Not Your Father's Market

[boont]

Mutual Funds Abandon Stock Market as Volatility Jumps (Update4)

Most Since 1938

By Eric Martin and Alexis Lydia, Bloomberg News March 26, 2008

"Daily changes of 1 percent or more in the Standard & Poor's 500 Index, the benchmark index for American equities, have occurred on 54 percent of trading days this year, according to S&P. That's the most since 1938, as hedge funds and other speculators use borrowed money to magnify returns from rapid-fire trading.

One consequence is that volume on the New York Stock Exchange has ballooned to an average 1.75 billion shares a day, the highest on record and 11 percent above last year. More than half of the 10 busiest days in U.S. options markets have occurred in 2008, fueled by strategies designed to profit from rising volatility."

Apart from this quote what I'm hearing is that the hedge funds are basically moving the market themselves. With leverage giving them Trillions of Dollars to invest they alone are able to rachet the market up or down for financial gain.

This is not "your father's stock market", so to speak. This is a different animal.

boont

[al_bundy]

i've read that half the daily trading volume on the NYSE is hedge funds

i remember reading Charlie Gasparino's When Genius Failed. i was expecting LTCM to invest in some crazy things, but in the end they bought a bunch of bonds returning very low rates but leveraging yourself 100 to 1 can give you some nice returns

same thing with Cramer. his stock picking record wasn't that stellar. but with 3 to 1 leverage he easily beat the SP500

[Patrick]

Someone's got to be on the other side of all these trades. Who's taking it on the chin?

[heyyou]

Some other hedge fund.

[boont]

"This is how hedge funds and the big proprietary trading desks on Wall Street make their money," said Peter Cohen, president of Massachusetts-based consulting and venture capital firm Peter S. Cohen & Associates. "For the individual investors, they are completely out of the loop and along for the ride."

That I don't like. That is not investing, that is gambling.

boont

[RockOn]

Originally Posted by boont

Apart from this quote what I'm hearing is that the hedge funds are basically moving the market themselves. With leverage giving them Trillions of Dollars to invest they alone are able to rachet the market up or down for financial gain.

This is not "your father's stock market", so to speak. This is a different animal.

boont

I know market timing doesn't cut it with the ER'ers, but I did make significant money trading trends in the last 30 years. Today the probability is higher for a trend to change than to continue. Several people have studied and found that result. It reached the point that every idea I tried for timing didn't work. Luckily I stopped before the damage was significant. Maybe I was just lucky trading but it seemed to me that following trends did work. At least my account value shows it did for many years. I could have been wiped out in the last 5 years if I continued what I was doing. I don't try to time the market anymore, even though I do try to make some timely trades on out of favor assets.

I think the OP is the reason. Very insightful and correct I believe.

[chinaco]

There is a fairly constant source of money coming into the markets from pension funds, 401ks and IRAs. Some try to time. But much of it is just put into the market through DCA from small investors.

There are quite a number of traders also. They will be back.

I think part of the problem is the sustained weakness of the USD. Plus, there are other viable investments in the world competing for the money.

Stay diversified (with some international exposure), rebalance, and sit tight.

[ziggy29]

Those who have a cast-iron stomach, diversify their holdings, rebalance their assets occasionally and are putting new money into the market on a regular basis are taking advantage of the volatility the hedgies and others are adding to the market.