''Hedge funds that ignore the direction markets move in to make their money have been almost the only ones to profit in Europe this year as their competitors racked up losses on commodities, banks and Europe’s debt crisis.
Hedge funds that use options to bet on fluctuations in the price of securities, known as volatility funds, climbed 5.1 percent in 2011 through June, according to the Newedge Group SA’s Volatility Trading Index. Every other strategy tracked by the Paris-based brokerage -- including macro funds that wager on broad economic trends and firms that invest in oil and metals -- lost money in the first six months of the year.
“The system is confused, and that’s evident in the returns,” said Michael Corcelli, managing member of Alexander Alternative Capital LLC, a Miami-based hedge fund that invests in equity-index options and other derivatives. “There are so many ways to make money playing volatility, and volatility systems typically perform best when everyone else is confused.”
read more..What About Europe?
I defer to nobody in my dismay and disgust over the debt ceiling disaster. America really is a mess.
But I still wonder, looking at news coverage, why our disaster is dominating the headlines to the apparent exclusion of European woes. It’s there if you look for it carefully, and especially if you’re keeping track of the market spreads, but a casual reader might not even realize that the whole eurozone thing is coming apart at the seams.
I really don’t know how this is going to play out; Italy and Spain are too big for extend and pretend, and they’re also too big to save. But this is huge, and just as worrying in its own way as the US crisis of governance.
Paul Krugman
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