tag:blogger.com,1999:blog-2335748440449035592.post2724057184874952308..comments2008-09-05T17:12:36.832-04:00TraderMarkhttp://www.blogger.com/profile/06241756200482130281noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-2335748440449035592.post-1910149813168965312008-09-05T17:12:00.000-04:002008-09-05T17:12:00.000-04:00Why can't it be both ways?<BR/><BR/>Short financials/long commodities x LEVERAGE was "the play" for a long time<BR/><BR/>People were complaining about the naked shorting, then the govt stepped in - disallowed naked shorting and drove these stocks up which seemed to set off a firestorm in commodities down.<BR/><BR/>If you are margined and need to make margin calls, you sell what you can. If someone is 20:1 leveraged it does not take much to get you into mode where you "have" to sell things. <BR/><BR/>If you're financial bets (shorts) start to explode on you, and you are forced to raise cash what do you do? You sell your leveraged longs. <BR/><BR/>I think it's all connected and in no way is it "having it both ways"<BR/><BR/>I don't know about the cash levels of hedge funds as I don't have historical tables.<BR/><BR/>But how many $3-$4B funds levered 20 to 1 does it take to really cause hell? When they are forced to sell, other hedge funds pile on as shorts, quant hedge fund computers start to do their things, people get stopped out - no uptick rule, etc. Its a cascading effect.<BR/><BR/>Look at the market cap of the stocks involved - many in commodity land are $3-$15B. Hence it doesnt take a lot of money to really begin to wreck havoc in a group of 150 stocks. All the coal stocks put together are not the market capitalization of 1 large sized commercial bank.TraderMarkhttp://www.blogger.com/profile/06241756200482130281noreply@blogger.comtag:blogger.com,1999:blog-2335748440449035592.post-24962545440030745122008-09-05T16:47:00.000-04:002008-09-05T16:47:00.000-04:00Couple of things perplex me about these comments on leverage. 1) reports yesterday showed that Hedge Funds had record cash 2) Hedge Funds do the large majority of shorting. Doesn't seem like we can have it both ways. Just last month we were complaining about the naked shorts (hedge funds) that beat down BS and LEH, but now we're complaining that they have too much leverage on the long side and now stocks are going down b/c they are unwinding long bets. My guess is that we've just got isolated funds on both sides of the fence. All in all though, we've got record amounts of cash in money market funds. Once the market decides it wants to rally, it won't stop for a long time.Stonefoxcapitalhttp://www.blogger.com/profile/00583540825602471042noreply@blogger.com