zerohedge.com / by Tyler Durden / Feb 21, 2017 1:00 PM
Simply put, the massively overcrowded hedge fund herding into US equities has created a crisis situation. With liquidity levels at record lows, the market will be unable to smoothly absorb any concerted selling pressure from large money managers.
“When hedge funds get spooked about something and they all delever, there are going to be small pockets that get disproportionately hurt,” Altshuller said.
“Certain stocks are down 20, 40 percent with no apparent reason. Others catch the fear bug and start selling.”
There’s safety in numbers, Bloomberg’s Lu Wang notes, until a stampede starts. That’s the theory underlying a study of hedge fund holdings by Novus Partners Inc., which sought to calculate how easily the market could absorb concerted selling by large money managers. Using an analysis that turns mainly on how much volume is occurring in stocks favored by professional speculators, Novus says liquidity is at an all-time low.
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