In its latest Hedge Fund Strategies Review Report, research firm Mathema finds that far from being the success story that central bankers claim, the same euro zone problems that emerged in the summer of 2011 have escalated due to “creeping liquidity bubbles that have been supporting risky assets since January.”
Among Mathema’s other findings:
- Central Banksâ€™ ammunitions finally came to an end: ECBâ€™s LTRO program and â€śanticipatedâ€ť QE3 in the US look the ultimate tentative to support the market through injection of liquidity. Going forward the
macro picture should reflect fundamental factors rather than political biases.
- Hedge Fund managers found relief in the removal of short-selling restrictions in EU Countries. Abundant liquidity supports the long side of the trades, M&A, and sharesâ€™ buy-backs. Deep-recession, contagion risk & crowded trades into high-yielding names might trigger tail risks
on the downside.
- Markets display a two-sided scenario: carry-trade fuels risky assets (borrowing EUR and USD at historical low rates and then invest into cash-rich and high-dividend yield companies) and real-money still secured into gold and safe currencies.
- Whatever new bubbles will be created in the future the time machine has not been invented yet. Postponing actions (wasting time) is not the equivalent to jumping into the future. All these measures cannot skip the real problems, and the longer the time lost before fixing the problems the greater the pain will be.
- In the last two months we have upgraded a number of strategies. Nonetheless, in the short-term we remain positive on two hedge fund sub-strategies only - fixed-income arbitrage and equity market-neutral.
Read the entire report by clicking on the link below (PDF).