My Stock Winners

It was a bumpy ride for U.S. equities this week and by today’s close most of the major indices closed slightly higher on the week. After last week’s rout, it was no surprise that the best performing index this week was the Russell 2000, which recouped 4.4% (+33.36) to close at 788.78. In all fairness, it was the most oversold of the four we report on last week.

The S+P500 tacked on 1.4% (+20.58) to close at 1453.64, while the NASDAQ Composite gained 1.3% (+33.64) to finish at 2,544.89. The Dow Jones 30 Industrials only managed to gain .04% (+57.63) and ended the week at 13,239.54. Stocks picked up after an early sell off today, as the European Central Bank and the U.S. Federal Reserve both injected money into a world banking system that is still coming to terms with what no one wants to call in the U.S. mortgage and hedge fund markets.

Last week it was Bear Stearns, this week’s bad news centered on two Goldman Sachs hedge funds getting whacked with word out today that Countrywide Financial may now be on the ropes. That news and more like it has recently has finally proven enough such that this country’s elite investors are finally beginning to unravel their hedge fund positions.

Market-neutral hedge funds utilize considerable leverage to generate a return, being 100% long and 100% short both at the same time. When investors suddenly request liquidation to pull in their capital, losses can often be exacerbated. It reminds us of the old adage, leverage up and leverage down. While this market rewarded leverage, it appears the tables are now turning.

Needless to say, when the President of the U.S. is quoted in the newspaper as saying there is enough liquidity to absorb a correction in the stock market and everything should work out okay, we don’t feel comforted. It’s also probably what pushed markets lower today before they lifted into the close. While we hate to say it, the trend is your friend and despite this week’s pause, let’s say, to reflect, the trend ain’t lookin’ real good lately. And yes, we’d love to be proved wrong on that.