by Tyler Cowen
on October 28, 2008 at 4:26 pm
in Current Affairs
Dow up 889.
Hedge Funds unwinding due to the VW short squeeze. You have to unload something.
No, it is more like every other week.
They’re short VW, and likely short most of the financials as well, very poor performing banks (think NCC were some of the best performers of the day, while BUD was only up 2% which I interpret as means short focus hedge funds and risk arb trades were unwinding. They were net short US equities so they go up as they reduce leverage to face the VW margin call.
I believe in the semi-strong efficient markets hypothesis. That is, around 2pm EDT today, something happened to make the fair value of equities 8% higher.
Nelsonal – If a hedge fund gets a margin call, is it the same equity to stock ratio that triggers an individual account margin call? For individuals, that means that leveraged portfolio net equity has declined to 25% or less of the portfolio, down from a 50% minimum initial equity. If true, that means at least a 50% loss (from 50% to 25%), or is it not against the whole hedge fund assets?
Drudge?? Really? How about 538.com?
LIBOR OIS & TED spreads ended the week down 21% and 27%CP Yields on 90day paper increased to 4.9% on Firday, posting a 14% decrease for the week
5 year spreads on A-rated corporate bond increasing 4.9% and B-rated bonds increased 3.7% for the week.
Andrew, I think things are so bad we should go back to slime-based government, like back when Vladimir Slimen ruled in 30,000,000 BC. I hear you, I hear you, slime rule doesn’t work, much like it hasn’t ever worked in the past, but that won’t stop the march of the brainless two-celled slimes. After all, we’ve never had a *real* system of slime rule.
No, most hedge funds are on portfolio margin which takes their equity, option, and futures position and nets the risk of all of them together to set a margin.
Here’s optionsexpress’ portfolio margin page:
Indiana Jim, your causation arrow is pointing in the wrong direction.
Comments on this entry are closed.
Previous post: What does a credit crunch look like?
Next post: Sentences of persuasion
Email Tyler Cowen
Follow Tyler on Twitter
Email Alex Tabarrok
Follow Alex on Twitter
Subscribe in a reader
Follow Us on Twitter
Marginal Revolution on Twitter Counter.com
Get smart with the Thesis WordPress Theme from DIYthemes.