The deadline for investors to request to get their money back from some hedge funds is today, Nov 15th, 2008. Some theorize that this could send the market reeling on Monday, as hedge funds scramble to sell stock in order to fill their client's request for cash.
According to the following article, however,
http://www.mmexecutive.com/news/187418-1.html
some hedge funds have already sold off a lot of their stocks, moving to 50% cash in anticipation of the redemptions. One must wonder, then, if the request for cash is not as large as anticipated, wouldn't that leave hundreds of millions, perhaps billions, of dollars waiting to get back into the market at advantageous prices on Monday?
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Agree 100%. My feeling is that if it weren't for hedge fund (and some retail investor) selling, the market would have rebounded by the end of October from its October lows. Next week may be still be a little choppy, but it is not the time to go short. Hedge funds are under the gun to improve their year-end statistics. They need to "annoint" a sector/industry/stock and run it up before year-end. After Dec 31st, anything can happen. But between now and Dec 31st, they need to take what cash is left, invest it in companies they don't mind having on their books at yearend, and get a huge bang for the buck. Isn't that what you would do if you were a 30-50 year old hedge fund manager with huge bills to pay and with so much at stake? They are humans like us, but trapped with with nicer cars, nicer houses (purchased at the peak, before the collapse), bigger mortgages, trophy wives (who want trophy jewelry and trophy clothes) and private schools, and they will do all they can to improve their decimated 2008 income. I think their efforts will be coordinated and significant. Our job is to ferret out what are the annointed industries and stocks and hop on board.
That is how I feel. I just looked at the SPY chart for last Thursday. It strikes me that the dip happened during lunch time, when traders are not around, and quickly reverse before the traders return. I think the sole purpose of the dip was to take out the stop-loss orders for the next leg up.
I feel the market will return to some normalcy, meaning some sectors will go up and some do down while the market churns in a "side-ways" motion before the next leg up. SPY might paint a bull-flag in the next few days during the process.
The easiest sector to "annoint" is probably solar/wind. Just my biased guess as I am still a "trader-turned-investor" in solar.
There is a good possibility that some of the good industrial and commodity stocks will rebound while the stocks that have anything to do with consumer discretionary items including tech stocks will have further downside. Many of the tech stocks including AAPL,MSFT, HPQ, ORCL,RIMM are going to take hit because companies and individuals just decide to postpone their purchases or defer the product upgrades.
My guess is SSO and DDM is a good trade here and can be hedged with QID.
AK.
AK
Glad to see there are some bulls out there. If we had to go through the long process of requesting a redemption and waiting for a check in the mail in order to sell stock, we would just wait it out at this point. The time to request a withdrawal of funds was a year ago, not now.
Hopefully many others will agree, and leave their money with the funds at this point in the game.
http://siliconinvestor.advfn.com/readmsg.aspx?msgid=25178437
Hedge funds moved to 50% cash?
What happened to 10 times leverage or 30 times in the case of bear stearns and lehman..
Is that 50% cash position still levered 10 to 1 i wonder because if not then that would mean that those funds have sold off 95% of their holdings.
On one hand that sounds like an impossible concept but on the other it would explain the selling pressure over the last few months wouldn't it...
Thinking about that if a fund was still leveraged it wouldn't need to hold 50% in cash as 10% would cover all of the investor cash in a 10 to 1 leverage. That means that any fund that is 50% cash must be completely de leveraged already...
However the article dosent say 50% cash, it says funds have raised a lot of cash which is a different story altogether...
Just a guess:
For example, investor gives hedge fund $2k. Fund bought $20k stock on 10:1 leverage. Now investor asks for 1k back. Hedge fund will have to sell $10k stock, ending with $1k cash/$10k stock, still on 10:1 leverage. Investor gets 1k check.
So, to be in 50% cash, hedge fund needs to sell half their holdings, not 95%.
thats still 10% cash if they haven't returned the investment yet, or 0% cash if they have.
Reduced to 50% buying power maybe, that woudl make more sense..
anyone getting bullish on oil yet?
http://stockcharts.com/h-sc/ui
someone tell me not to buy here at $33.
888888s
Will be interesting to see whether there's a lot of money ready to jump back in the market Monday.
If anyone cares to read a good accounting of what I believe has happened on Wall Street, Try this link, and read "The End" by Michael Lewis. This same author wrote "Liar's Poker" years ago.
agr8gem57
Thanks for the article, agr8gem. It's an excellent read. Here's the link
http://www.portfolio.com/news-markets/national-news/portfolio/2008/11/11/The-End-of-Wall-Streets-Boom#
Maybe Monday, maybe not. Perhaps this week, though. Other hedge funds have different deadlines per the article at the end of Nov.
Wow, Snot, if you read all that by 5:15 AM, I'm wondering when you sleep! Thanks for posting the link. I was tired and totally forgot to post it myself, it appears.
