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DOW JONES     FED NEWS 03/16/2010 (Luck i m your father)

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Luck i m your father     posted : 16/03/10   08:59 pm

Fed sees some progress in economic recovery
Commentary: FOMC still promises to keep rates low for extended period

Fed sees some progress in economic recovery[s][/s]

By MarketWatch

WASHINGTON (MarketWatch) -- The Federal Reserve has seen some progress in the economic recovery, but not nearly enough for it to even hint at raising interest rates.

Even though the Federal Open Market Committee upgraded its assessment of the economy slightly after Tuesday's meeting, the policy-setting committee said its interest-rate target would remain at an exceptionally low level for "an extended period."
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The end of ultra-easy policy is not yet in sight because the Fed thinks the economy still needs its support.

That's not to say things aren't improving. Business investments are rising "significantly," the Fed said. It also noted that the labor market is "stabilizing," a slight upgrade from its previous statement that weakness in the job market was "abating."
But the Fed also acknowledged the obvious: The housing market -- the mother of all this misery -- remained flat on its back.

Although the Fed said it would wrap up its purchases of mortgage-backed securities by the end of March, it kept the door open to further purchases "as necessary."

If home building, home sales and home prices decline -- and mortgage rates rise -- this spring or summer, you can expect the Fed to come back into the MBS market.

Fed Chairman Ben Bernanke knows exactly where the brakes are in case the accelerator on the economy gets stuck. But for now, he's got the pedal on the floor.

Luck i m your father     posted : 16/03/10   09:00 pm

By Greg Robb, MarketWatch

WASHINGTON (MarketWatch) -- The Federal Reserve kept its benchmark interest rate at a record low level Tuesday and made no changes to the key "extended period" policy pledge, a signal that it believes the economy still needs support to get to a sustainable path.

Altering the wording would be a clear signal that the Fed is more sanguine about the economic outlook and believes ultra-low rates are no longer necessary -- and financial markets would react accordingly.

The Fed's policy statement, released after a closed-door meeting, said the economic situation is "likely to warrant exceptionally low levels of the federal funds rate for an extended period."
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The Fed's description of the economy was a little more upbeat about the job market.

"Information received since the Federal Open Market Committee met in January suggests that economic activity has continued to strengthen and that the labor market is stabilizing," the statement said.

But Fed officials also noted that housing remained weak.

"Investment in nonresidential structures is declining, housing starts have been flat at a depressed level, and employers remain reluctant to add to payrolls," the statement said.

Brian Bethune, economist at HIS Global Insight said the statement was designed to calm markets that any change in interest rate policy was imminent.

Treasury yields moved lower and the dollar fell after the statement was released.
Fed on the wire

At the moment, the Fed is walking bit of a tightrope, Bethune said.

One the one hand, the Fed has been winding down its emergency funding programs as the economy has recovered and Fed officials have been talking in great detail about how the central bank will be able to exit from its zero-interest rate policy before inflation pressures emerge.

On the other hand, the central bank doesn't want to tighten prematurely, which could kill the housing market and lead to more woes at the nation's crippled banking sector.

"The Fed...has to avoid being stampeded into a short-term tightening which would be a disaster," Bethune said.

The Fed took more baby steps toward the exit at this meeting, confirming that its purchases of more than a trillion dollars of mortgage-backed securities would be finished by the end of the month as scheduled.

Analysts will be watching keenly to see if the end of the purchases leads to higher mortgage rates.

The Fed did not slam the door on further purchases, saying that it will employ its policy tools as necessary to promote growth.
Luck i m your father     posted : 16/03/10   09:04 pm

Industry assets seen reclaiming pre-crisis highs
Deutsche Bank expects $222 billion of inflows this year

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By Alistair Barr, MarketWatch

SAN FRANCISCO (MarketWatch) -- The hedge fund industry will likely rebound to its pre-crisis size as investors pour money back into the business in search of market-beating returns and downside protection, Deutsche Bank said Tuesday.

