Could this be why the DOW is down???

[Junkdrawer]

Hedge Funds Are Bracing for Investors to Cash Out

First, the money rushed into hedge funds. Now, some fear, it could rush out.

Even as Washington reached a tentative agreement on Sunday over what may become the largest financial bailout in American history, new worries were building inside the nearly $2 trillion world of hedge funds. After years of explosive growth, losses are mounting — and so are concerns that some investors will head for the exits.

No one expects a wholesale flight from hedge funds. But even a modest outflow could reverberate through the financial markets. To pay back investors, some funds may be forced to dump investments at a time when the markets are already shaky.

The big worry is that a spate of hurried sales could unleash a vicious circle within the hedge fund industry, with the sales leading to more losses, and those losses leading to more withdrawals, and so on. A big test will come on Tuesday, when many funds are scheduled to accept withdrawal requests for the end of the year.

...
http://www.nytimes.com/2008/09/29/business/29hedge.html?ex=1380427200&en=39912207a486c58b&ei=5124&partner=permalink&exprod=permalink

Hey, if I'm a hedge fund manager faced with having to dump a huge amount of stock. and I know the Plunge Protection Team will be out in force all day Thursday and Friday morning, I'm going to dump all day Thursday and Friday morning.

[anigbrowl]

1. It's part of it. but the fundamentals are prety bas as well.

Spreads on CP continue to hover around record levels, factory orders are down 4%, and transportation orders are off 9%. That's pretty severe.

[The Backlash Cometh]

2. It would make sense. We already bailed them out once already.

I hope someone was smart enough to tie some serious withdrawal penalties with that bailout.

[Warpy]

3. Yep.

This might be Götterdämmerung for the Ponzi scheme known as the modern hedge fund. If any financial institution deserves to pass into the hall of infamy, this one does. They initiated the derivatives trade back when they began and were a driving force behind deregulation. They were a refuge for thieves, charlatans and snake oil salesmen. There is a very good reason so many of them are incorporated offshore.

Unfortunately, they're going to take a lot of good and useful things with them when they collapse completely, like pensions and state budgets.

[leftofthedial]

4. the stock market is down because a bad recession is coming

and anyone with more brains than greed (that seems to be about 10 people in the whole country) knows that the "bailout" will only make things worse for longer.

an undefinably huge (due to deregulation) part of the whole economy is just a giant bubble, which is now so badly torn that it can't be pumped back up again, even with a $700 billion payoff to the criminal capitalist class.

[Junkdrawer]

6. I agree. When I read that hedge funds were doing the old "buying stocks on margin"...

trick, I just sighed and sold my Money Markets for Treasuries.

[Lance_Boyle]

9. OK, and buying on margin is bad trickery WHY?

Say you have $2000 in cash to buy stocks, and $3000 available on margin. You want to buy $2000 worth of stock.

Scenario A: You buy the stock with cash, you no longer earn interest on the (now nonexistent) balance in your cash account.

Scenario B: You buy the stock on margin, you pay margin interest.

Depending upon whether the margin interest paid in scenario B is higher or lower than the interest earned in scenario A, it could make perfect sense to buy on margin.

So why exactly is buying on margin "trickery?"

[Junkdrawer]

11. You do know that buying stocks on margin is one of the main reasons the market crashed in 1929?

Margin Calls and all that....

[Lance_Boyle]

12. Margin calls? If you fail to infuse sufficient funds, they liquidate your assets.

If your assets are insufficient to repay the amount borrowed, the broker/lender is SOL.

Margin is credit. Managed responsibly, it is a very good thing.

[Junkdrawer]

13. I'm hearing that hedge funds are leveraged 30 to 1, 100 to 1, and worse....

...

In September 1998, shortly before its collapse, Long Term Capital Management had $125 billion of assets on a base of $4 billion of investors' money, a leverage of over 30 times. It also had off-balance sheet positions with a notional value of approximately $1 trillion.

...

http://en.wikipedia.org/wiki/Hedge_fund

[Lance_Boyle]

14. I *wish* my broker would extend me that kind of margin credit!

My leverage is not even 2:1. Guess I'm not trustworthy. ;-)

So it appears the problem is not that hedge funds are buying on margin, but that whoever is doling out the margin credit to them has been asleep at the wheel. That will leave that creditor hurting when the funds are unable to meet their margin calls, but their assets are insufficient to make the creditor whole. Stupid creditor... may they eat their losses with not so much as a spoonful or Grey Poupon.

[leftofthedial]

16. god, capitalism is such a void.

[gravity]

17. And that was a poorly ran hedge fund

Most hedge funds aren't even leverage at all.

[leftofthedial]

15. oooh. a capitalist.

[orwell]

5. This was the next phase...

...as predicted by Nouriel Roubini. He predicted all the previous phases of this meltdown right so I expect he will be correct on this as well. The Hedgies should be the next to implode.

The world is clearly de-leveraging. That will spell bad news for highly leveraged players like hedge funds. In the long term, it is probably good news for the financial markets, if it is allowed to run its course.

[katty]

7. yup, dumping day

[NeedleCast]

8. It's part of the reason

Hope it drops another 1000 points. I just moved pretty much my entire retirement account back into equities. Now is the time to buy!

[Marrah_G]

10. Only a part of it

Factory orders fell 4% in August, more than the 3% decline economists had expected, the Commerce Department reported this morning. It was the biggest monthly decline in two years.

Excluding a 9.1% drop in transportation orders, factory orders slumped 3.3%, the biggest drop since September 2001.

Meanwhile, a report on initial jobless claims added to worries about employment. The number of first-time filings for unemployment benefits rose by 1,000 to 497,000 last week, remaining at their highest levels in seven years, the Labor Department reported.

Jobless claims were expected to drop to 475,000 last month.

Also fears that the house repukes will dig in and refuse to pass anything.

[AntiFascist]

18. Also, on Black Friday...

(after Palin's disastrous performance, (one hopes)) the moratorium on short sales and put options on financial stocks will be lifted. Just sayin'.

[Junkdrawer]

19. Checkout the end of day volume for Tuesday...

Very well could be hedge fund dumping going on...

[Umbriage]

20. No wonder McCain trails obama by 10%

It's the economy, stupid.