Feels like whiplash

Big down days followed by big up days - it's getting hard to know what is going on.
I hold firmly to my belief that this is being driven mainly by
1. Technical noise tied to interest rate jitters
2. End of the quarter re-positioning
3. Hedge fund margin management

I am mostly concerned about the latter. Did you know that Bear Sterns had only $600M in one hedge fund but used it to borrow $6B? They are suffering from the institutional equivalent of margin calls and had to cash out of stocks to cover their positions.

Now imagine that there are 300 similar funds (there are actually quite a few more). Oh yes, it is that ugly. Goldman Sachs has seen their CDO bond sales drop from $20B to $3B. Nobody wants this garbage and someone has to cover. What happens next is the banks have to re-state the bonda that they hold on their books - massive write downs.

Now imagine that all of this covering by institutions is leading in 2 directions
1. Cashing out
2. Borrowing more
The Fed's reluctance to drop interest rates (and the increase in rates internationally) makes borrowing more expensive.

And bond fund gurus like Bill Gross have turned Bearish - nobody wants these bonds.

Again, should be good news for the stock market except for the need to cash out of stocks to cover bad bond positions.