Hedge Fund Leverage Is Back To 2007 Levels

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Photo: By alles-schlumpf on flickr

This is interesting. Perhaps worrying.From BusinessWeek:

Hedge funds increased their net leverage in January to the highest level since October 2007.

Hedge funds had $290 billion of debt from margin accounts in December, the largest sum since Lehman Brothers Holdings Inc. collapsed in September 2008.

But here’s a little perspective from an asset manager, Patrick Armstrong of Armstrong Investment Managers:

“It makes a lot of sense given the low cost of borrowing and some equities’ valuations.”

“There is a capital-structure arbitrage to be made by buying stocks with leverage.”

What does this mean? Maybe it’s time for the Fed to raise rates, or like Zerohedge says, it could mean that liquidations are coming, if the stock market continues tanking.

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