Master said:
About 4-5 weeks ago, we had a debate about whether a correction was in sight or not for the I fund. We even discussed whether it was about 10% or not, etc. Then, everybody saw the fallout beginning the 2nd week of May. I had just pulled out of the I fund for a few days, and came back into the fund again at the worse day possible (ouch). I pulled the trigger too early (once again! :embarrest: ). If we had crystal balls, or even listened to my own advise!
Anyway, the truth on the I-fund is that the economic fundamentals overseas have not changed significantly over the past 3 weeks, but panic took over the market because of the news of the potential international effect of the US economy slowing its growth. As the Columbia grads eloquently played in the short film "
Every Breath Bernanke Takes", the markets are hyperreacting to Bernanke's remarks until its easier to understand how to read him ("We'll be watching you").
http://www.youtube.com/watch?v=ipJTqCbETog&eurl=&watch2
I still think that in the long run, and even, at the end of the year, the I-fund and other international securities will be the best bet. Nevertheless, it has been a very depressing 3 weeks.
Master, luv your attempt at applying mid 20th century flat earth financial commentary to a 21st century round earth financial world.
Here's a link to get my point across. I strongly encourage you and most posters on this site to sit back and take the magnitude of this article to heart. Another way to state this article in using a Cliff's Notes version is that we may be going through a world wide liquidity drain whereby equity prices, regardless of fundamentals, might collapse due to central bankers not ramping their collective money supplys' fast enough. This is the one reason that I am contemplating making a 100% transfer to the G fund either in the morning or after closely monitoring the situation for the next few days. My average cost per share is approx. $13.66 so, I can assure you for me to even give transferring a thought, might suggest to you that my comfort level has been shaken. This article highlights why Tom has had so much difficulty trying to call a trend, the derivative markets control the equity markets via interest rate bets by bond speculators. The price of equities have nothing to do with the underlying company fundamentals. Good luck all.
http://news.independent.co.uk/business/news/article571737.ece
Man heightens hedge fund fears
Flagship fund losses fuel fears for smaller players. Bolton warns correction could take months
By Andrew Dewson
Published: 25 May 2006
Man Group, the world's largest quoted hedge fund manager, fuelled fears yesterday that some of its smaller competitors may be in serious trouble after revealing that some of its futures funds have made substantial losses this month.
The disclosure prompted speculation in the market that some smaller hedge funds may be suffering even greater losses and could be forced to unwind highly leveraged positions, causing share prices to spiral lower.
The news came as the FTSE 100 dropped another 91.6 points, closing down 1.6 per cent and reversing more than half the gains it made on Tuesday after Monday's plunge in shares.
Anthony Bolton, Fidelity's highly respected fund manager, yesterday warned the stock market "correction could take months rather days". Speaking at the Securities and Investment Institute Mr Bolton said: "I think it could be the end of the bull market".
Man Group confirmed that its flagship Man AHL Diversified Futures fund lost 3.7 per cent last week alone, and had dropped4.5 per cent so far this month. However, it is still showing a net gain of 31.9 per cent in the year so far. Shares in Man Group, one of the best blue-chip performers this year, closed at 2,195p, a fall of 16p.
A hedge fund analyst, who declined to be named, said Man's poor performance should be viewed as a short-term movement due to volatile equity markets, but also warned investors to expect a bumpy ride over the summer. "This is a managed futures fund, and this sort of fall, while it does not happen every week, does happen from time to time. The AHL fund has certainly seen fluctuations like this before but the market has clearly absorbed this news pretty well," he said.
Man's statement came as rumours swept the market that one unnamed hedge fund was nearly forced into liquidation yesterday after a bet on Equator Exploration, a small oil exploration and production company with assets in West Africa, went badly wrong. The fund was thought to have been forced into dumping its stake in the company, sending the price tumbling 33 per cent to 132p. Traders said the situation highlights the dangers of smaller hedge funds taking big bets on illiquid stocks.
Many hedge funds have been betting huge sums on a complex commodity and currency strategy, involving short selling the dollar while at the same time buying gold and platinum using borrowed yen. Any funds in these positions in the last two weeks will have sustained heavy losses as commodity prices have tumbled and the dollarstrengthened.
Rumours of a smaller hedge fund in deep financial trouble have accelerated as global markets have suffered their biggest falls in more than three years. Emerging markets have been the worst hit, although London , with its heavy weighting in commodity-based stocks, has been the worst-affected major market.
A failing hedge fund is likely to create a distressed selling situation when a fund is forced to sell stock into a falling market because it is in danger of breaching its financial obligations. Most hedge funds borrow a large proportion of the money that they invest, using their existing capital as collateral against borrowed funds. When markets move substantially against these positions they have taken, a fund may need to sell assets to cover margin calls, like when the hedge fund Long-Term Capital Management collapsed in 1998, causing weakness across global equity markets.
Market-makers also blamed Sets, the electronic trading platform used in London, for the increased volatility seen in recent years. In the past, when market prices were created by a quote-driven competing market-maker system, prices could be "held up" in the face of strong selling pressure. That is no longer possible, as the electronic system executes trades without any human interference.