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"So if you're thinking about a hedge fund to bolster your portfolio returns,
give it a long think. They're risky and they're generally overpriced. You
can do better elsewhere or even on your own. On a broader perspective, the
growing fascination with hedge funds and indeed the ability to lever almost
any asset at minimal borrowing costs which was the heretofore province of
strongly regulated banks, promises excessive speculation that inevitably
will follow the financial metronome's pendulum towards greed then back to
fear, producing a number of near certain bubble poppings in the process.

"America's and, therefore increasingly, the world's economy is unstably
founded on a base of cheap money used as leverage to support certain asset
prices of dubious value. If and when the cost of those funds moves sharply
higher for any reason - a dollar crisis, inflation, foreign central bank
sales of Treasuries, increasing budget deficits, to name a few - then the
flaws of a levered economy will be quickly exposed. It is then that many
hedge fund managers will wish they had stuck to selling lemons, instead of
lemonade and that they could return to their staid old jobs centered around
active money management."

William H. Gross

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