The New Year has barely begun and yet the geopolitical fallout from 2016 just keeps coming. This was a year in which hedge funds finally witnessed the explosive revolt among their super wealthy clientele, in which India’s new war on cash forced the country’s manufacturing sector into contractionary territory, and when the independence- minded British managed to blow up the world’s greatest financial center of London by voting to withdraw from the world’s largest trading block the European Union. You should no longer be in doubt regarding the need for gold insurance to protect your portfolio in troubled times like these.
Hedge Funds See Clients in Full Blown Revolt Over Lackluster Performance
Even though their presidential candidate Donald Trump whom they enthusiastically backed with money and other support has taken the White House by populist storm, hedge fund titans are in serious trouble now. Their golden age of wealth and partying lifestyle has apparently come to a crashing halt. The beginning of the end of the glorious age of hedge funds has arrived as their investors angrily revolted after years of watching in frustration their funds’ managers become fabulously wealthy at the same time as they produced little to no significant returns for their clients. This past year 2016 was the one when the revolt erupted above the surface as major money clients finally abandoned the sinking ship en masse.
New York City was among the major clients to cash out this past year. Cofounder of Scoggin Capital Management (from 30 years before) Craig Effron admitted, ‘There has been a massive blowback from public pension funds and private endowments.” Many CIOs at these organizations would now rather trust their vast resources to traders who did not charge management fees and delivered inferior returns to those who charge hefty fees but outperform them.
New York City and its pension fund is only one of the many important money clients which has bailed out on their hedge funds too. Public retirement plans ranging from New Jersey, to Kentucky, to Rhode Island have all pulled back their money. Endowments such as one Maryland state university have also withdrawn. Insurance companies like MetLife Inc followed these institutions’ leads. Client withdrawals over the past four quarters have amounted to a staggering $53 billion, forcing a number of the funds and their fat cat managers to close down. Among these was legendary hedgie veteran Richard Perry, whose claim to fame was having managed among the top performing and longest lasting hedge fund firms.
Assets under management in the hedge fund industry amounted to a staggering $3 trillion at the industry peak pre-2016 as big money institutions and pension funds had rallied to hedge funds following the dot-com technology bubble bursting. Yet as the funds grew larger, their ability to corner enough truly rewarding investments with outsized returns dwindled apace. From the end of 2008, hedge funds averaged only 40 percent of the stock markets’ annual returns. In fact they only managed to outperform the broader bond index by 175 pitiful points. After a few years of lackluster performance and poor returns, the smart money made a wise decision to walk away from their one-time hedge fund masters of the financial universe.
India’s Demonetization Creates a Cash Crunch Pushing Down Indian Factory Activity
Those who are a part of the global war on cash now have irrefutably negative statistics giving them pause for thought. In the month of December, India’s factory activity cratered into contractionary territory thanks to the severe cash shortage which Prime Minister Narendra Modi created when he declared war on cash, crushing both demand and output in the subcontinent. The important measurement the Nikkei/Markit Manufacturing Purchasing Managers’ Index crashed from November’s 52.3 to December’s 49.6.
This represented its first time since December of 2015 to drop below the 50 level which delineates the difference between expansion and contraction. More critically, this decline demonstrated the biggest month over month drop since nearly a decade ago in November of 2008. That was during the moment immediately following the tragic overnight collapse of investment banking giant Lehman Brothers, which kicked off the worst financial crisis seen since the Great Depression and ushered in a painful and deep seated global-wide recession now generally referred to as the “Great Recession.”
IHS Markit Economist Pollyanna De Lima stated, “Having held its ground in November following the unexpected withdrawal of 500 and 1,000 bank notes from circulation, India’s manufacturing industry slid into contraction at the end of 2016. Shortages of money in the economy steered output and new orders in the wrong direction, thereby interrupting a continuous sequence of growth that had been seen throughout 2016.”
Momentum contractions occurred throughout all of the major survey sub indices. This included employment and purchasing activity. The blow to the Indian economy from the attempted demonetization has proven to be both broad and deep. Modi’s ill-fated choice to abandon the relatively high worth banknotes in his drive to crackdown on counterfeiters and tax cheats withdrew an astonishing 86 percent of all currency in Indian circulation practically overnight. This crushed consumption in the nation where the overwhelming majority of individuals utilize cash for all of their daily needs and activities.
Rival European Sharks Circling the Brexit Waters Snapping on Each Others Fins
The British public has apparently succeeded in blowing up their carefully built-up world leading financial center of London as a direct result of choosing to withdraw from the world’s largest trading block the European Union. Although British Prime Minister Theresa May has not yet even invoked the withdrawing EU article, the French capital’s lobby group has arrogantly announced that Paris hopes to steal up to 20,000 financial industry workers away from the British financial powerhouse of London. They are confident that this rush for the London exits will commence in only weeks, ahead of the U.K. triggering of the article in two months.
London headquartered bank executives will be attending a series of important February meetings at which Paris will pitch itself as the new financial center of Europe against its chief rivals of Frankfurt, Germany and Dublin, Ireland. Europlace the lobby group is confident that Paris will be a main beneficiary of the anticipated financial migration since it already boasts over 180,000 financiers (compared to around 100,000 in Frankfurt and 30,000 in Dublin), the regional largest bond market hub, and the second biggest congregating of asset managers (after London).
Global bank heads have already warned Prime Minster May that they will begin to move away jobs and operations from London to other EU member states and cities if she can not guarantee their seamless access to the common market. Time is at a veritable premium with only two years until the U.K. fully separates from the E.U. in 2019. Banks have declared their intention to steal a march on the withdrawal by expanding or opening new extra-British financial offices on the continent ahead of the U.K. – E.U. divorce. While May is eager to arrive at the optimal access arrangements for the key British financial industry and banks, she has not yet outlined how she will achieve this, what she will be able to secure for them, and if she will get behind a transitional banking phase in to help ease the separation pains during the departure from Europe. Remember that a gold IRA retirement account can help to protect you from all of this ongoing global instability and financial chaos.