Hedge Fund Liquidation in Pictures

The energy stocks actually started the day halfway ok. But above you can see hedge fund liquidation 101 on a 1 day chart This is 15 minutes delayed - the stock is actually down another 4% in the last 15 minutes.... It really does not matter what your thesis is or was, when the margin clerk comes calling. Chesapeake Energy (CHK) along with Sandridge Energy (SD) were among the 2 biggest positions of many of the best and brightest funds.

Were.

Now the funds unlucky to still own them not only have to sell, but other hedge funds will target those positions and short sell at will... sharks eating sharks.

And you thought the stock market had to do with fundamentals? Not anymore. Thanks for a reader for sending this blurb about Volkswagon - its an interesting read if you want to know how big money now controls the stock market.

• Volkswagen AG Thursday surpassed Toyota Motor Corp. (TM) to become the world's biggest automaker by market value as the shares benefit from hedge-fund trading strategies and the collapse of Lehman Brothers Holdings Inc.
• Volkswagen is up 84 percent in 2008 and surged as much as 55 percent Thursday. Traders who shorted the shares on expectations they would decline on Porsche SE's bid for a majority stake were forced to close their positions, according to three people in the securities-lending business who declined to be identified. The failure of Lehman (LEH), which lent Volkswagen shares to short-sellers, probably helped trigger a so-called short-squeeze, they said.
• ``This is a popular, crowded short play that has caused the shares to become disconnected with the company's fundamentals,'' said Renaud Berenguier, who advises hedge funds on equity trading at Aurel BGC in Paris. ``You take one of the biggest prime- brokering lenders, and one of the most shorted stocks in Europe, and this is the result.''

It is dangerous out there right now - when normal mechanics mean nothing. It has been that way for a while now, but it is at extreme levels the past few weeks.

Amazing fact of the day

• The S&P 500 extended its 2008 tumble to 34 percent, while the Dow is down 31 percent. Both are poised for their worst yearly performances since 1937.

S&P 960 is a support level parallel to 1998 lows (we got lower in the 2000-2002 era but those supports don't kick in until far lower) So that's the level we're watching. But the lack of catalyst to the upside is striking.

Comments

[January Thaw:]

Nothing to do but wait till after the election. By that time we'll know the
sharks that are left....

2008 Oct 09 08:01 PM

[kurt walter:]

Those 29 year old hedge fund managers are going to get their Bentley's repoed.

2008 Oct 10 10:29 AM

[notsosmart:]

hey kurt-i dont think so. those win win managers have bundles of cash in swiss accounts & their mcmansions were paid for in cash.lots of insiders made legacy fortunes for their families.all legit in this unregulated game.investing & gambling have drawn very close together.

2008 Oct 10 11:03 AM

[RMG:]

I was looking for reasons why CHK crashed. Thanks for providing one.

2008 Oct 10 01:22 PM

[RDR:]

CHK also fell related to margin calls on the CEO's holdings. CNBC reported yesterday that the CEO of CHK, Aubrey K. McClendon, known for purchasing large amounts of his company's stock, was forced to sell "essentially all" of it during the past 3 days due to margin calls.
news.moneycentral.msn....

2008 Oct 11 08:40 AM

[George Gorski:]

When the first hedge fund went belly up a while back, I dumped all my oil/gas resource stocks that were hedged, except Uranium. I think a lot of oil/gas resource stocks were dumped rightfully or wrongfully for this reason, I learned my lesson from the herd mentality around financial stocks. No where to hide it seems.
George

2008 Oct 11 11:06 AM

[Richard Wilson:]

I think hedge funds are going to come back stronger than ever in 2010 or 2011. Everyone talks about how they are blowing up and going away...they are sitting on cash, their investors are sitting on cash, their liquidity is restricted and the whole stock market is down. Once this turns they will reign supreme once again.

- Richard
Richard Wilson
richard-wilson.blogspo...

2008 Nov 19 09:55 PM