Some of the world's most prominent hedge fund managers are bettingagainst the eurozone -- and not just the peripheral countrieseveryone knows are in trouble. They're taking positions against thecore countries, economies that -- until now -- everyone has assumedwere rock-solid. Here's a primer on the world of hedge funds and why the latestdevelopments in the recently resurgent eurozone crisis are yetanother warning shot across America's economic bow. How the Other Percent Invests Put simply, hedge funds are investment funds for the wealthy.
Youand I put our money into mutual funds, which a fund manager watchesover, moving investor money into and out of a portfolio of stocks,bonds, and other investment vehicles as he or she sees fit in orderto maximize the fund's return. Hedge funds are private investment funds that are typically openonly to a limited number of investors and require a large minimuminvestment to participate. Hedge fund managers use a range of advanced investment strategiesto maximize investor return, including leveraged, derivative, andlong positions, as well as what are known as "short" positions."Going short" means betting that a stock, security, or otherinvestment vehicle is going to decrease in value, rather than goup. "Going long," or betting an investment will increase in value,is the much more commonly taken position. Say It Ain't So, Angela Most of us know the big names in the eurozone that have gotten intoserious financial trouble over the last few years.
Ireland had to be rescued by other eurozone members when its debt-fueledproperty bubble collapsed, pushing the country to the verge ofsovereign bankruptcy. Greece also had to be bailed out (twice) when it's sovereign-debt bubbleburst, leaving it a hair's breadth away from default. Spain is most recently in the news, as its own debt-fueled propertybubble and fiscal problems are sending the cost of its debt to near-unsustainable levels . Even France has been looked at suspiciously by the bond markets for a while. But Financial Times is reporting that a group of hedge fund managers are now shortingsome of the core countries in the eurozone, including Germany andthe Netherlands, even though bond yields in those countries -- thegauge for measuring a country's fiscal and financial health -- arestill at record or near-record lows.
In a nutshell, some of the world's best-paid, most-seasoned, andsavviest investors are sufficiently convinced of the underlyingsickness of even the most apparently stable eurozone countries thatthey're placing serious bets on their potential collapse. JohnPaulson, the billionaire who made his name (and his money) byshorting the U.S. mortgage securities market in the run up to the2008 financial meltdown, is one of the hedge fund managers reportedto be shorting Germany. Who Rescues the Rescuer? The financial crisis, which began here in the U.S., may still beroiling across the Atlantic.
Europe is sick. The U.K. has just slipped back into recession.Spain has, too, along with recently suffering another downgrade onits sovereign debt by ratings agency Standard & Poor's, whichsent its bond yields back above 6% -- the danger zone. While theU.S. unemployment rate is still above 8%, it appears to be comingdown.
And while GDP growth of 2.2% is nothing to write home about, the U.S. economy is growing . But Europe and America are inextricably linked. To a great extent,as goes Europe, so goes the U.S.
American banks still have anundetermined amount of exposure to eurozone banks. The potentialeconomic debt-market shock waves produced by the default of any ofthe larger European countries could send the American economy backinto recession. This is why the thought of Germany's economy going south is trulyterrifying. Germany is the eurozone's biggest economy and, alongwith France, has orchestrated and made the biggest contributions tothe above-mentioned rescues.
But who comes to the rescue when the rescuer needs rescuing?. I am an expert from Printing Oil, usually analyzes all kind of industries situation, such as flight bird cages , striped comforter sets.
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