rumour leading to yesterday's selloff

Discussion in 'Trading' started by sumosam, Dec 2, 2008.

  1. sumosam


    Apparently, yesterday was the last day that the hedge funds could liquidate stocks for this year...and have money for redemptions. It just seemed that the selloff was way overdone.

  2. The reality is that we're rangebound and considering everyone's bullish bias out there, unless we have another fundamental meteor hit the economy, there's no catalyst to move into a lower range (yet). Does anyone here realize risk free rate (30 yr treasury) being at 3.27% translates to a 30.58 PE being an acceptable baseline under some methodologies? With even $40 of S&P earnings (off more than 50% from peak), that justifies 1200 S&P. Even a more realistic $60 of earnings against a 20 PE (considering a 30 yr at 3.27% seems like an anomaly) is 1200...

    If hedge funds are done selling, then market up. Investors aren't selling here (and the for the few that are, they are in the small minority). Once that overhead supply gets worked through, the market can move to the 1100-1200 range without too much trouble. For the die hard short, that is the next opportunity.

    Simply put, if I were a fund manager and had 2% 10 yr money or 3.2% 30 yr money to choose from versus much high yielding corporate (which there isn't much new supply of) or stocks that are beaten down 70-90% and offer double the yield (or even much higher, where fundamentals are still relatively sound), I would go for stocks much more easily. That will play out, especially as the hole in money supply is filled up.

    This fed printing of money will find a way into the system.

    The market only goes to 500 if there really is so much more 'hedge fund delevering' or 30 year bond goes to 10%.... (not happening right now - have we heard of quantitative easing?)
  3. From

    "Some strategists also cited concerns that investors in hedge funds are pulling out more of their money before the end of the year, forcing funds to liquidate assets and pressuring the overall market.
    According to Marc Pado, market strategist at Cantor Fitzgerald, estimates of so-called hedge fund redemptions call for up to $700 billion that could be withdrawn for the end of 2008."

    Hence, the pattern for exacerbated EOD selloffs.

  4. A lot of money is flowing to bond funds and away from equity and gedge funds.

    Bonds is the next bubble.
  5. I think yesterday was more of a realization that the economic situtation is THAT BAD!
  6. What happens when/if GS breaks $10 per share?

  7. Cutten


    Could you explain these methodologies? It look as though they contain no risk premium for owning stocks, which is rather strange - especially during this kind of environment.
  8. gbos


    I have to say that it takes a lot of faith to accept 3% return for 30 years with an unknown variable called “inflation”.
  9. This inflation argument is such BS its crazy. Would you rather be down 50 percent or lose money in the longterm due to inflation? Its going to take a lot of inflation to get back that 50 percent.
  10. What are you talking about? A loaf of bread that cost $1-1.50 20 years ago costs $4-4.50 today. That is just trend inflation.
    You lost 70% of your buying power that way alone, regardless that your principal stayed the same.
    #10     Dec 2, 2008