Hedge Fund Manager Having Bad Case of Déjà vu

March 18, 2015 PJ Moore Economic Barometer

Andy Redleaf, CEO of Whitebox Advisors, sent an internal memo last Sunday expressing worry that he sees signs of another crash on the offing, similar to that of 2007.

The memo, which was obtained by CNBC.com, quotes Redleaf as saying: “I think it is a truly scary time.” Whitebox manages $4.2 billion in assets.

Specifically, Redleaf is fearful that the stimulus to place new money in markets resembles too closely the lower credit standards that were in effect in the housing market right before that sector crashed and burned in 2007.

“We do not know exactly where all the credit creation of this cycle has gone. Certainly money sits idly as excess reserves, but just as certainly money that would not exist but for unconventional monetary policy has distorted prices and resource allocation,” Redleaf wrote.

Redleaf mentioned the oil market, which reached a high of around $100 a barrel before the price slid into the abyss of $43 per barrel today. He stated that the high price could have been caused by China “buying on easy credit” as well as other floods of money going oil producers who turned that money around into abundant supply, thus drastically lowering the price.
He noted additionally that the stock market might also be inflated in a similar way by sovereign wealth funds and the Swiss central bank’s ownership of large amounts of equities.

“There are some parallels with the collapse in home prices which preceded the financial crisis,” he explained.

Nine years ago Redleaf predicted the coming financial crisis, so it may be worthwhile to pay attention to his fears. In a letter he wrote to investors in December 2006 Redleaf stated:

“Sometime in the next 12 to 18 months, there is going to be a panic in credit markets. The driver in the credit market panic of 2007 or 2008 will be a sudden, profound and pervasive loss of faith in the alchemy of structured finance as currently practiced.”

Andy Redleaf, market crash, Whitebox Advisors,

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