For better or worse, hedge fund returns have a tendency to follow markets, in part because most long-short funds are net long most of the time.

So after a huge rebound in the stockmarket this year, which has helped hedge funds make up some much-needed ground, October proved a difficult month when the market fell in the second half of the month.

After all 2009's growing optimism, investors were suddenly concerned that a withdrawal of government stimulus would harm an economic recovery in its early stages.

So, after a bumper 2008 and a miserable 2009 for short-sellers, it was they who leaped to the fore again in October - dedicated short bias returned 1.61 percent, while long-bias funds lost 0.38 percent and long-short funds were flat.

However, the long bet may not be over for hedge funds. John Paulson, the man who made billions betting on the subprime crisis and profited last year from shorting banks, is going long Cadbury.

With 2.54 percent of the chocolate maker, Paulson's move may show that, despite this year's huge rally, there may be more upside left in some stocks.

-John Monks is general secretary at the European Trade Union Confederation. The opinions expressed are his own.-

One year on from the collapse of Lehman Brothers, we can see that that wreckage was the first of many.

The crisis in financial markets has spread like wildfire into the rest of the economy, despite often skillful effort by many Governments and central banks to keep afloat the banking and credit supply systems.

The sheer scale of recklessness in the banks and the vast rescue plans needed to bail them out is impoverishing western societies – to different extents, it is true, but no-one is untouched by the firestorm.  Unemployment is rising quickly and will reach 11percent in the EU over this winter.

Meanwhile some incorrigible optimists can see the green shots of recovery.  In fact they are mistaken.  What they are seeing are things getting worse less quickly.  Yet this optimistic school is not naive.  There is method in their apparent optimism.

They want “business as usual” to return as quickly as possible.  If the recession is a steep dip but with a quick recovery (v-shaped) then there is no need for systemic change as far as financial institutions are concerned.  And if the recession is over, public debt can be repaid by savage cuts in public expenditure.

I hope the recession is v-shaped although I have to note the recent opinion of the International Monetary Fund that recessions caused by banking failures normally least around seven years.  But, in any event, the cost of the rescues to date is imposing debts of trillions on governments which will take decades to repay fully.

So root and branch reform is necessary and I hope that the G20 in Pittsburgh this week agree on key measures on bonuses, reserves, tax havens and so on, so that never again can banks behave like badly run casinos.

I hope too that governments do not take early action to cut public spending.  As Lord Skidelsky magisterially pointed out in Saturday’s Financial Times, the Conservatives apparent urgent desire to balance the books as quickly as possible is economically illiterate and profoundly dangerous.  The economic outlook is far too fragile for that.  It would as if after El Alamein in 1942, Churchill had said “now we must think about repaying the US loans”.

The Liberal Democrats disappointingly have joined in on ‘who can cut the most’, whereas my line is a modest expansion of public spending on youth unemployment in particular.  We can plan the pay back phase in due course and we must not become obsessed with “who cuts, wins”.

-Simon Chadwick is the Director of the Centre for the International Business of Sport at Coventry University, and runs the blog ‘Daily Sport Thought’ in which he addresses many of the important challenges currently facing sport. The opinions expressed are his own.-

I love sport, I have always loved sport, and I make my living researching, writing and talking about sport. As such, I do not need to be convinced about the social, cultural, psychological and health benefits associated with our engagement in sport. I also do not need any convincing about the economic benefits of sport, although some people will always and inevitably exclaim, “he would say that wouldn’t he!”

Well, it is not me it is actually the United Nations which states that sport may account for as much as 3 percent of global economic activity. It is the European Union that estimates sport to be worth 1.5 percent of its gross domestic product (GDP). And it is the British government that has recently acknowledged just how significant sport as an industry has become by commissioning research which will result in the development of robust measures for the contribution that sport makes to the British economy. Previous estimates already indicate that sport may generate as much as 2.5 percent of GDP, in which case this means it is an industry bigger than agriculture and not so far behind manufacturing.

Sport is, indeed, much more important than we realise or acknowledge. It is deeply ingrained in many of our psyches: for some people this dates back to our childhoods and is bound up in our social and geographic identities; for other people, sport allows us to indulge in vicarious achievement (related to the psychological phenomenon of BiRG-ing – Basking in Reflected Glory) and euphoric collective experiences.

The consumption of sport is thus not a rational economic activity, an observation that is particularly pertinent amidst these recessionary times. Whereas other industries continue to suffer the effects of the downturn, sport remains one of the more recession-resistant sectors, buoyed by the inherently unique features that differentiate sport, making it a safe-haven during difficult times.

