They’ll Be Back

It’s no secret that hedge funds have taken a hit in the current financial crisis, but many more might be on the rebound than you think.

British hedge fund Man Group said on Tuesday that although hedge fund outflows would likely continue into the first quarter of 2009, they would probably end there. "At that point anyone who has had to get out has already got out. We might expect institutional inflows after that."

Fast Money’s Jon Najarian agrees that hedge funds won’t stay on the sidelines for much longer. In fact options action suggests some might be back in the game already.

And that leads us to wonder, when hedge funds come back, where will they go?

“The line of thinking is that they will put money into assets in the ground such as natural gas,crude oil, silver, gold or whatever. They’ve been so sold-off so severely that the market is grossly underestimating the value of the commodity.”

Said another way, Najarian thinks commodities are oversold and that’s where the hedge funds will play.

How would you trade?

“Take a look at Silver Wheaton ,” counsels Najarian. I’m seeing strong institutional buying and expect the stock could double between now and February. “Also look at Nexen and BP for options action.”

Brother Pete and Guy Adami both agree with Jon Najarian’s thesis and add that they expects to see commodities move higher, early in ’09.

Karen Finerman offers a word of caution. "I think if you’re going to play commodities you’ve got to also be shortoil against them," she counsels.

Jeff Macke bristles that it’s easier to buy steel from the empty towers in Dubai than it is to dig it up from the ground.

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Trader disclosure: On Dec. 2nd, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Macke Owns (MSFT), (WMT), (SDS); Macke Is Short (YHOO); Adami Owns (AGU), (BTU), (C), (GS), (MSFT), (INTC), (NUE); Finerman's Firm Owns (DSX),(MSFT); Finerman's Firm Is Short (IYR), (IJR), (IWM), (SPY), (MDY), (GNK), (USO), (BBT). (COF), (EXM); Pete Najarian Owns (UYG) Calls, (TLM) Calls

Jon Najarian Owns (SLW), (BP), (NXY)

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