It Isn't Over Yet

After loosing about 5% last week, European markets have opened about 1.5% down this morning. Dow futures are calling for a 100 point drop at the open. So, although we got a bit of a bounce out of the huge drop last Tuesday, it looks like we are going to still go down for a while. The German market has been particulary hard hit, loosing 5.5% last week and is now down 2.1% in the first 10 minutes of trading the morning.

The Yen carry trade does seem to been unwinding with the Yen gaining against the major currencies very rapidly. The Yen is up over 2% against the Euro during the Asian session overnight, indicating that people are getting out of those risky carry trades. Indeed, risk aversion seems to be the name of the game everywhere, with selling continuing everywhere. The dollar is actually recovering a bit, except of course against the Yen.

But where is the money going? This is hard to tell. Gold is dropping, oil is dropping, commodities are dropping. Money is being changed into Yen, dollars, and Euros, in that order. Even the Pound is dropping. The hedge funds are likely shorting the market at the expense of 401K holders and the like. Once they decide they have made enough money, they will buy back the stocks they are shorting, and the bloodletting will end.

The question is how much is "enough" for hedge fund mangers? Looks like we will soon find out.