Jim Cramer, former manager of hedge fund Cramer & Co. and now CNBC pundit, is not impressed with his one-time peers.
From Finalternatives:
Jim Cramer, host of CNBC’s ‘Mad Money’, told viewers yesterday that many hedge fund strategies have been dead wrong, such as the betting on a Chinese recovery after the Olympics, TheStreet.com, which Cramer co-founded, reports…
The result of hedge funds gone bad is forced selling, he said, and at around 2:45 p.m. each day, hedge funds begin preparing for the next day’s round of redemptions by liquidating their ill-conceived positions.
‘These funds are getting killed,’ he claimed.
The vociferous Cramer also blamed fund-to-fund managers for pressuring their underlying funds for immediate redemptions, forcing managers to think only for the short term.
There are two major ironies here. First, Cramer is a former hedge fund manager. And secondly, he himself is notorious for wrongly predicting market bottoms and swings — to the point of becoming something of a contrarian indicator.
On a serious note, however, Cramer has latched on to a real trend (and we at FT Alphaville never thought we’d have to say that sentence). Late day volatility has become the norm over recent weeks, but it was not always so.
Odd Numbers has this chart, which shows the average hourly change (up or down, but mostly down) in the S&P 500 before and after Lehman’s bankruptcy:
We’re not sure it’s hedge funds liquidating ahead of redemptions that’s causing the late-day volatility. As Naked Shorts points out today, there are other market players who are also unloading assets. Or, going back to Odd Numbers, it could be basic risk-aversion in an unpredictable market:
It probably has a lot to do with the biggest bar in the first chart. Overnight volatility is even higher than last-hour volatility, so traders are probably trying to get out of positions to reduce their overnight risk exposure.
And with overnight markets like these, who can blame them?
