From a financial markets perspective, the environment looks quite friendly. The combination of better growth news and easier monetary policy is always welcome. In addition, we recently argued that corporate profit margins may still have room for further gains, despite the fact that they already stand at record levels from both a bottom-up and top-down perspective.
But Sherman nonetheless frets on behalf of hedge managers that “the easy obvious plays are oversubscribed, which shrinks margins.... Many have predicted a hedge-fund shakeout, and it seems to have started. Over 1,000 funds have closed in the last year and a half.” It’s evidently a taken-for-granted, second-nature kind of axiom in today’s American economy that an “industry” made up entirely of “easy obvious plays” is integral to our very survival.
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