Posted on 08/03/2007 7:40:06 PM PDT by Sleeping Freeper
NEW YORK - If you're baffled by Wall Street's performance this past week, consider the increasing influence hedge funds have in manipulating the market.
Investors spent another anxiety-ridden week watching last-minute triple-digit swings in the Dow Jones industrials, driven in part by worries about credit drying up and further subprime mortgage losses. But, while it looks like the market gyrates solely on fears about credit issues, market watchers say it is more complicated than that.
(Excerpt) Read more at msnbc.msn.com ...
1. George W. Bush.
2. Global Warming.
3. Hedge funds.
There are no more hedge funds, just kids with big pots of money playing monopoly.
What were very specialized and relatively rare investment pools of cash now number something like 9,000.
Hedge funds may be considered too complex for the SEC to investigate, but nobody is too complex to be regulated. It begins by the SEC determining what benefits bear funds and what benefits bull funds.
Then make one regulation restricting each in a small way. If that does not reduce volatility, then make one more small restriction on each, etc. And be sure to have some powerful restrictions on the back burner in case things get out of control quickly, much like trading circuit breakers.
The actual effect is far less important that showing the initiative to get things under control. By making the market comfortable that less extreme vacillations won’t get out of control, the confidence will be there to not panic.
In turn, this will slowly reduce the motivation to have hedge funds in the first place, allowing the less smaller and less successful ones to perish, along with the dominance over the market.
Two weeks ago IWM did half it's day's trading in the last minute. Last year's "average daily trade" involved about 29 million shares. This week several days saw over 200 million IWM shares traded.
This share, BTW, is one of several that track the Russell 2000 index. It's fairly comparable to the federal employee's S-fund.
I became aware about a year ago that hedge funds were playing games with IWM (among others) when the normal levels of volatility doubled.
My investment isn't big enough to do anything but follow these guys but the trick seems to be to play a variation on Parando's Paradox.
It isn't working. That's why the big traders have to dump stocks by the carload at the end of the day.
There's been overnight recovers of more than 2% of value, but programmed trading wiped that out by 10 AM.
Discounting the big traders (presumably hedge funds) the stock has been wandering back and forth $2 on either side of $82 per share for nearly a year, which is hardly volatile.
My guess is one or two better managed and very large hedge funds are making a profit by utilizing ETIFs to suck most of the others dry.
Is it true that these Hedge Funds are heavy contributers to Democratic candidates and causes?
Some TV program tonight mentioned that Hilary has a big fund raiser tonight and the large Hedge Fund managers are in attendance.
Could the Dems be manipulating the Stock Market?
just curious?
All I know is now is not the time to sell. I am starting to be a buyer. Bought XOM at the close today.
Sure you Did????
What happened from August-October 1998 was as follows (and you can easily verify this from either the testimony at the Fed hearings or the two pretty good books written about this affair):
LTCM, famously a bond arb house, decied to ''go directional'' on Russia and in a couple of other areas -- that is, instead of arbing one security or bond against another, they decided to take a straight position, in this case that Russian debt wouldn't go tits up. They were wrong.
A number of their arb plays began to fail at the same time, most notably swap spreads and British/German curve spreads. Together, their losing positions in these trades threatened, by August 1998, to overwhelm their sliver of capital; they were by conscious design trading on some THOUSANDS of per cent of leverage.
The situation became so serious that none other than William McDonough, president of the New York Fed, convened (and, to some extent, dragooned) the major investment banks IN THE WORLD, Merrill, Goldman, Paribas, Barclay's, ING, you name 'em, they were there, in order to form a consortium for a bailout.
After a good deal of infighting, treachery, backstabbing and whatnot, AND after Goldman Sachs (read: Jon Corzine) unethically caused to be downloaded LTCM's positions from their own computers into Goldman's, a bailout group was finally established.
Roughly 22 months later, LTCM's positions were finally liquidated, with very nearly ZERO default on any of them (a couple of Euro and Danish bond positions were technically in default, but cleared off by a cash settlement).
Read up the history of this affair, laddiebuck -- it's very instructive. However, if you continue to crime ''the Feds'' for LTCM's bailout, you're 100% wrong, an historical revisionist wannabee, and just another ignorant sod adding nothing but volume and vitriol to the discussion.
I've been short the Russell 2000 for about 2 months. Just about time to cover, it would seem. Monday will tell the short-term tale on DJIA and S&P. Not in a hurry at all -- the market(s) speak, some few listen.
Also, as you're perhaps a trader, you might find it advantageous to start buying water shares. Not too many of these in the US, but there are a couple of ETFs.
Good luck trying. Just remember ERM, and the G7 agreement of 1973, and ftm the Franco-British ''stability'' pact of 1924 when your new regulations fail to achieve their goals -- which they absolutely infallibly will. The only variable in their failure is how long they will take to fail.
The net bottom line on your ''regulations'' is that the chaps in the mkt are MUCH smarter than the clowns in the gov't...if you'd care to bet against this proposition, I'll take $10K of your wager, right now, with a 4-year time limit on when your regulatory scheme will fail badly in the practical world (and, no, the pronouncement of bureaucrats will not count in the settlement of our wager; we'll take our cue from the real world).
Care to play?
;^)
Doubtful. Soros is usually seen as a “bad guy,” but the few hedge fund guys I’ve met are strictly money guys.
Nice summary. Thanks for injecting some reality into the discussion.
When I was hired four years ago, the head of risk management at my company gave a talk to the my associate class. I remember he said, “LTCM didn’t make the wrong bets — they made the right bets, but they didn’t have the liquidity to hold on long enough.” Excluding the whole “Russia won’t default on its own currency” part.
I can't excuse LTCM on the grounds that, if they'd been able to stay in their trades, they'd have prospered ultimately. Why can't I? Because of the well-known remark of Maynard Keynes, which has been true forever, to wit:
''Markets can remain irrational longer than you can stay solvent.''
I'm no fan of Keynes, but when one is right, one is right. LTCM, figuratively speaking, stuck their own dicks in the fan, and had no reason to expect, ultimately, any other result than what did occur.
And, btw, ''going directional'' on Russia in 1998, with VKOs offering NINETY per cent annual return, could have been nothing but utter madness.
LTCM got in the game at the right time; Euroconvergence was clearly going to occur, and they made a huge pile on convergence trades. However, when the convergences stopped paying off, they were sitting on a huge pile of capital, couldn't find a profitable home for it (Euroconvergence comes along, what?, once a century or so?), and were firm believers in their own infallibility.
That's a recipe for disaster that even Emeril could appreciate.
FReegards! ;^)
You should try it some time.
If you got the nerve, or the money.
“but OK for the Feds to bail out when they start to fail... as with LTC in 1998. “
Everything I have read suggests 1) the feds didn’t pay for LTC, just arranged the bailout and 2) LTC failing unfunded would have become a much bigger problem.
As far as controls on hedge funds, how do you practically control how accredited investors pool their money?
Hedge funds are pretty easily explained;....you join a fund with x dollars, the fund has a charter which allows a certain range of investment strategies, margin use, etc., and month-end you get a report.....lock-up may be a year or more, beyond that a hedge fund functions as a big trading account, at least externally, from what i understand.
I suspect the marginability issues at LTC have been long-since addressed, though CDO pricing is an issue from what I hear.
Ha ha...that headline is classic!
Could be?
We are going to manage the downside of our hedgefund by investing in another hedgefund!
“And, btw, ‘’going directional’’ on Russia in 1998, with VKOs offering NINETY per cent annual return, could have been nothing but utter madness.”
don’t have any idea of their trade history on this, but gotta wonder if a single or set of personalities got stuck in a problem position and doubled or triple’d or far worse down into a declining debt market/situation re: Russia. Seen it too many times to not wonder if it could be the case here. Just the leverage abuse has the mark of someone without experience in being humbled by the market previously, but finding themselves in a very bad situation with no happy ways out.
In any case, the Index Funds have tracked the Index pretty doggone closely so the hedge funds have been feeding off each other. I'm guessing the cannibalism will be over in a year or so. Should see some in-house brokers taking the big plunge off high buildings within weeks though.
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