Some one presented an outrageous number in another post today, which can’t possibly be right (but then again, maybe it is???)

I havent been able to google anything sensible.

Can anyone assist?

On Wednesday, the hurtful selling occured from 230 pm to 3.45 pm ~ down 56 points.

On Thursday, the selling began at 8.30 am and ended at 9.15 pm ~ down 137 points or more than 1% per hour.
On Friday, the hurtful selling began at 9 am until 12.45 pm ~ down 81 points.

Yes there was especially heavy selling pressure in the final hour of the markets being open. But, this activity need not have been hedge funds, in fact, most probably it was mutual fund redemptions.

Hedge funds, moreover do not usually lever up in stocks unless it is a sure thing, such as fixed income securities can offer. So,while it is entirely plausible that hedge fund margin calls are causing them to liquidate, most likely they were liquidating fixed income products where they can borrow short/lend long.

This explains why 10 yr treasuries tanked 5.14 points on Wed through Friday when the stock market was crashing the hardest. Normally, treasuries go bid when stock markets crash.

Another hedge fund problem is that they sold a lot of CDS paper, and the cost to sellers of LEH CDS paper is roughly $270 billion.

You will see tons of hedge funds roll over and die as a result because they have no reserve requirements to meet these obligations.

But yes, GS and other banks should be scooping up the cheap stocks out their after this weeks liquidation.

According to past reading, and follow up research, the market was extremely overvalued, even after that 777 point drop on the dow after the house voted down the MOAB.

The call then was for a drop to the historical average, which at that point was SP500 960, or somewhere in the neighborhood. That was also before SP lowered earnings guidance.

The stock market usually overshoots, high and low. This would of course be amplified by leverage. More upside when the market goes up, more downside when the margin calls begin to pile in.

This is how it has always been, nothing has changed.

An interesting point may be too look further at the claim by some that the last bottom in the market, in 2002, was not a real bottom. Some people believe, and may have a very good point right now, that the fed increased liquidity way too much in response to the last recession, there never was a real bottom beacause of this.

The floor traders should be thanked today. There are still a few people out there in the mix, they are the ones who had to put that bottom in this morning, great job guys.

This also brings another point up, people in the mix. We need more. They serve as buffers, and in cases such as this morning can look around and realize what is going on. Computers do exactly what you tell them, we need more people in this mix.

I am an ex-pat from The Oil Drum. Once they introduced the ‘ratings system’ I took it on the lamb.

One of my last posts at that site was a comment about how this election would be dominated by ‘the economy’, not ‘peak oil’. That got me some down ratings. I wonder if TOD has noticed that the economy is a bit of a sticky wicket? I wish them well in their endeavors.

Thanks for the credit for the catch but credit belongs to Jesses’ Cafe American and of course Yves for providing us a great forum.

Overcapacity of bank-a-likes and credit ballooning need to shrink for the good of the real economy. This necessarily means that many if not most hedgies need to go out of business in the public interest, certainly if their models are base on gearing (and most were). On the other hand, moves by the top of the food chain ibankers to liquidate their competitor-clients more than stink. Their was a major element of this in the BSC takedown, the knife in the back, but here we see it in the most ugly way possible. No honor amongst theives, that’s for sure.

One way to read this, and I do, is that the ex-ibanks are contracting the financial economy around _their own_ defensible perimeters, so that when the large but not limitless purse of the Treasury is in fact opened they will get most or all of it since their competitors have been liquidated. If this wasn’t the US, the management tier of these folks would be gone already and their institutions seized. When I opine regarding fascism and plutocracy, it is of these lizards that I sing. Their actions ARE NOT IN THE PUBLIC INTEREST.

I’d have no problem with senior management and insiders at GS, JPM, MS, and Merrill being lined up against a wall, and not for identification, but they pay more security guards than I do. Violence isn’t the answer; unemployment and incarceration are a better way. That’s what underclass criminals receive, so time for the overclass to experience no little solidarity with their like.

Why, sure! It's called Modigliani-Miller. And it says, "Leverage don't matter." I kid you not:

http://en.wikipedia.org/wiki/Modigliani-Miller_theorem

But anyone can see that leverage is procyclical. That's what's giving us the current amplified downside. Any business which expects to survive long-term knows that the economy is cyclical; therefore, leverage is limited practically by the need to survive a period of losses during a downturn. Graham and Dodd spelled it all out in 1934. Some folks just didn't read the minutes of the last meeting.

Companies which were using up cash to buy back shares and shrink their equity cap may have pimped management's stock options, but they are paying for it now.

So, here's my M&M corollary: when prevailing leverage ratios are excessive, there IS NO long-term.

– Juan Falcone