Hedge Fund Wreck Rattles the Market

This is the final week of the first quarter. The quarter officially ends on Wednesday and the stock market will be closed on Friday for Good Friday.

First, the good news. That ship has finally been freed in the Suez Canal. The bad news is that a big hedge fund went kablooey last week, and we’re dealing with the aftermath. The hedge fund faced massive margin calls.

One of my first jobs in the investment industry was making margin calls. I literally called clients on the phone. Fun, eh…not so much. This happens when a client’s position has deteriorated so much that they have to do one of two things. They can either put up more cash (this is the less-preferred option) or, Plan B, they can sell the stock.

Plan B is what usually happens and that’s what happened to Bill Hwang’s Archegos fund. With the forced selling, we soon found out what stocks the fund was holding. For example, ViacomCBS was not having a good morning. Also, some of the banks that lent to Archegos were also feeling the heat. Credit Suisse was down over 10% this morning.

One of the issues in these types of events it that you don’t know who is exposed to what and the market can quickly act like a set of dominos. So far, that doesn’t appear to be happening.

The final few minutes of trading on Friday was an all-out assault by the bulls. The stock market is down a bit this morning. Industrials and staples are in the green while other sectors are mostly down.

Posted by on March 29th, 2021 at 10:30 am


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