Naked Hedge Fund

Nouriel Roubini believes that a “wall of liquidity” is chasing all kinds of assets, yet once the economy disappoints expectations, it will all come crashing down.

Yet for Dr. Doom, gold isn’t the answer.

According to him, despite the temporarily asset bubbles right now, we’re still in a deflationary world and we’ll realize it soon enough once growth stagnates and all kinds of inflated asset categories come falling down.

Roubini:

I don’t believe in gold. Gold can go up for only two reasons. [One is] inflation, and we are in a world where there are massive amounts of deflation because of a glut of capacity, and demand is weak, and there’s slack in the labor markets with unemployment peeking above 10 percent in all the advanced economies. So there’s no inflation, and there’s not going to be for the time being.

The only other case in which gold can go higher with deflation is if you have Armageddon, if you have another depression. But we’ve avoided that tail risk as well. So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense. Without inflation, or without a depression, there’s nowhere for gold to go. Yeah, it can go above $1,000, but it can’t move up 20-30 percent unless we end up in a world of inflation or another depression. I don’t see either of those being likely for the time being. Maybe three or four years from now, yes. But not anytime soon.

This seems like the same drum that Roubini has been beating. He has a strong case that deflation could be in our future. Right now I feel like we are in a limbo land where the direction has been found. Could be a rocky ride either way and be sure that your ready to play the market either way.

Well when you have the SEC busy prepping their resumes and fighting off congressmen its easy to let some things slip by. This could be the case today when the AA ramp up started around 3:30pm right before the close and their surprise “in the black” EPS numbers. You can really see the big gorillas in the last minutes loading up on this with the volume spikes. Im guessing that right about now they are enjoying a nice steak at Luger’s.

One thing that I find funny is that if you look at the Alcoa numbers year over year:

* Q3 revenues are down 34% from last year
* Q3 EPS is down 90% from last year (q3 2008 $0.33 vs q3 2009 $0.08)
* Q3 Profit down 71% from last year
* Stock price last year $14.71 … after hours tonight $14.99

Well I guess we can throw them the ol “the market is forward looking” bit to get the market pumping on this.

Video from the Jon Stewart Show on High Frequency Trading. Hilarious

Copy of the Goldman Sachs Hedge Fund Report. It dives into a bunch of stats and trends that is fairly interesting about the moves that hedge funds have made. A lot of the overall news is a given such as funds are “re-risking” and have moved into high net long exposures. A sample of bullets:

* Net long exposure rises to 31% – highest since June 2008
* 7% of hedge funds have shut down since June 2008
* Hedge Funds now own 3.7% of the financial sector’s market cap
* Bank of America was a crowd favorite as the number of funds owning it doubled quarter over quarter.

Days of the 49ers are over investing in gold is easy these days.