Hedge Fund Liquidation

Hedge Funds are starting to liquidate amid falling commodity prices, massive amounts of hedge-fund redemptions and seizing up of the credit markets.  Tontine Associates plans to liquidate two STOCK hedge funds after both lost more than 2/3 of their value this year.  

The only options for raising cash for these funds is to sell the funds' investments privately or push the companies it has a majority share in to sell itself.  

This may be the start of the unwinding of many funds.  I have already seen the CDO market come to a halt and maybe T can speak to the Hedge Fund activity lately. 

The bottom line is this cannot be good for stocks.  When stock funds unwind they must sell their holdings (stocks).  This will put a downward pressure on the market and will do so with large volume. 

Two plays here:  

SDS -- Double short the S&P for the time being.  Wait to see what happens with the funds and world market and hedge your bets.

VIX -- If these funds do start selling their holdings the volume will be through the roof.  While the VIX only measures volume on options, it is still a good indicator and should move with the increased volume in the market.

--Brad