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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: russwinter who wrote (1163)10/1/2003 8:27:04 AM
From: el_gaviero  Read Replies (2) of 110194
 
<<<Why aren't people running in a stampede to the narrow exits? >>>

Yes, there is plenty of froth, but I think the problem is a bit more structural.

A large amount of stock is held by fund managers. These guys deal in big blocks. They know that if they start unloading they will tank the market, and drive down the value of shares they still hold in their mutual funds or retirement accounts. They also know very well that they will lose their jobs if their funds tank. They are trapped and know it, and see themselves as having no choice but hang on. They are 100 percent behind Greenspan – in fact, are probably Greenspan’s main constituency. Borrow. Lever. Pump. All of this is fine with them. They are for anything that will get them across the Valley of Death into some kind of vaguely conceived recovery on the other side. In that sense, they are like a man headed for bankruptcy, willing to borrow at any rate because of lack of anything to lose, fully aware that if he goes belly up, he loses everything anyway.

I even think that there is a vague sense of community among fund managers. They know they are dependent on each other. But still, at some point, a “sauf qui peut” mentality will break out. (Is that how you say that in French? “Que se salve quien pueda” in Spanish – i.e. “let the person who can save himself.”)

When this “save your skin” mentality erupts, then you’ll see bodies piling up at the exits.
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