One of the culprits that analysts point to as a cause of the falling stock market is hedge funds which have to pay back money owed to banks and cover redemptions by their shareholders.
The process may only be half way over.
According to Bloomberg, "Hedge funds are about halfway done selling securities to reduce their use of borrowed money and may unload $200 billion more to complete the process, say managers surveyed by Sanford C. Bernstein & Co. "
Despite the market recovery fueled by the Citigroup bailout today, the downward pressure from institutional sales is likely to remain powerful. Hedge funds are just one of several industry players faced with a need to cover redemptions and a rapidly falling asset base. Mutual fund companies are also being hit by customers withdrawing money. The layoffs in that part of the financial world are piling up as large fund firms have less and less capital to manage.
Until the data from Bernstein and other research firms which track hedge funds shows that selling is slowing, the market faces a push to a new bottom.
Douglas A. McIntyre