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Hedge Fund Carnage: 'Invisible Catalyst' Causing Big Market Moves

Posted Oct 16, 2008 11:53am EDT by Aaron Task in Investing

Few tears are being shed as the hedge fund community, once the new "masters of the universe", are suffering through a big comeuppance.

The hedge fund community is going through a "cleansing process" and 50% of existing funds won't likely survive, says Todd Harrison, CEO of Minyanville.com and a former hedge fund trader.

But any schadenfreude created by reports of big losses at big hedge funds like Citadel is misplaced, says Harrison, suggesting the "carnage" in hedge funds is directly affecting everybody's portfolios.

"There is only one stock market," and forced selling by hedge funds is an "invisible catalyst" that's contributing to the market's weakness, he says.

Forced liquidation by hedge funds can be seen in the charts of former favorites like Apple, Google, Potash and Freeport-McMoran, among others. And there's no end to the selling in sight: $43 billion came out of hedge funds in September alone, according to Trim Tabs, and Harrison thinks more redemptions are coming after October's grueling start.

100 Comments

Yahoo! Finance User
Yahoo! Finance User - Thursday October 16, 2008 12:04PM EDT

Silver Surfer in ... Started my buy FIBONNACI BUY PYRAMID today... buy cautiously with expectation of lower more aggressive steps into the market over the next 3-6-9 months out.

Yahoo! Finance User
Yahoo! Finance User - Thursday October 16, 2008 12:07PM EDT

43 billion of redemptions x 7 times leverage = $300 billion in securities sold to get clients cash. That is some major pressure downwards.

Calco Creek
Calco Creek - Thursday October 16, 2008 12:09PM EDT

Two words: Boo Hoo

Brad
Brad - Thursday October 16, 2008 12:10PM EDT

So in other words, the stock market was inflated by the hedge funds and so now it's returning to more reasonable, better-valued levels? Fine by me, I'd rather see it behave more rationally, the levels it was at were not sustainable. It was a house of cards and now it's collapsed, and the evil hedge funds will be weeded out. Time for America and the world in general to start living within their means, and hopefully someone will have the smarts and fortitude to enact regulations that prevent this stuff from happening again.

Yahoo! Finance User
Yahoo! Finance User - Thursday October 16, 2008 12:14PM EDT

The Rich gets alittle poorer while the Poor will be left to the slaugther house... Long live the King! again :-(

Yahoo! Finance User
Yahoo! Finance User - Thursday October 16, 2008 12:14PM EDT

A couple generations ago, a person worked 1.4 months per year to pay for federal and local government. Now; a person must works more than 4 months to pay government. ------------------------------------------------------------------------ Look at the inflation, monthly government Medicare insurance premiums paid by seniors were $5.30 in 1970; it’s now $96.40 per month, which is 1,889% inflation in 28 years. ----------------------------------------------------Stamp for flat rate first class mail in the 1950s cost 3 cents; today's cost is 42 cents, which is 14 times higher. ------------------------------------------------ One gallon of 87 Octane gasoline cost 18 cents in the sixties; today it is $4.00, which is 2,100 % inflation ------------------------------------------------ Depending on what type of rice and what brand name, a bag of 25 pound rice was $1.99 in the sixties; recently it sold for more than $30, which is 1,500% inflation in 40 years. ------------------------------------------------------------ Let’s talk about our government run out of money…. Last year, I went to planning department of the city hall I live, tried to ask some questions about building codes. It was around 4:00 PM, just before the quitting time. Someone from the back office come to the front lobby area and said everyone in the office will be granted one hour over time…. ---------------------------------------------- Here is another example……. Few months ago, I saw an article in San Francisco Chronicle, one policeman was making $163,000 per year, retired after working for police department for 30 years, got a lump-sum retirement payment of 2.1 million dollar, re-hired back the very next day for potentially $191,000 per year with overtime...... ----------------------------------------------------- When newsman asked for the city supervisor, he said city does not break any law, everything is routine, it happens all the times........ When the newsman asked the policeman, he said he is only 54 years old, and he still has 10 good years left, he can get another job easily, and he is doing the city a big favor for coming back to the same job…

BigDaddyCaddy
BigDaddyCaddy - Thursday October 16, 2008 12:16PM EDT

Let the hedge funds die, for their inability to see this coming and hedge for it properly. Never underestimate others greed. When they sell of the good stocks others will rush in to buy the good company shares. Let the bad companies go. Tough luck Hedge fund greed mongers see you on the unemployment line. More to come. More unemployment, Sell offs, Bankruns, Inflation, Risk. Fire Paulson and Benanke. Impeach Bush. Fire every senator and congressman who backed the bailout. Go Free Market. Nationalize banking.

