Andrew Redleaf, the CEO of hedge fund and mutual fund manager Whitebox Advisors who became known for issuing early warnings before the global financial crisis of 2008, said in an internal memo obtained by CNBC Monday that the current economic environment is “scary.” Redleaf compared the U.S. Federal Reserve’s continuing stimulus measures to the loose credit standards that encouraged risky behavior before the 2008 crash, saying the former could have a disastrous effect, though for different reasons than the latter did. One problem is price distortion thanks to stimulative monetary policy, he writes, and Redleaf also argues that the oil market may have crashed so hard because it was overinflated by Chinese financial policies. It’s hard to predict exactly what might happen next, but Redleaf says the parallels with the pre-2008 market are striking.
As U.S. equity markets took a hit last week in response to sinking oil prices, dollar strength, euro weakness and positive jobs numbers, certain hedge fund strategies benefited from the drama. Long equity plays didn’t fare well, but CTA funds and long-short equity managers did well thanks to last week’s market movements, according to a new note from Paris-based alternative investment firm Lyxor Asset Management. The fact that emerging markets fears have not yet materialized helped hedge funds last week as well, even allowing some to achieve gains on short positions on emerging markets equities and currencies, according to the report. As the U.S. Federal Reserve appears poised to bump interest rates up in the near future, hedge funds may continue to outperform the S&P 500 stock index, Lyxor says.
Bets against the euro have earned some hedge funds 9 percent so far in 2015, the Wall Street Journalreported. One manager told the paper that the European Central Bank’s currency weakening measures have been “manna from heaven.” Bridgewater Associates’ Pure Alpha fund earned 7 percent on this trade by the end of February, while macro-focused firms Caxton Associates, Moore Capital Management and Tudor Investment Corp. have also benefited from the declining euro. Even D.E. Shaw & Co., which does not typically make macro trades, has profited from this strategy in 2015, according to the report.