Dopium Overdose

As one would expect of a massive Ponzi Scheme collapsing in real-time, the model has become self-cannibalizing.  Of course, the crushing impacts of reverse growth have been felt all along at the bottom of the pyramid.  Next came the liquidation of the middle class, over the course of the past three years.  Finally now there are signs of distress all the way at the top.

As the headlines constantly remind us, the Days of Rage are just getting started globally and here in the U.S. with last Fall's playful Occupy Wall Street warm-up.  As I mentioned recently, Hedge Funds are now struggling for their own survival, as somehow all of the massive monetary dopium injected into markets these past years, is no longer moving the needle.  No surprise, this hedge fund underperformance directly correlates with the withdrawal from the markets of small investors who historically were the feed bait for "well informed" hedge funds.  Once hedge funds could no longer front run the retail investor, then it became a matter of fund against fund in a zero sum game, leading to major underperformance in 2011 and again this year.  

Similarly, in past months, under the radar - since nobody gives a damn about Wall Street layoffs except to cheer, investment banks across Wall Street have been "right sizing" their own staff.  You can't beat the irony of Wall Street firms having to turn the knife on themselves and start imposing on themselves the same annihilation that they have imposed on the rest of the country.  Another key factor is that as long as the small investor was in the mix, there were plenty of pump and dump opportunities to keep both the investment banks and their hedge fund brokerage customers fat and happy.  Now that it's everyone for themselves however, investment banks will be keeping their best "information" to themselves and their own proprietary trading desks (aka. speculators).  This no doubt is the key factor in why hedge fund returns have become increasingly correlated, as these funds start duplicating one another and otherwise adding leverage as a proxy for true differentiated performance (aka. alpha).  And at the risk of stating the obvious, this increasing hedge fund correlation presents a major risk to the markets in the event of another adverse 'event'.

Lastly, and the key point of this post - if all of this monetary dopium is no longer helping Wall Street, then clearly it's no longer working on any level and Dr. Bernankenstein's hope for more trickle down voodoo economics is not going to work this time.