Liquid Tide

When I'm drivin' in my car
And that man comes on the radio
And he's tellin' me more and more
About some useless information
Supposed to fire my imagination
--Rolling Stones

The amount of cash raised by hedge funds over the past few weeks is stunning. Due either to redemptions, margin calls, or lack of conviction, many large hedgies are sitting on 50% cash levels or higher.

The massive amount of risky assets that fund managers needed to sell to obtain these cash levels goes a long way towards explaining the depth (and correlated nature) of market declines we've seen.

An interesting situation now exists. Severely oversold markets. Extremely high hedgie cash. Five weeks till end of year.

If this market begins to lift and instills a 'lil end-of-year performance anxiety among fund managers, then we could see an explosive rally as hedgies perceive themselves under invested, turn their hats around, and scramble to start buyin' 'em.

The stuff of 1000+ point Dow days...

There are many sparks that could ignite such an upside explosion, such as the incoming administration's aggressive economic stimulus plans currently under construction.

There's an old axiom that markets tend to follow a path that frustrates most participants. As such, it's easy to visualize a scenario where investors, now that much of their risk has been shed, are whipsawed as prices sprint higher.

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