea if this scheme will work. I doubt it because of the collapse of the American empire. Namely, like Great Britain, if we go under, we will drag down everyone else. The US is the main destination of much of the world's trade and the consumers at the end of this web of trade are the American workers who are being hammered hard by economic instability and dropping wages. And retirement money from the government is being ruthlessly cut via inflation that isn't reflected in the actual costs of living.

All the investments of these funds are tied to our economy in one way or another. So if we fall, all these will fall too.

Another hege fund falls:

The Wall Street Journal reported today, that Braddock Financial Corp. of Denver said it's closing its $300 million Galena Street Fund, which mainly invests in subprime mortgages, and is suspending redemptions (i.e. payments to investors in the fund, who want to get out) until it can sell some of its assets to do so.
*snip*
Galena was hedging its investments, by "shorting" on them (i.e. betting that they'd decrease in value), so that if the value of the investment went down, the "short" bet would go up. Unfortunately for Galena and its investors, the hedges have recently not balanced out quite so neatly.

This is interesting. Hedge funds betting against themselves. This should be illegal and should send people to prison. Again, we can see why the under secretary was so hysterical in China. Every day, hedge fund hell hounds are dying. This is creeping up on the entire banking system as well as the Federal Reserve. The secret UBS meeting highlights this.

From the Financial Times:

An Australian hedge fund manager with $1bn in structured credits and junk-rated loans warned investors yesterday it could restrict withdrawals to ensure its survival as it reported losses of 14 per cent in one fund in June.

Basis Capital, based in Sydney, said in a letter to investors it had been hit by “indiscriminate” repricing of “otherwise fundamentally sound collateral” amid the crisis in US home loans to less creditworthy investors. It said it had deliberately avoided the worst-hit 2006 subprime loans.

This is yet another hedge fund that is now bankrupt. They pretend they still exist as the figure out how to pay frightened investors. This repayment will probably be like all the others: 4¢ or less on the dollar. This is a huge problem. For the Absolute Wealth people don't want Absolute Poverty! They want to make money, not see it vanish into the dark murky underworld.

When the Great Depression began, the finance wizards waved their wands and told everyone, prosperity was around the corner. They didn't even admit there was a problem for three long years! When governments across the planet began to fall and wars began to break out and the crack-up of the British Empire became obvious, only then did they even begin to think about doing something creative about all this.

And what fixed it? What ended it?

World War II.

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Comments

[D.F. Facti]

part of the 1987 cresh was overuse of the same risk arbitrage strategy. there is no "hedge" when everyone is doing the same thing at the same time.

and this will affect retirement funds

i'll have to look a little more into this - pension funds used to be so risk-averse

[Elaine Meinel Supkis]

100% correct as always, Facti.

[Dan]

There is a new video out of Bill Bonner’s speech, given at the Rim of Fire Conference in Vancouver (07/07)...

http://www.youtube.com/watch?v=PZb2iJpUkfg

[hilo helicopter tours]

It always matter to everyone. It's the real deal in the real world.

[suprayouth]

For this statement, Jochen Zeitz argued that a considerable part of the product had being through wind and rain to counter the trend of fail for decades

[Belstaff Jacken Damen]

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[Tory Burch Boots Outlet]

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[Brenda]

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