The German lender surveyed 606 investor entities with more than $1.07 trillion in hedge fund assets in January and 73% of them predicted over $100 billion of inflows into the industry this year.

"We estimate the inflow figure to be closer to $222 billion, taking the industry to $1.722 trillion this year," Deutsche Bank /quotes/comstock/13*!db/quotes/nls/db (DB 74.60, -0.03, -0.04%) said in a report on the survey. "The industry is now predicted to grow further and return to previous highs."

Industry assets reached a record of almost $1.9 trillion in 2007, according to Chicago-based Hedge Fund Research Inc. But the collapse of Lehman Brothers /quotes/comstock/11i!lehmq (LEHMQ 0.12, +0.01, +6.96%) and a ban on short selling of financial stocks left the industry with record losses and unprecedented investor redemptions. By the end of 2008, assets had slumped to $1.4 trillion and almost 1,500 funds had liquidated.
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However, surviving managers generated their best returns in a decade in 2009 as equity markets and corporate bonds rebounded strongly on the back of massive fiscal and monetary stimulus.

"2009 has proven that market disruptions create great opportunities and furthermore, what a year's worth of good performance can do for the industry," Deutsche Bank wrote.

Hedge fund investors are bullish for this year, although that may not necessarily bode well for the stock market given their predictive powers last year, according to Deutsche Bank's survey results.

More than two-thirds of investors predicted a positive year for the Standard & Poor's 500 index /quotes/comstock/21z!i1:inx (SPX 1,159, +8.96, +0.78%) in 2010, with the majority forecasting a gain of 5% to 10%. Almost three quarters of investors polled predict positive performance for the MSCI World index, which includes more emerging markets, Deutsche Bank noted.

However, when Deutsche Bank asked similar questions at the start of 2009, 59% of investors predicted the S&P 500 would finish the year in negative territory.

"One must remember that very few investors managed to get it right for 2009," Deutsche Bank wrote.

Investors are also optimistic about hedge fund returns in 2010 -- and they're even more confident about their own abilities to make money, Deutsche Bank found.

About a third of investors surveyed are calling for the HFR Hedge Fund Index to return 5% to 10% in 2010. Roughly 20% expect gains of 0% to 5% and another 10% of investor polled see returns of 10% to 15%, Deutsche Bank reported.

Meanwhile, more than 40% of investors surveyed expect their own hedge fund investments to return 10% to 15%.

Global macro funds, which bet on broad economic and market trends, are expected to perform the best in 2010, closely followed by equity hedge funds and distressed debt managers, which trade securities of companies close to or in bankruptcy.

Volatility arbitrage funds, which bet on how violent market moves may be, commodity trading advisors and convertible arbitrage managers are expected to perform the worst, investors told Deutsche Bank.

Investors predicted cash to perform even worse and are looking to cut their cash levels by $3.09 billion over the next six months. Almost 30% of those surveyed have at least 10% of cash available to allocate to hedge funds, Deutsche Bank said.
Painful memories

Despite such optimism, hedge fund investors haven't forgotten the pain of 2008. Many managers froze redemptions or put up so-called gates limiting the amount of money that could be withdrawn.

The market rebound has freed up some of this money. More than 60% of investors surveyed by Deutsche Bank said less than 5% of their managers were still gated and almost half of those investors had no gated funds.

However, 80% of investors told Deutsche Bank they would never invest again with managers who froze or suspended redemptions or put illiquid assets into so-called side pockets.

Investors are also putting money with fewer, larger hedge funds and are reluctant to invest with small, start-up managers, Deutsche Bank said.

That's spurring an increase in seeding businesses, which back new managers in return for a chunk of equity in the endeavor or a share of future revenue.

"Both seed investors and hedge fund platforms have found in the seeding business a

solution for diversifying risk and smoothing returns, while securing capacity rights," Deutsche Bank said.

As many as 17% of the investors the bank surveyed seed managers.

"This is slightly down from last year (20% of investors), however, still a surprisingly high percentage," the bank wrote.

Alistair Barr is a reporter for MarketWatch in San Francisco.

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