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Sometimes in a close football game, when the team with the ball has a small lead, and with only a few minutes left, they will run out the clock. They can use the maximum amount of time before, during and after each play, to burn off as many minutes and hold onto their lead.

This strategy will not work in Basketball, Soccer or Hockey, it only works with Football — and as the WSJ reports this morning, with equities.

For 2012, the Dow Jones Industrial Average is up 11.1% this year, the S&P500 is up 16.1%, and the Nasdaq has gained 22%.

Mutual Fund managers sitting on big gains have plenty of macro reasons to move away from equities — Asia has softened, Europe is unable to resolve their crisis, and even China is facing economic  difficulties. Iron Ore, Copper, and Crude Oil are retreating, sending an ominous warning about the economy.

But from a strategic game theory approach, its not the macro issues that are giving them pause — its the desire to lock in gains and bonuses before the year ends, perhaps even before Q3 ends.

One group NOT sitting on big gains are hedge Fund managers: They have missed 2012′s equity. HFRX Equity Hedge Index is up a mere 3.5% this year, lagging the S&P by an astonishing 14% (total including dividends). Perhaps they may pile in and drive markets higher.

Regardless, lots of investors have to be wondering, I am paying 2&20 for what?


 Moving to Cash?

Source: WSJ

Category: Hedge Funds, Investing, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

6 Responses to “Running Out the Clock on 2012 Stocks”

  1. bonalibro says:

    To make money when the market drops, of course. Everyone knows it’s long at the tooth. Why else is would they be lamenting the lack of small investors virtually every time I look at the financial pages? You never hear that kind of talk when it’s bottoming out, do you?

  2. [...] Will mutual fund managers with big gains "run down the clock" on 2012?  (TBP) [...]

  3. dead hobo says:

    BR offered:

    This strategy … only works with … as the WSJ reports this morning, with equities.

    This is one of those sayings for the masses who think Wall Street is populated by masterminds who know all, see all, and act in concert. Rather, it’s only a tidbit that sounds good and is something for the unwashed masses to consume.

    1st: most of Wall Street is algos chasing stocks. They exploit volatility.

    2nd: History from the past several months clearly demonstrates that, in the absence of a liquidity crunch, equity prices on average won’t budge very much at all.

    3rd: Falling oil prices are probably causing a few margin calls. Unlike a few months ago when this occurred, stock prices are holding firm. Higher volume days keep prices at current levels.

    4th: The above observations tell me that there is no selling pressure, as game theory for asset managers says it is better to hold and explain a small gain than to be in cash and miss a move. Excuses are free bust cash costs money.

    5th: All it will take is a little good news and to the moon, Alice for a few more percent on the equity indices. Maybe end of quarter window dressing is on the way later this week.

    6th: Anecdotal proof is above in that BR apparently is aghast that the S%P is down almost 1/2%. It used to take an almost 2% move to make this particular graphic appear.

    I’m still in and holding firm. With all the central bank liquidity, it would take a massive shock to bring the markets down 7%, which used to be somewhat common and considered a buying opportunity.

  4. gordo365 says:

    Running out the clock will work until it doesn’t. I’m guessing that when it becomes apparent that the capital gains tax is going up – there is going to be more selling than buying.

  5. Someone still has to have money to push stock higher. It could be the hedge funds, but I’m guessing we’re almost done for the current rally.

  6. dead hobo says:

    gordo365 Says:
    September 24th, 2012 at 10:44 am

    I’m guessing that when it becomes apparent that the capital gains tax is going up – there is going to be more selling than buying.

    Good point, but I don’t think prices will be affected much. Wash sales provisions only apply to capital losses. I don’t think there is a wash gain law. Thus, owners can sell and buy back immediately and take the long term capital gain at a low rate and adjust the basis to current market value. Capital losses will be better off with a higher tax law if a net loss is encountered.