Hedge Fund Disaster Now Unfolding

When bank depositors believe they may not have access to their money a "run on the bank" occurs.  It looks like the same thing is about to occur with hedge funds as they are denying investors access to their money.

"Dec. 4 (Bloomberg) -- D.E. Shaw & Co. LP, the investment firm run by David Shaw, and Farallon Capital Management LLC limited withdrawals by clients, joining more than 80 hedge-fund managers to impose restrictions in the past two months." See article. 

Under some of the hedge fund rules they are allowed to restrict withdrawls for a period of time.  But with the market falling and nervous investors what do you think will be the result of this action?

I believe it will cause even more of the hedge fund investors to demand that their money be released now.

To release money from the fund they normally have to sell stocks or commodities.  So you can see how this is another potential land mine ready to blow up various markets and take them to even lower levels as everyone heads for the exits.

Or hedge fund investors could just say they don't have a problem with their funds being held in a lockdown state during a period when asset values in stocks and commodities are getting crushed.  Some will likely take that position as they believe the market is near a bottom. 

But will they keep a stiff upper lip if the markets continue to move sharply lower?  Or will the last ones standing in fact finally throw in the towel and demand that what little money they have left be returned to them before the bear is through?

Time will tell, but that is exactly what a final capitulation looks like.  At this point I don't think we are anywhere near the final bottom in the stock market in time or price.  Others disagree and that my friend is what makes a market.

RWG