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Afternoon Note

Struggling to Gain Traction

By Charles Payne, CEO & Principal Analyst
3/29/2021 1:41 PM

The market opened lower, and it has been struggling all session to gain traction.  Considering the surge higher into the close Friday, it seems the market is stuck between wanting to move higher, but also wondering how much more pain is to come from the unwinding of Archegos Capital fund. 

The family office, run by former Tiger Management portfolio manager Bill Hwang, imploded last week after big bets on traditional media companies Viacom and Discovery unraveled in a series of major declines, each triggering additional selling.

The situation brings to mind the infamous implosion of Long-Term Capital Management.  The fund, founded in 1994 by Wall Street bond trader John Meriwether and a couple of Nobel Prize winners, got off to a magnificent start until exposure to the financial crisis in Asia and Russian took its toll.

Year

Performance

1995

+21%

1996

+43%

1997

+41%

1998

Blow Up

In addition to that exposure, the fund relied heavily on enormous leverage.  The Federal Reserve would come in with $3.5 billion to stem the tide, but the damage was done to the fund, and the overall market.

I do not think this is a repeat. But the fact of the matter is, I do not know, as family offices are opaque operations with very little regulatory rules.   

Meanwhile, more hot stocks are getting hit again. I’m not sure if its portfolio selling to meet margin call, or a sense anything considered hot on March 1st should be sold no matter the consequence.   This is revealing more and more that it’s the so-called experts that have the least conviction in positions they supposedly bought on fundamentals.

Fundamentals have not changed in any way that matches declines in many hot stocks and sectors.

The market will have to fight through these jitters.  While that’s going on, traditional safe haven sectors are higher, joined by Communication Service, which in my opinion has huge value.

S&P 500 Index

 

-0.37%

Communication Services XLC

+0.51%

 

Consumer Staples XLP

+0.48%

 

Health Care XLV

+0.34%

 

Industrials XLI

+0.09%

 

Utilities XLU

+1.02%

 

There is a lot of excessive selling going on. Let's see if buyers will emerge into the close.


Comments
Cautionary tale about advisors that guarantee to be 'right 50 % of the time" Re: I’m not sure if its portfolio selling to meet margin call, or a sense anything considered hot on March 1st should be sold no matter the consequence.


Steven D Hungerford on 3/29/2021 2:47:36 PM
Maybe some good buys!

Lorin K on 3/29/2021 6:30:26 PM
Curious about Bill Hwang...what affect does that have on his career ....

Patrick J Pedley on 3/29/2021 11:44:51 PM
Patrick Bill Hwang has had serious issues including having to pay a multimillion dollar fine.  Many firms would not do business with him for a long time but the size was too large to ignore (massive fees).  Your question is very intriguing because I read this morning that Julian Robertson would invest with his portege in part because Hwang is deeply religious and sees investing as a way of doing good. CP https://markets.businessinsider.com/news/stocks/bill-hwang-archegos-tiger-cub-julian-robertson-great-fan-invest-2021-3-1030257833

Charles Payne on 3/30/2021 6:53:24 AM
 

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