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Big liquidation triggers hedge-fund turmoil Disruption reminiscent of LTCM collapse
Marketwatch.com ^ | 08/09/2007 | Alistair Barr

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 ...


TOPICS: Business/Economy
KEYWORDS: contagion; housingbubble
Drip, Drip, Drip......
1 posted on 08/09/2007 2:09:41 PM PDT by Sleeping Freeper
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To: Sleeping Freeper

This is going to get much worse in another month when the ARM resets peak.


2 posted on 08/09/2007 2:32:46 PM PDT by finnman69 (cum puella incedit minore medio corpore sub quo manifestu s globus, inflammare animos)
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To: Sleeping Freeper
Just checking out IWM (exchange traded index fund that tracks Russell 2000 ~ and pretty doggone well I might add).

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.

3 posted on 08/09/2007 2:37:35 PM PDT by muawiyah
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To: Sleeping Freeper

LTCM was less than peanuts compared to what’s going on now.


4 posted on 08/09/2007 2:38:13 PM PDT by OpusatFR
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To: muawiyah
Interesting! The concept of “churning” seems to be more visible lately.
5 posted on 08/09/2007 2:45:29 PM PDT by Sleeping Freeper
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To: Sleeping Freeper

Jerry Bowyer on the Sub-Prime Mortgage Crisis on NRO Financial

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.

6 posted on 08/09/2007 2:52:34 PM PDT by cynwoody
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To: cynwoody

That chart make me wonder what the panic is all about.


7 posted on 08/09/2007 3:00:42 PM PDT by DonaldC
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To: DonaldC

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.


8 posted on 08/09/2007 3:11:40 PM PDT by Southack (Media Bias means that Castro won't be punished for Cuban war crimes against Black Angolans in Africa)
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To: Sleeping Freeper

Man, Cramer wasn’t kidding...


9 posted on 08/09/2007 3:12:05 PM PDT by Bladerunnuh
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To: Southack

Thanks for the explanation..


10 posted on 08/09/2007 3:20:17 PM PDT by DonaldC
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To: DonaldC
That chart make me wonder what the panic is all about.

Control.

11 posted on 08/09/2007 3:24:01 PM PDT by null and void (This tagline has done something unfathomable and will close)
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To: Southack

“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.”

LOL, eskimoes disapear... harp seals give birth to squid.... monkeys in diapers run around the city biting women.... Hillary Clinton runs for president.


12 posted on 08/09/2007 3:32:27 PM PDT by Porterville (I'm an American. If you hate Americans, I hope our enemies destroy you. I will pray for my soul.)
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To: Southack
"They sell their homes."

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?

13 posted on 08/09/2007 3:44:07 PM PDT by Proud_texan (Just my opinion, no relationship to reality is expressed or implied.)
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To: Sleeping Freeper

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.


14 posted on 08/09/2007 3:53:51 PM PDT by Proud_USA_Republican (We're going to take things away from you on behalf of the common good. - Hillary Clinton)
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To: Proud_USA_Republican

Deutch Bank fired their entire mortgage warehouse division today.

That hasn’t even made the news wires yet.


15 posted on 08/09/2007 4:18:23 PM PDT by Southack (Media Bias means that Castro won't be punished for Cuban war crimes against Black Angolans in Africa)
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To: Southack

Deflation eats actual wealth.


Only if you brought overvalued assets to begin with. However, if you have $$ in the bank, you do better. Deflation rewards savers while inflation penalizes them.

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.


16 posted on 08/09/2007 4:19:24 PM PDT by rbg81 (DRAIN THE SWAMP!!)
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To: Bladerunnuh

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.


17 posted on 08/09/2007 4:26:17 PM PDT by rbg81 (DRAIN THE SWAMP!!)
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To: cynwoody

Now you stop being reasonable! We want panic and mayhem!!

ROFL!


18 posted on 08/09/2007 4:27:01 PM PDT by terilyn
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To: Bladerunnuh

Cramer’s an ass who should be in jail for his market manipulation B.S. He’s admitted as much.


19 posted on 08/09/2007 4:27:51 PM PDT by terilyn
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To: rbg81

Exactly

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.


20 posted on 08/09/2007 4:30:20 PM PDT by terilyn
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Comment #21 Removed by Moderator

To: cynwoody

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.


22 posted on 08/09/2007 4:36:16 PM PDT by Philly Nomad
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To: DonaldC
The panic is all about the fact that investors finally figured out that real estate on both coasts is grotesquely overpriced and bears no relation to the underlying salaries of the people who live there. The ARM resets of sub-prime as well as mid-prime lenders means that many foreclosures are yet to come.

A significant increase in foreclosures increases the supply of housing on the market faster than an increase in the demand. This lowers housing prices which makes it more difficult for more people with ARMS to refinance their homes.

Then the imitation of a toilet drain in the housing market continues.

The refinancing boom of the last few years gave consumers plenty of cash to spend in the economy. That cash is no longer available for this year, next year, and perhaps several years after that.

_That_ is why there is panic.
23 posted on 08/09/2007 4:38:24 PM PDT by cgbg (Hillary's mob has plans for our liberties--hanging fruit.)
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To: Lizarde

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.


24 posted on 08/09/2007 4:40:09 PM PDT by terilyn
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To: Sleeping Freeper

bump.


25 posted on 08/09/2007 4:44:40 PM PDT by khnyny (The best minds are not in government. If they were, business would hire them away. Ronald Reagan)
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To: null and void
Interesting way for the Democrats or anyone in power can redistribute the wealth.

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.

26 posted on 08/09/2007 4:46:37 PM PDT by not2worry ( What goes around comes around!)
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Comment #27 Removed by Moderator

To: finnman69

ARM resests increase every month from now through Feb. of next year.


28 posted on 08/09/2007 4:48:27 PM PDT by spyone
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To: Lizarde

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”.


29 posted on 08/09/2007 4:50:52 PM PDT by terilyn
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To: cgbg
Not only that but as more and more folks found that they bought "at the top" and that they can bail now, get a few months rent free until they are tossed out, and not have 20%$ negative equity, or more, hanging over their heads, they will. Furthermore, as things get worse, the real option for the banks is to renegotiate better payment terms with the delinquent borrower, essentially resetting the value of the loan. The last thing a bank wants is a large portfolio of REO in a sinking market.

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.

30 posted on 08/09/2007 4:54:10 PM PDT by AndyJackson
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To: Southack

OHHHHH MANNN......


31 posted on 08/09/2007 5:28:39 PM PDT by Proud_USA_Republican (We're going to take things away from you on behalf of the common good. - Hillary Clinton)
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To: Sleeping Freeper

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.


32 posted on 08/09/2007 5:32:05 PM PDT by Proud_USA_Republican (We're going to take things away from you on behalf of the common good. - Hillary Clinton)
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To: Proud_USA_Republican

Hedge fund related meltdows. Coming Soon to a “but it’s different here” housing market near you!


33 posted on 08/09/2007 5:42:20 PM PDT by finnman69 (cum puella incedit minore medio corpore sub quo manifestu s globus, inflammare animos)
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To: Sleeping Freeper
Watch Jim Cramer Meltdown on CNBC on youtube
34 posted on 08/10/2007 4:15:13 AM PDT by SauronOfMordor (Open Season rocks http://www.youtube.com/watch?v=ymLJz3N8ayI)
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