From observation of hedge funds strategy in the past few months, it appears to be accumulating when the market is calm and then a quick sale for profit taking. This has already happened on equity stocks early in the year and then commodities recently. The next guess would be the bond market. As investors are hungry for return but avoiding equity stocks, the demand for junk bonds increases recently. When Federal Reserve bond buying program ends in June, the impact on bond market can be exploited by hedge funds as well as market makers to manipulate the market for profit. A logical thinking would be a drop in the market. However, market participants have learned not to sell in a panic, as seen in the equity stocks and commodities market pullback. Therefore market may react with a pullback but not a collapse. Although Federal Reserve "Quantitative Easing" program comes to an end, it is likely to maintain the balance sheet and not to withdraw capital from financial market in order to revive economic activities. Looking forward, as the worry of Federal Reserve balance sheet cutback is cleared, investors will restructure the portfolio, in favor of assets purchase rather than money market.
Current market may be highly manipulative, dominated by market makers and day traders. But the downside risk is limited because at the present moment, there is no symptom of panic selling. Market makers are not overloaded with assets. Even a portfolio liquidation sale can be absorbed in a matter of days under current thin trading volume. Investors are holding with blue-chip stocks for their growth potential and dividend. Penny stocks are at higher risk when market retreats despite more attractive valuation. Investors are generally avoiding stocks. If stocks are to be considered, the safety of blue-chip stocks comes first. Pure shorting strategy are too risky for market participants because money on the sideline may trigger a short covering rally. Hedge funds used crude oil as hedging in equity stock selling early in the year and the recent commodities liquidation did not involve shorting. The coming bond strategy is to be seen.
In anticipation of above market participants strategy, the speculative investment portfolio will maintain an overall long position with day trading on short term price swing. Because of potential spike in market volatility, the leverage ratio is restricted so as not to overstretch under unfavorable market swing.
Why junk bond rally should be cheered -- and feared
Here's a markets riddle for you: What has jumped in value more than its biggest fans expected and withstood worries like slowing U.S. growth, European debt woes and even the specter of the U.S. losing its top credit rating?
No, it's not the stock market.
Stumped? It's junk bonds, a sort of IOU from risky companies thought most likely to not pay back their debt.
The Fed's policy of setting benchmark interest rates at zero and buying government securities has frustrated investors who are getting miserly interest payments on those and other conservative assets. That led many to rush into risky investments. To some extent, that's exactly what the Fed wanted. The hoped-for result is that money will flow more freely to companies and that investors will feel richer -- and that both will spend more. Bernanke's efforts were mostly designed to push investors into stocks after many pulled money out of stocks during the financial crisis. They've fled into all sorts of assets including tradable bank loans, heating oil futures, carbon-emission credits and, yes, junk bonds.
The big appeal of junk now is that safer assets are so unappealing.
So far, investors have decided to put off worrying about the risks of junk.
Count Cipolloni, the money manager who praises junk's impact on the economy, among the skeptics, too. "People are more desperate for yield than they are fearful of losing principal," he says, adding that he has been selling junk recently after buying it during the credit crisis. "They're overlooking the risk."
AP IMPACT: CEO pay exceeds pre-recession level
In the boardroom, it's as if the Great Recession never happened. CEOs at the nation's largest companies were paid better last year than they were in 2007, when the economy was booming, the stock market set a record high and unemployment was roughly half what it is today.
Executives were showered with more pay of all types -- salaries, bonuses, stock, options and perks. The biggest gains came in cash bonuses: Two-thirds of executives got a bigger one than they had in 2009, some more than three times as big.
Their decisions will be watched closely by shareholders. Government rules passed last year require almost every public company to give investors a vote at least once every three years on what it pays its executives. The votes aren't binding, but they can draw unwanted attention to a CEO's pay.
"Shareholders don't have any tools at the moment to force companies to make changes in pay, but there are plenty of companies making changes because they don't want the attention of a negative vote," Borges says.
America’s Middle Class Crisis: The Sobering Facts
"I worry that we're becoming a barbell society - a lot of money wealth and power at the top, increasing hollowness at the center, which I think provides the stability and the heart and soul of the society... and then too many people in fear of falling down."
Consumer borrowing turns around
Consumers are slowly starting to borrow again and banks are more willing to extend them credit, according to a report from the New York Federal Reserve.
And consumers and banks continued to cut back on credit cards, as about 195 million credit accounts were closed during the 12 months that ended March 31, while just 166 million accounts were opened over the same period.
Special report: What really triggered oil's greatest rout
Never before had crude oil plummeted so deeply during the course of a day. At one point, prices were off by nearly $13 a barrel, dipping below $110 a barrel for the first time since March.
Oil just doesn't fall by 10 percent in the course of a normal day, though. In commodities markets, oil is king, and its daily contract turnover, typically around $200 billion, is usually able to absorb even large inflows or outflows of investment.
During Thursday's crash, such selling locked in profits that high-flying commodities traders have been accumulating for months. Some of Thursday's rout appears to have been more a product of the wisdom of crowd computing than of widespread human panic.
"Funds were likely to take profits before June when the direct (Fed) bond purchases stop. All were eyeballing each other to see who would take profits first," said a London-based oil trader.
By the afternoon New York time, some of the world's biggest money managers thought they smelled blood. Several banks and funds seemed to be selling oil in an orderly fashion, even if the price drop was extraordinary. But could a hedge fund be struggling for survival?
"Since prices have been advancing well beyond any reasonable measure of value, Thursday's declines felt more like orderly corrections than chaotic panics. There was no sense that anyone was ready to jump from the window," said oil analyst Peter Beutel of Cameron Hanover in Connecticut.
As the Market Teeters, One CIO Sees Opportunity
With 90 percent of the S&P 500 having reported by the end of last week, earnings growth is coming in over 18 percent, well ahead of the 13 percent-plus that analysts had been expecting. While the recent slump in the tape suggests a classic "sell the news" investor response, Ghriskey says "stocks eventually follow earnings," which bodes well for equities in the longer term.
Commodity Rally Is Not Over, Strategist Says
With so much attention being focused on the sudden cooling of the formerly-hot commodities markets, it seemed like the perfect place to start.
Goldman’s O’Neill Says Investors Should Brave Fears
Jim O’Neill, chairman of Goldman Sachs Asset Management, said investors should shed their pessimism and stop hoarding cash amid prospects for a global stock rally that could start in China.
The view that “the West is in trouble” is wrong when nations including Germany, Sweden, Australia and Canada are performing strongly, O’Neill said in an interview with Bloomberg Television in Hong Kong, recorded yesterday and broadcast today.
In the aftermath of the 2008 financial crisis, investors are overly concerned at the possibility of so-called black swan events, said O’Neill, using a term sometimes used to describe unlikely occurrences with severe consequences.
“Every little problem that crops up somewhere in the world is not going to create another black swan,” he said, adding that “there’s far too much conservatism,” in terms of investors holding cash.
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