Floyd Norris of the NYT reports a rumor that the Fed is liquidating a hedge fund
Posted by
Brian (aka trav007)
Oct 24 '08, 07:25
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Why?: Here are two hypotheses on what is happening.
1. The world is finally waking up to just how bad it is, and that earnings are going to fall everywhere. Only a couple of weeks ago, some people were claiming the S.&P. 500 was trading at 12 times the next year�s earnings, even if it was around 18 times trailing earnings.
If that is the problem, then this could be nearing an end, and this panic could really mark the bottom. (Fair warning: I�ve spotted bottoms before during this bust, and been ever so wrong.)
2. This is the hedge fund devastation, as overleveraged hedge funds are forced to sell by falling prices, and then are forced to sell more because they drive prices even lower.
There are rumors around that the Fed is liquidating one hedge fund. There are also denials, so I won�t name the fund. But even if the rumor is false, it encapsulates one big worry.
If that is the explanation, this will end when the hedge funds have finally been forced out. Then the rise could be explosive.
Meanwhile, share prices are up from a few minutes ago. Down 324 on the Dow seems like good news.
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