Sport can be relied upon not to let people down, it provides value for money, not least because of its central proposition: the uncertainty of outcome – you never know what the result is going to be, something absent from virtually all other forms of consumption in our otherwise increasingly homogenised and standardised world. As such, people actively seek out sport and remain loyal to it, even during economically troubled times.

There is clear evidence already that sport has bucked recent recessionary trends; for instance, over the last year, Arsenal reported a profit of almost 37 million pounds; both the Rugby Football Union and the Premier League have announced new, high value, long-term televisions rights deals; Badminton England signed its most lucrative ever sponsorship deal; advertising revenues derived from slots during American Football’s Superbowl broke all records; and television viewing figures for the Champions League Final in Rome were up by 27 percent.

If one then factors in the specific economic impacts that sporting success can have, there are strong grounds for optimism that our love affair with sport may actually help lift us out of our current economic malaise. In the months immediately after last year’s Beijing Olympic Games, sales of bicycles reportedly increased by upwards of 20 percent; sales of sports bras were up by 27 percent; sales of swimming equipment may have increased by upwards of 36 percent; and sales of energy bars and sports drinks apparently increased by as much as 155 percent.

Moreover, a YouGov poll conducted prior to the 2006 FIFA World Cup in Germany indicated that almost half of all men and women felt that sporting success lifts their mood, helps them be more optimistic and increases their productivity.

So what are the prospects for this summer, and beyond into the autumn? It is a pity that there is no major football tournament due to take place, as previous research indicates a tangible link between football success and economic uplift. A Manchester United victory in the Champions League Final would have been helpful, as would an Andy Murray win at Wimbledon. We still have the Ashes ahead, the World Athletics Championship in Berlin, and Jenson Button leading the Formula 1 World Championship.

It may nevertheless be towards the end of the year before witnessing the real economic excitement. If the England football team can keep their nerve and qualify for next year’s FIFA World Cup in South Africa, then businesses from pubs and pizza-makers to television manufacturers and internet service providers will be gleefully rubbing their hands.

Perhaps that Anglicised Scot, Gordon Brown, may be the one who will rub his hands more than most? Sporting success over the next year could not only help to save the economy, it might also help him to save his job. Roll on that Croatia game in September, eh Gordy?

Latvia needs more support from the European Union if it is to preserve its currency peg to the euro and avert a chain reaction of devaluations and bankruptcies around the Baltic and beyond.

The Latvian government and central bank are taking extreme measures to maintain a currency board linking the lat with the single European currency, hoping to steer the former Soviet republic into the safe haven of the euro zone in 2012.

But the price in wage and pension cuts for ordinary Latvians has risen to normally intolerable levels, and the prospect of entering the promised land of monetary stability looks ever more remote as the EU sticks to its strict rules on euro entry.

Furthermore, Latvia’s prospects of economic recovery after a staggering 20 percent forecast contraction of output this year look poor with an overvalued currency. The boom years of consumer spending based on cheap euro credit are well and truly over.

To secure the disbursement of 1.2 billion euros in emergency International Monetary Fund and EU loans, parliament in Riga is expected to approve a revised budget on Tuesday cutting pensions by 10 percent and public sector wages by a further 20 percent on top of the 20 percent reduction already implemented.

Devaluing the lat, as emerging market economists recommend, would trigger a wave of bankruptcies because 80 percent of private borrowing is in euros. Euro zone entry would recede since the country would have to restart from scratch in the EU’s Exchange Rate Mechanism (ERM) with higher inflation and a bigger budget deficit. A new currency peg might prove hard to defend, while a floating lat would likely overshoot on the downside.

More seriously for the EU, a Latvian devaluation would cause big losses at Swedish banks, heavily exposed to the Baltic states, and put immediate pressure on the currency pegs of neighbours Estonia and Lithuania, and perhaps of Bulgaria. It could also make the main central European economies such as Poland and the Czech Republic more wary of entering the ERM.

There is some suspicion that Germany, the EU’s central economy, may want to slow down euro zone enlargement to preserve stability for existing members and perpetuate its orthodox influence over European Central Bank decision-making. But the EU has a strategic interest in holding the line in Latvia against currency turmoil.

To achieve this, it needs to give Riga both more generous financial assistance and a clearer perspective for euro zone membership. Yet so far the European Commission and the ECB have seemed semi-detached, at the risk of sending Latvians the message that Europe doesn’t care too much.

The Commission has left the loan negotiations to the IMF. The ECB has lent Sweden 3 billion euros to guard against its banks’ Baltic exposure. ECB President Jean-Claude Trichet disclosed in an aside on June 4 that the ECB had a repurchase agreement with the Latvian central bank, but he did not say if or when it had been used and whether the European institution accepted assets in lats as collateral.

