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Hedge Funds Overleverage - nov - 27, 2006

Hedge funds overleverage and 'anyone can go down,' Sprott warns

Submitted by cpowell on 01:42PM ET Friday, November 24, 2006. Section: :
By Emily Mathieu
National Post, Toronto
Friday, November 24, 2006

Overleveraged and unchecked investments in the hedge fund industry are keeping investment guru Eric Sprott up at night.

"My biggest fear, as a hedge fund manager is 'Where is the cash?,'" Mr. Sprott, chief executive and portfolio manager of Sprott Asset Management Inc., said yesterday. "My gut reaction is that we need regulation" of the industry, he said.

Investor interest, combined with incentives for managers, means the hedge fund market is booming, he told a symposium of hedge fund managers, investors, and analysts in Toronto.

But the cash is not always in the right hands, said Mr. Sprott, whose fund has $472 million of assets under management.

"If you are too leveraged, anyone can go down," he said. "There is tremendous leveraging going on in hedge funds and the bank system."

Between Dec. 31 and June 30 there was a 24 percent increase in the dollar value of the derivative market, he said.

As one example Mr. Sprott pointed to the number of outstanding credit default swaps (CDS) that have "gone absolutely bonkers" over the past few years.

Rapid growth in the CDS market isn't alarming on its own -- it's how they are being used, said Mark Purdy, managing director and chief investment officer for Arrow Hedge Partners International Inc., a Toronto based hedge fund with $700 million in assets under management.

"Properly employed, the tools can be quite useful, but the instruments are relatively new and it would be fair to say they have not been tested through different market cycles," he said.

* * *

at the
2007 Vancouver Resource Investment Conference
Vancouver Convention and Exhibition Centre
Sunday and Monday, January 21 and 22, 2007

Admission is free for those who register in advance. The conference has arranged discount rates at the Pan Pacific Hotel adjacent to the convention center.

* * *

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Recommended Gold & Bullion Dealers

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and been recommended by our members:

Blanchard & Co. Inc.
909 Poydras St., Suite 1900
New Orleans, Louisiana 70112

Centennial Precious Metals
Box 460009
Denver, Colorado 80246-0009
Michael Kosares, Proprietor

Colorado Gold
222 South 5th St.
Montrose, Colorado 81401
Don Stott, Proprietor

El Dorado Discount Gold
Box 11296
Glendale, Arizona 85316
Harvey Gordin, President
Office: 623-434-3322
Mobile: 602-228-8203

Gold & Silver Investments Ltd.
Mespil House
37 Adelaide Rd
Dublin 2
+353 1 2315260/6
Fax: +353 1 2315202

Investment Rarities Inc.
7850 Metro Parkway
Minneapolis, Minnesota 55425
Greg Westgaard, Sales Manager
1-800-328-1860, Ext. 8889

178 West Service Road
Champlain, N.Y. 12919
Toll Free:1-877-775-4826
Fax: 518-298-3457
620 Cathcart, Suite 900
Montreal, Quebec H3B 1M1
Fax: 514-875-6484

Lee Certified Coins
P.O. Box 1045
454 Daniel Webster Highway
Merrimack, New Hampshire 03054
Ed Lee, Proprietor

Lone Star Silver Exchange
Suite 635, 3521 Oak Lawn Ave.
Dallas, Texas 75219

MRCS Canada
12303-118 Ave. NW
Edmonton, Alberta T5L 2K2
Michael Riedel, Proprietor

Miles Franklin Ltd.
3015 Ottawa Ave. South
St. Louis Park, Minn. 55416
1-800-822-8080 / 952-929-1129
fax: 952-925-0143
Contacts: David Schectman,
Andy Schectman, and Bob Sichel

Missouri Coin Co.
11742 Manchester Road
St. Louis, MO 63131-4614

Resource Consultants Inc.
6139 South Rural Road
Suite 103
Tempe, Arizona 85283-2929
Pat Gorman, Proprietor
1-800-494-4149, 480-820-5877

Richard Nachbar Rare Coins
5820 Main St., Suite 601
Williamsville, N.Y. 14221-8232

Swiss America Trading Corp.
15018 North Tatum Blvd.
Phoenix, Arizona 85032
Dr. Fred I. Goldstein, Senior Broker

The Moneychanger
Box 178
Westpoint, Tennessee 38486
Franklin Sanders
1-888-218-9226, 931-766-6066


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