The Not-So-Smart Smart Money
Musing on the Markets

Blog Subscription Form

  • Email Notifications
    Go

Beyond The Sound Bite

Consume the FeedMy Beyond The Sound Bite audio interviews are now available via Podcast on InvestorsInsight.com.  Consume the feed here.

Have You Seen This?

Have You Seen This?

It should be fairly evident by now that heavy redemptions at hedge funds over the past two months contributed significantly to the recent pounding in the one area where markets are liquid – stocks. Moreover, the deleveraging process continues to impact many hedgies as available capital (for leveraged strategies) has dried up*. 

Accordingly and in anticipation of continuing redemption demands (many of which remain unsatisfied due to gating), many hedge funds have sold more than has been requested thus far. Lastly, there is some talk that private equity commitments of institutional investors are also forcing redemptions in their hedge fund holdings. 

Investment Strategy Implications

With the market cap of the S&P 500 sitting at $7.4 trillion and money funds (institutional and retail) amounting to more that $3.3 trillion, the momentum nature of hedge funds and their high cash positions would only need a less bad environment (see Barton Biggs’ comments in yesterday’s Financial Times) to trigger a stampede back into equities. 

With valuation currently at deep recession (bordering on depression/deflation) levels, any earnings surprises into 2009 (as in something north of $70) would be the justification for buying what was just sold. 

*One wonders what has transpired behind closed doors between financial institutions and government re lending to the masters of the universe.





Posted 11-25-2008 8:40 PM by Vinny Catalano, CFA