Monday, February 11, 2008
four selling groups driving loan prices
At the start of a downturn --Momentum Sellers: momentum based selling is the first to appear. --Risk-based sellers: next group to emergy. Cut positions to reduce future losses. This type of selling activity is more prolonged than the momentum-based activity. --Fundametnal Sellers: sell based on company performanc exceptions. --Price Sellers: the last group. sell due to an inability to hold position based on market price. Can resutl from margin calls, structural finance price triggers or other types of forced liquidations. --It is said that current market slump is driven price selling. e.g Total Return Swaps linked to Market Value SF vehicles are unwinding and margin calls are forcing sales. Force selling did occur in 2007, but the actions were not the priamry drive of marke tprices as they are today. --the selling was less sever as it was primarily margin call driven and not in any wasy tied to structured product liquidations --turning point is close. --Technical pressure were not perceived to be the dominating facor. yet this type of selling potentially creatres an extremely negative feedback loop as lower market prices that result from the forced sales can in turn drive anotehr marke participant into a forced selling position.