Hedge funds tracked by Goldman Sachs Group Inc. offloaded U.S. equities for a seventh straight day Monday, June 13, as the equity rout worsened amid concerns that the Federal Reserve will need to rush its inflation-fighting campaign at the risk of causing an economic recession.
Those concerns were not unfounded as the Federal Reserve on Wednesday, June 15, raised benchmark interest rates three-quarters of a percentage point in a move that equates to the most aggressive hike since 1994. Ending weeks of speculation, the rate-setting Federal Open Market Committee took the level of its benchmark funds rate to a range of 1.5-1.75 percent.
The dollar amount of selling over the last two sessions during the streak has exploded to levels not seen before, sending S&P 500 into a bear market. As stocks swayed and Treasury yields peaked, the fast money rushed to double down on bearish wagers.
The equity selloff gathered up momentum after the hotter-than-expected reading in consumer prices on June 10 dashed any hopes that inflation has peaked.
In a note issued Tuesday, June 14, Goldman said short sales at its hedge-fund clients rose "aggressively," with broad-based investing strategies or macro products dominating the flows.
"They're saying the market’s going down further. Sentiment is just pretty much in the toilet," said Benjamin Dunn, president of Alpha Theory Advisors.
At Monday's close, the S&P 500 slipped more than 20 percent from its January peak, reaching a bear market for a second time in as many years. The benchmark index dropped 0.3 percent in New York.
Three Arrows founder stirs fresh concerns with vague tweet
Meanwhile, a vague tweet by the founder of Three Arrows Capital, an influential hedge fund that has been liquidating crypto holdings as prices plummeted, has stirred fresh concerns in an already shaken industry.
"We are in the process of communicating with relevant parties and fully committed to working this out," former Credit Suisse Group AG trader Zhu Su tweeted from his confirmed account without giving additional details. Zhu and Three Arrows co-founder Kyle Davies didn't reply to requests for a comment.
Zhu and Davies are believed to be among the world's largest crypto holders and any signal of stress on their operations would be unwanted news for industry bulls. Three Arrows was evaluated in March to be handling around $10 billion in assets.
Three Arrows is known to hold stakes in a diverse range of different crypto assets, although information on its trading strategies is inadequate. It also owns more than five percent of the Grayscale Bitcoin Trust, according to the latest available regulatory filings.
Three Arrows is among the famous players in decentralized finance, a busy arena of digital commerce whose trademark is the use of cryptocurrencies as collateral for major loans and leveraged wagers. When the market goes through unstable periods and token values drop, those positions can be automatically paid in rapid succession, forcing hedge funds like Three Arrows to either spend more or face being annihilated.
Mike Novogratz, the billionaire founder of Galaxy Digital Holdings Ltd., stated earlier this month that he anticipates two-thirds of crypto hedge funds to decline during this market rout.
Crypto markets had already seen two prominent eruptions since early May, agitating an asset class that was under pressure from narrowing monetary policy. Initially, the Terra decentralized-finance ecosystem crashed when an algorithmic stablecoin that was a key part of it collapsed from its dollar peg. Nearly a month later, crypto lender Celsius suspended withdrawals on a platform where it gave high returns, mentioning a need to "stabilize liquidity."(Related: Bitcoin investors continue to take a bath as leading cryptocurrency tanks)
Three Arrows was among the financiers in a $1 billion sale earlier this year of Terra's Luna cryptocurrency, the sister token of the TerraUSD stablecoin that lost nearly all of its value in May.
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This video is from The Patriot Streetfighter channel on Brighteon.com.
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