This seems like a factual accounting of what has happened, and who's surprised that shorting allowed it to burst even further out of control than otherwise could have been possible?
I always have believed the many changes put into place back in the mid 80's were leading to disaster, and this article confirms it for me.
agr8gem57
Snot, regarding your now closed 'where's the bottom' poll, I would be interested to know where folks stand right now. There was a fairly large spread in those numbers (I pegged the bottom at the 6000 point). Over half of the votes were below 7100, ouch! There are some sharp knives in the Snotwheel drawer, and I'm wondering if the current concensus is shifting back upward, or if more than half of the posters still believe in significant downward movement to come.
Three cheers to Gary, and to his continued future success!
I'll probably sell my QID later today. Right now up a little over 11% since Thurs. pm. In and out. I'll post the sell point tomorrow.
QID is a good hedge. EEV is a scam.
All of you bulls out there
If you guys are interested to know who Martin Armstrong is here is the link:
http://en.wikipedia.org/wiki/Martin_A._Armstrong
The second link is a must read:
He wrote this while in prison and released it on oct 10-2008. In case you are wondering why he is in prison google his name and find out why.
http://www.contrahour.com/ItsJustTimeMartinArmstrong.pdf
Regarding hedge fund selling here is what Steven Williams thinks:
Nov-16-2008
Last Friday was the deadline for investors to request a cash redemption so they can receive it before the end of the current tax year. Now the hedge funds have about 6 weeks to do their selling. Some have already started (as witnessed in Friday's hard selldown during the final 30 minutes of the regular stock trading session). I don't think they will all necessarily rush to the exit at the same time, but the more sophisticated among them will use all opportunity at their disposal. For example, some may begin by selling S&P futures on GLOBEX as early as Sunday evening and then converting into their stocks during the day session. Others might begin selling individual US stocks that are traded as ADRs on foreign exchanges before the US market opens.
Because their very survival depends upon meeting these redemptions, hedge funds are prone to panic selling just like everyone else. It is all about the emotion of being boxed into a corner and having to fend for self-preservation to survive. If futures and stock indexes start cratering too quickly, many funds may feel they have no choice but to grab whatever they can get, at any price they can get. Time is not on their side and they know they do not have any luxury of waiting. Waiting may present them with much lower prices. This could actually be quite explosive.
The intra-day rally last Friday accomplished a gap closure left over from Friday's open (DJIA, SPX, NDX, QQQQ, SPY, DIA, etc). Now that this little technicality has been achieved, pressure leans heavily toward resuming the downside. As for my own trading, I plan to treat any rally this next week as an opportunity to add to index put options or reverse index ETFs.
Consider MCD. Relative to the market the last few days, it is holding up well. Ex-dividend date coming up also in about one more week, I think.
Signed,
Anonymous
Guys,
These ProShares Inverse ETFs are a scam as we all know by now. Try looking at the Direxion ETFs. Since they are new, they can perform pretty well as a hedge. I was looking at FAZ, ERY and TZA to start with as a hedge from SSO and DDM.
AK
I just read that article start to finish. A couple of the things that strike me about it are how well it describes the total lack of understanding financiars had of the system and the flaws that were inherent in it. It makes me wonder if they really understand how far things have still to go. This lack of fundamental understanding also explains why people make huge investments in doomed comapnies, eg the arab who pumped $25Bn into citi at $30 or how BOA bought Countrywide financial at $25 for $20Bn.
If you run the thinking along its course it woudl suggest that the likes of Warren Buffet may be no wiser when he invested in Goldman than Kerkorian was investing in Ford.
The other thing that strikes me is that the article is still talking for pages and pages about purchasing Credit default swaps as a way to bet against all these financials yet i have still to hear about a big company collapsing because it sold swaps like this.
This (along with everything else i have been saying about swaps for the last year) suggests to me that A) the swaps are still to hit,
B) the guys on the recieving end of the hit may still not know about it.
On sept 19th the SEC banned short selling of financials. On that day, when the S&P was at 1250, I was writing posts using the strongest language possible saying they were deliberately causing a market crash.
Frequent visitors of this blog should understand why a crash was inevitable. By banning short selling, they forced a liquidation of a very large chunk of the market. If you cant hedge, you have to liquidate because it is too risky to go long if you cant hedge.
But anyway, what is important now is that this forced liquidation was an attempt at putting in a bottom. They were actually targetting the 10/9/02 lows but they failed to hit that target. Of course, we will eventually. Within 3 weeks I'd say. What you need to do is ignore what happened during october, because the degree of manipulation was so high.
Just draw a straight line on your $SPX chart, from aug 31 to oct 31. That is the trend we are actually on. Ignore the descending triangle. It was created out of whole cloth, through manipulation. It is important to understand that, because it eliminates part of the perception that this may be a bottom. That perception is solely the result of careful manipulation. There is no reason to believe this is the bottom.
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