The EU is a community of law. Treaty rules for joining the single currency cannot simply be torn up in a crisis to admit countries in distress. But once the Latvian parliament adopts the drastic budget cuts, the EU should use this week’s summit to send a political signal to markets that it will do what it takes to keep the Baltic states on track for the euro zone.

To underpin this commitment to avert contagion, the ECB should flesh out its intention to support Latvia with liquidity, accepting assets denominated in lats as collateral. The Commission should propose to member states using more of the EU’s emergency balance of payments facility to support Latvia.

Both moves might set risky precedents if other, bigger economies get into trouble. But if the EU wants to prevent a currency meltdown with wider consequences, that is the political price.
(Editing by David Evans)

-- James Saft is a Reuters columnist. The opinions expressed are his own --

Sure, seeing your economy shrink at a 15 percent annual clip is depressing, quite literally, but if you believe in even a tepid global economic recovery in the second half, then Japan is actually attractive.

There is no way to sugar coat the first quarter Japanese gross domestic product figures released on Wednesday: they are breathtakingly bad viewed from virtually any angle.

The economy shrank by a record four percent in the quarter, or an annualized fall of 15.2 percent, leaving the economy no bigger in real terms than it was in 2003. Net exports fell sharply, by themselves pushing GDP 1.4 percent lower and, perhaps even worse, capital spending shrank by more than ten percent and private consumption fell by 1.1 percent.

What's more, stocks of inventory remain high when compared to sales, so there is plenty left to sell without placing new orders.

But just as global trade, and with it Japan's economy, had an extended and sudden plunge in the wake of last year's panic, there are signs already of an improvement.

Industrial production in March in Japan actually rose from the month before, up 1.6 percent, a rise echoed softly in the Reuters Tankan survey of confidence among manufacturers which showed less gloom than the month before.

A recovery will require a substantial recovery in exports, industrial output and household spending, according to Julian Jessop, chief international economist at Capital Economics in London.

"The strong rebound in the survey evidence confirms that this is realistic," Jessop wrote in a note to clients. "The extent of the previous declines in exports and investment also leaves plenty of room for a decent bounce."

That decent bounce could result in a nice return on Japanese shares, which have rallied in sympathy with global stocks.

Significantly, Tokyo shares actually rallied after the GDP news even despite a rise in the yen which crimped the competitiveness of exporters. And measured on a price-to-book value basis, Japanese shares, especially smaller cap issues, are among the world's cheapest, implying decent potential for gains if the economy as a whole surprises.

Japanese shares as a whole are trading on a one year prospective price-earnings ratio of about 30.

LEVERAGED TO CHINA AND U.S.

Japan's economy is very highly leveraged to global trade, making this perhaps the key call in any bet on a recovery there. Japan's position is better than it might seem because those things which it does still successfully export are of high quality and technical specification and less vulnerable to cheaper substitutes from China or elsewhere.

A Barclays Capital composite leading indictor for Japanese exports, which tends to be three to five months ahead, has recently turned positive after a sustained and precipitous drop.

The index includes U.S. stock prices, commodity prices, new orders in the U.S. in both transport machinery and information technology, Chinese auto production and the relationship between U.S. inventories and sales.

Efforts by China to jump start auto sales seem to have worked particularly well, recording an 18.5 percent gain in April from the year before. Similarly, there is a reasonably good chance we are in the midst of a U.S. recovery of some sort, though the risks are it is short lived or chronically feeble.

As this happens look for a rebound in exports and production in Japan and even, at some point, in actual investment. This leaves us with the 20-year running sore that is Japanese domestic consumption.

The fear, and it is not a small one, is that employment and income suffer after a downturn of depression size and that already falling consumption retracts further. The gap between Japan's output and its capacity is eight or nine percent now, making the risk of deflation, and with it the possibility of a negative spiral in spending, quite high.

Balancing that is the fact that Japan's healthy savings rate gives its consumers an option less available to their U.S. peers when income falls, they can make up some of the shortfall by simply saving less.

Further, Japan is feeling the impact of a substantial fiscal stimulus, with at least some of the tax cuts finding their way into shopkeepers' hands. Japan also has front loaded infrastructure spending.

As with all such spending, the impact of this is transient and, with the possibility of an election soon, there is no guarantee that further extra budgets will be forthcoming.

It won't be glamorous, in part because the engine of growth will be elsewhere, but between now and the end of the year a rebound could be surprising and, depression-era style economic statistics notwithstanding, surprisingly profitable.

-- At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund --