Skip to comments.Big liquidation triggers hedge-fund turmoil Disruption reminiscent of LTCM collapse
Posted on 08/09/2007 2:09:39 PM PDT by Sleeping Freeper
The liquidation of a big hedge fund or investment-bank trading portfolio is wreaking havoc in some parts of the hedge-fund business, according to managers and investors. Black Mesa Capital, a hedge-fund firm that uses computer models to track down investment ideas, said that at least one large hedge fund or investment bank is liquidating "massive" trading portfolios, according to a letter the Santa Fe, N.M.-based firm sent to investors Wednesday. 'Clearly, something is amiss in the markets that few in our strategy, if anyone, have experienced before.' Letter to Black Mesa investors The warning is causing disruptions and triggering big losses among other so-called market-neutral hedge funds, Black Mesa said in its letter, a copy of which was obtained Thursday by MarketWatch. "Clearly, something is amiss in the markets that few in our strategy, if anyone, have experienced before," Black Mesa's managers, Dave DeMers and Jonathan Spring, wrote.
(Excerpt) Read more at marketwatch.com ...
This is going to get much worse in another month when the ARM resets peak.
Relative to the three main indices it improved its position today. Last week it lagged all the main indices.
This is pretty much 80% of the value of the federal employee's "S Fund".
Up until this last winter the average trading day was about 29 million shares. After a day passing back and forth (churning)178 million shares it traded 24 million shares in the last 14 minutes of trading as yet another hedge fund operator "bailed".
They did the same thing back in March of this year too.
The game is this ~ "they" drive down the market knowing that they can buy back into the same investments at a lower price since smaller investors will bail out as they see their stocks dwindle in price. The hedge funds buy back in driving the stocks up, then repeat the cycle.
The SEC really ought to set some standards for impermissible "churning" of the markets ~ there's no way that a stock that had a daily average trade of less than 30 million shares can jump to a daily average in excess of 200 million shares and things still be kosher (or halal).
Wonder if the Gulf State and Saudi interests are involved in this.
LTCM was less than peanuts compared to what’s going on now.
About 14% of mortgages are classified subprime. About 13% of those are late. About 0.6% of mortgages are in foreclosure. And those won't be completely lost, due to foreclosure sales proceeds. The average yield on subprimes is around 6% or 7% per year.
That chart make me wonder what the panic is all about.
The panic is that liquidity dried up last week in the secondary market for debt notes. Foreign funds are heavily invested in these markets, and Europe essentially ran out of cash last night.
That triggered the ECB, Canada, and Fed to make large emergency injections of cash into Europe this morning.
...and all of the above is happening not because of sub-prime notes (a minority of the market), but rather, happened because the Fed and ECB raised interest rates to banks too high and kept them too high for far too long.
By keeping rates too high, private liquidity has dried up. This means that the world is staring deflation in the face.
Deflation is a far worse problem than inflation. Deflation eats actual wealth. Housing prices decline, for instance. Prices for existing debt notes decline, for another.
When deflation appears, large masses of people would rather hang onto their money (because everything will be cheaper tomorrow). This in turn slows down the speed of money, which makes economies less efficient and less prosperous.
In short, people want cash when they see deflation. They sell their homes. They sell their stocks. They don’t buy as much. Consumerism disappears.
Jobs disappear. Wealth disappears. Problems abound.
Man, Cramer wasn’t kidding...
Thanks for the explanation..
“In short, people want cash when they see deflation. They sell their homes. They sell their stocks. They dont buy as much. Consumerism disappears.
Jobs disappear. Wealth disappears. Problems abound.”
LOL, eskimoes disapear... harp seals give birth to squid.... monkeys in diapers run around the city biting women.... Hillary Clinton runs for president.
Absolutely. Every time I see deflation I sell my house and live in a cardboard box hoarding my cash to buy something when prices are higher. Buy high, sell low is my motto.
Since the slowdown in new house starts there's a shortage of the big refrigerator boxes. Looks like I'll have to downsize this time round. Maybe I can snag one of those double walled washing machine boxes.
What source are you using that shows this sort of activity when there's deflation?
I was shorting and buying like a mad man today and made a killing. Give me a V! Give me a O! Give me a....oh never mind. Volitility! I need it. I love it. I want some more of it!
I’ve been hearing that the euros were even more addicted to buying subprime toxic waste then even the US was. Looks like they are going to get hit as bad, if not even worse.
Its all the German finance companies wanted for years.
Deutch Bank fired their entire mortgage warehouse division today.
That hasn’t even made the news wires yet.
Deflation eats actual wealth.
In this consumption mad society, I highly doubt we will see consumerism “disappear”. With over 300M+ people in this country, real estate is not going to decline that much—although some decline might be health after the rapid runups of the last 7 years or so.
Yeah, I saw Cramer’s rant too. He wants the Fed to lower rates to his Hedge Fund buddies don’t have to suffer the consequences for their stupid mistakes. Well, boo frecking hoo. These guys get paid megabbucsk bucks to run shockingly shakey (risky) schemes with other peoples money and then want to get bailed out when they guess wrong. Lets postpone the reckoning for another few years, so these a$$ clowns in $10K suits can make $10 Trillion disappear instead of only $2 Trillion.
Now you stop being reasonable! We want panic and mayhem!!
Cramer’s an ass who should be in jail for his market manipulation B.S. He’s admitted as much.
He’s been playing this game for a long time helping his buddies who are short and I hope and pray he gets nailed and sent to the big house.
Instead he gets his own TV show for years.
There’s a flaw in the reasoning - he’s not providing enough data.
He’s talking about current subprime and default rates, what we need to do is look at the historical context.
If for example, the % of subprime was say 8% and not 14% and the previous late payment rate was 10% and not 13% then we are looking at a serious shock to the system.
You’re a stronger person than I am. Or at least you have a stronger stomach.
I haven’t been able to stomach him for about 6-7 years now since he manipulated some of the tech stocks for his buddies with his Street.com newsletter.
One of those buddies, Gregory Reyes - former Brocade CEO - has now been found guilty on all 10 counts and is going to jail.
I couldn’t be happier.
I’m sure for folks like Edwards, Kerry/Heinz, Buffet, Soros aren’t feeling the pinch.
Then we got the Chinese, the Russian mafia, the OPEC and Chavez to add to the mix.
Of course, in the end, it will be all the fault of George W. Bush.
An almost October surprise, but then maybe its accelerate due to the primaries being pushed up to the first of the year.
Power or the desire for it begets chaos.
ARM resests increase every month from now through Feb. of next year.
Yes she will. Hopefully she’ll pepper her commentary with enough “ummmm”’s to sound like the idiot she is.
If it’s not pre-scripted ummmmm is her favorite word. Along with “you know”.
So the funds that purchased the CDO's are taking a bath, and they know it. Add to that the default swaps and interest rate swaps and it is all tied together in such a neat package that the damage is systemic.
This just hit the wires.
Goldman Sachs is closing down a 700 million fund based heavily on north american investments.
Tomorrow is going to be very interesting. NYSE and Nasdaq better keep those trading curbs warm.
Hedge fund related meltdows. Coming Soon to a “but it’s different here” housing market near you!
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