The Smart Money

Market remains volatile and dangerous. The Dow declined 790 points in 5 sessions, amounts the biggest consecutive drop since March. Well, the street always wants to get 10% corrections before they can start buying (8% now, be careful on what you wish for!), is this time any different than March sell-off? Is this another hard to come by "buy the dip" opportunity? I give you both sides of the story and let you be the judge:

Housing sector is definitely getting worse, hedge funds, even big banks who made bad bets are in big trouble now. Sub-prime mortgage credit problem is spreading, a lot of Wall street talking heads are talking about recession. Herb Greenberg is excited, usually it's not a good sign. If you still have any doubt, please check the link: The Subprime Mortgage Market.

On the other hand, the investing guru I happen to admire, Warren Buffett recently bought shares of Bank of America (BAC). If we are heading to a recession, I don't think a smart guy like him would buy the worst sector (Financial) at this moment. Today was the last day of the hedge fund "redemption", those who made bad bets probably were force to sell their shares to satisfy their client's requests. Well, Friday is the option expiration day, I heard the hedge funds are selling puts heavily, betting the market will turn around. Are they making a big mistake again?

See this comment from Hard Right Edge.: "Many hedge funds sold puts ahead of options expiration, believing the worst was over. These folks are making the kinds of trading mistakes that rookies are taught to avoid in their first weeks of market education."

Please make your comments,

Market Swimmer