Steve
Steve - Thursday October 16, 2008 12:17PM EDT

Hedge Funds are still selling. I guess all that is to say we are going lower folks. Do you still think it's time to buy?

Yahoo! Finance User
Yahoo! Finance User - Thursday October 16, 2008 12:22PM EDT

I just want my stocks to go back up so I can see financial daylight again. Is there no end to this greed in Wall Street. God deliver us from those who have wrought this destruction to our economy. Give us victory.

GeorgeK
GeorgeK - Thursday October 16, 2008 12:23PM EDT

You want to see INVISIBLE wait till you see the number of people that default on Credit Cards. INVISIBLE will be the Dow at 7000 taken there by Real Ecomony. THAT WILL ONLY TAKE ONE MORE QUARTER. Then factor in the additional forclosures that will start becasue of the yet projected Unemployment and the lack of confidence in not only the MARKET but the GOV. for not doing something with housing more quickly. XXXXXXXXXXXXXXXX McCain had the program right and it was not his plan it was H. Clintons. It was done in the Depression to stop the cycle of falling home values. Me. I have put away one thousand dollars and I am going to use it to buy a penthouse somewhere near Wall Street.

Yahoo! Finance User
Yahoo! Finance User - Thursday October 16, 2008 12:32PM EDT

All I can say is that the way this market is all over the place NONE OF US KNOW WHAT WE'RE TALKING ABOUT!!! except of course the silver surfer but even his cape is on too tight

GeorgeH
GeorgeH - Thursday October 16, 2008 12:41PM EDT

In all the hand-wringing and gnashing of teeth by government, media and financial geniuses, I have never seen or heard the words "DUE DILLIGENCE" or "FIDUCIARY RESPONSIBILITY". How can we so blithely package and consume such staggering amounts of raw sewage in our financial system? Surely their are fraudulent packagers selling to knowing conduits who caused this to "GO VIRAL". There is no excuse for professional financial and banking executives to deliberately avoid the analytical requirements and prudent judgement in the investment of other people's money. These failures are reason to investigate and prosecute every person in the food chain of this insidious virus who failed to exercise due dilligence and fiduciary responsibility OR who deliberately avoided such requirements because they knew that the raw sewage they were peddling could never pass these simple tests.

Paul
Paul - Thursday October 16, 2008 12:45PM EDT

Hey, BigDaddyCaddy, instead of firing all the congressmen who backed the bailout how about firing all those who blocked attempts to reign in FreddieMac and FannieMae.

David
David - Thursday October 16, 2008 12:45PM EDT

Tit for tat. They get to lose their jobs now as knee-jerk market reactions to every single announcement have caused their quantitative strategies to fail. At this point, I don't even have to mention the record redemptions all of their "funds" have been and continue to face. Just as they helped cause unnecessary runs on banks through unregulated short strategies attached to their deceptive and illegal rumor milling, they too will get to feel what it's like to be broadsided by a tractor trailer as they receive margin calls they cannot make. Right then and there will be the epiphany for each of them, and thankfully it will be too late for any of them to try and right the wrong that begin with their hands. Tit for tat.

Yahoo! Finance User
Yahoo! Finance User - Thursday October 16, 2008 12:49PM EDT

Stop the ride!!!!! I'm going to puke.

John L
John L - Thursday October 16, 2008 12:49PM EDT

Bailout the hedge funds ! Just print the money !

Yahoo! Finance User
Yahoo! Finance User - Thursday October 16, 2008 12:49PM EDT

Stop the ride!!!!! I'm going to puke.

Moxies
Moxies - Thursday October 16, 2008 12:52PM EDT

The American Lemmings are on the move!

Yahoo! Finance User
Yahoo! Finance User - Thursday October 16, 2008 12:53PM EDT

THEFT FUNDS IS MORE LIKE IT. MAYBE THEY CAN EAT CAT FOOD OR SNAKE FOOD. THAT SHOULD HELP THEIR BUDGETS WHICH THEY CAN MANAGE ON THEIR WAGES AS WALMART GREETERS. GOOD DAY SIR!

Yahoo! Finance User
Yahoo! Finance User - Thursday October 16, 2008 12:53PM EDT

THEFT FUNDS IS MORE LIKE IT. MAYBE THEY CAN EAT CAT FOOD OR SNAKE FOOD. THAT SHOULD HELP THEIR BUDGETS WHICH THEY CAN MANAGE ON THEIR WAGES AS WALMART GREETERS. GOOD DAY SIR!

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