Abigail with attitude: Party's over – Bernanke removes beer and skittles


Abigail Hofman
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Are we experiencing a bout of the summer doldrums? The high-adrenaline events of previous years have dwindled to an unsatisfactory dribble.

The news agenda in the financial arena is anodyne. Where are the succulent stories such as Eliot Spitzer and his call girls, Ken Lewis buying Merrill Lynch as Lehman crumpled, Mike O’Neill shafting Vikram Pandit with a paper knife, or Sir Mervyn King mowing down bankers with a tractor emblazoned with the slogan ‘Regulators rule OK!’?

At the risk of sounding like your grandmother, I would point out that during my seven years as a columnist for Euromoney, I have witnessed and written about some intriguing events. I cast my mind back to the hip-hop years of 2006 and 2007, when everyone in finance was making money and the good times seemed to stretch ahead of us forever. But there was something eerily uncomfortable about that period: something I couldn’t quite put my finger on. In hindsight, of course, the edifice was built on sand. Then came the chaos as the building fell down and Lehman Brothers went bust. Western capitalism flailed around like a beached whale for six months and then gingerly started to swim again in the spring of 2009.

The western central banks used every tool in their armoury to bail out broken banks and over-leveraged consumers. My suspicion is that a lot of this easy money flowed into financial assets (precious metals, commodities, bonds and even property) rather than old-fashioned bank lending to companies that make things. Can it be true, as one mole insists, that the leading US asset manager, BlackRock, is the biggest owner of foreclosed homes in the US?

And now, after some four-and-a-half years, big, bad Ben Bernanke has decided that he is going to remove the free beer and skittles and see if the party can continue. Well guess what? Suddenly, no one feels in a party mood anymore. Talk of Federal Reserve tapering from late May bought mayhem and volatility back to the markets. Investors ran screeching from emerging market assets, bonds, commodities and even equities. I am reminded of that famous painting by Edvard Munch: The Scream. And talking of bubbles, a version of this painting sold for $120 million last summer at Sotheby’s. This made it one of the most expensive works of art ever sold at auction. I have a suspicion that 2013 will turn out to be another year when the adage ‘Sell in May and go away’ holds true.

I can’t believe that some of the big players have escaped unscathed. Macro hedge funds and asset managers will surely have suffered losses. Indeed reports are trickling out to this effect. Apparently, superstar hedgie Ray Dalio’s Bridgewater All Weather Fund was down roughly 6% in June and down 8% for the year.

I am not the only person who is concerned. The share price of Aberdeen Asset Management was down by 23% during the first three weeks of June and the shares of Man Group, the publicly listed hedge fund group run by former Goldman Sachs partner Manny Roman, have lost 35% during the same period. "It’s not a good thing to be a shareholder in a hedge fund group," mused a mole. "Much better to be a portfolio manager in that same hedge fund."