Ever hear of “Punk hedge funds”?  What you say?  I’m sure I got you this time.  I never have heard of “punk hedge funds” either.  However, its not a bunch of money put together by Finger Eleven or for you old school folks, Iggy Pop or Elvis Constello.  Hedge funds are private investment capital pools in the US, which operate generally outside many security rules.

Wikipedia says this.

In most countries hedge funds are prohibited from marketing to non-accredited investors, unlike regulated retail investment funds such as mutual funds and pension funds. As hedge funds are essentially a private pool of managed assets, and as the government commonly restricts their public access, they have little to no incentive to release their private information to the public.

Inarguably private entities, hedge funds have a corresponding reputation for secrecy, and less is known about the methods and activities of hedge funds than about publicly accessible “retail” funds. However, since hedge fund assets can run into many billions of dollars, and thus their sway over markets—whether they succeed or fail—is substantial, there have been calls for regulation of these private investment funds.
http://en.wikipedia.org/wiki/Hedge_fund

So where does the “punk” come in?  Well, just let me say it came from an American “analyst colleague of mine.”  She writes agricultural economic commentary for one of the companies I work for.  This is what she wrote in response to the US Federal Reserve decision last week to cut interest rates thus injecting capital into the stock market last week.

“I get pretty fired up when the Fed puts my money (taxes) into the market to save a bunch of punk hedge funds that should have known better. I guess if I had a retirement fund invested in the market, I’d think it was great, but as it is, the government is taking an awful lot of liberties with my money.”

Interesting stuff for sure.  However she makes a great point.  Who is winning here when the US Federal Reserve sees a liquidity crisis because of the “no money down” mortgage mess and decides to cut interest rates in an attempt to bail out the big moneyed funds that rode that wave all the way to the bank?  It reminds me of what my editor John Gardiner used to say.  The rich fat cats win every time.  The little guy is essentially left holding the bad because some rich “punks with mortgage money” don’t have a place to go.

When Ben Bernake of the US Federal Reserve cut those rates you could of knocked me over with a spoon.  I always look at monetary and fiscal policy as nuts and bolts stuff.  You raise interest rates and unemployment goes awry.  You cut interest rates and inflation rears its ugly head.  So it’s always a delicate balance.  However when the US Federal Reserve cuts rates un-expectantly with the Bank of Canada watching, it sends shudders down the spines of those who want economic order.  Some like my colleague might refer to some rogue “punk” who has a hedge fund getting an unjust break.  However it only serves as an example of how our economy can get out of balance, sending us over an inflationary abyss in the future.

So what about Canada?  With 80% of our exports going south its pretty obvious this isn’t good for us.  However, Alberta continues to be Alberta and it is skewing all of our economic numbers.  However, Ontario cannot weather any type of American economic calamity.  With the fall out still percolating from the rate cut in the United States, you can bet Finance Minister Jim Flaherty will be watching.

It didn’t take long.  Last Monday Deputy Governor Pierre Duguay said the Bank of Canada is re-evaluating its efforts to control inflation.  The net effect of that announcement was an expectation of no more interest rate increases in the near future.  The Bank of Canada had been expected to raise rates again next week.

Quoting from the Globe and Mail, Duguay said the Bank of Canada was concerned about a couple of things.

-How developments in the U.S. economy, where the Federal Reserve has already forecast a slowdown, would affect Canada; and
— The extent to which Canadian companies and consumers are facing a credit crunch as a result of the re-pricing of credit risks by financial institutions.

He said nothing about “punks with money.”  Or did he?  That’s the million-dollar question for some people.  Rich friends in high places sometimes need friends in high places.  Hmmmmm, I shouldn’t be so cynical.  Maybe I should just say, these are interesting economic times we live in.  After last week, what happens next in our economy is anybody’s guess.