An interesting theory on the Bronte Capital blog about a potential reason for today's significant market downturn. The speculation is that a major hedge fund is getting margin calls (calls to put up extra collateral for lenders), and the way to meet those margin calls is to liquidate big positions in large-cap liquid stocks (i.e. the Dow). That liquidation drives down the price, which is what we may have seen today.
But what's most interesting is the comments section of the Bronte post. Seems like the speculation is that it's John Paulson's fund that's getting the margin calls. Paulson is most famous for making about $4 billion when the housing market tanked. His prime broker was Goldman, and he was on the short end of the infamous Abacus deal that got Goldman into trouble with the SEC. Paulson has been on the talk show circuit the last year or so calling for a renewed boom in the housing market and a quick recovery from recession. He's been wrong, and it looks like he made big bets on that wrong position.
Zero Hedge is also speculating that Paulson is down quite a bit.
No comments:
Post a Comment