Why Are Hedge Funds Really Cashing Out?

It looks like Macke is onto something. In this market, cash is king. Scrambling for safety and bracing for renewed deterioration in the global economic outlook, investors pulled a net $43.3 billion from all equity mutual funds so far in October while pouring nearly $60 billion in money-market mutual funds.

"It is extremely unusual to see this drawdown, not only in stock funds but bond funds," Conrad Gann, TrimTabs' president and chief operating officer, said in an interview. "Investors are putting their money in savings accounts, insured checking deposits and any fund that has a 'Treasury sticker' on it -- anything else isn't being considered," he added.

That sentiment is echoed all over the Street. According to the latest Merrill Lynch survey half of all mutual fund managers are now overweight cash while the Wall Street Journal reports, “In recent days, Steve Cohen has moved about half of SAC Capital Advisors’ $14 billion in assets into money-market funds and other short-term securities.”

Also they say, “Israel Englander, whose Millennium Partners also manages $14 billion, has moved $6 billion into cash, while John Paulson also has about 70% of his $35 billion in cash or cash equivalents.

Why are hedge funds fleeing the market?

*****(Scroll down for insights) *********


For insights we turn to celebrated contrarian investor Bill Fleckenstein.

“Even if the credit crisis has been solved stocks aren’t necessarily cheap if the recession that I think we’re going to have is as brutal as I think it’s going to be,” explains Fleckenstein.

Forget Lehman and frozen credit markets, the main reason behind the recent slide in the stock market might be a result of something else entirely.

“The market may well be re-pricing itself for tougher economic times,” adds Fleckenstein. “In that case people can do what they want but they won’t make the market go up because there’s tough times coming and that's being priced in.”

How would you trade? “I wouldn’t be bullish nor would I be short,” replies Fleckenstein.

You can find the entire interview with Bill Fleckenstein at the end of the Word on the Street segment.

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Trader disclosure: On Oct.15, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Seymour Owns (AAPL), (MER), (MSFT); Seygem Asset Management Owns (RIO); Seygem Asset Management Is Short (PBR); Najarian Owns (AAPL) And (AAPL) Puts; Najarian Owns (C) Put Spread; Najarian Owns (GS), Is Short (GS) Calls, Owns (GS) Put Spread; Najarian Owns (MS) And (MS) Puts And Is Short (MS) Calls; Najarian Owns (NOK), Is Short (NOK) Calls, Owns (NOK) Puts; Najarian Owns (RIMM) Call Spread; Terranova Owns (AAPL), (EXM), (FCX), (FTO), (MA), (NOV), (POT), (X), (VLO); Terranova Owns December Dollar Index Futures;

Terranova Is Co-Portfolio Manager Of The Virtus Diversifier PHOLIO; Virtus Diversifier PHOLIO Owns (IGE), (DBC), (DBV)

Terranova Is Chief Alternatives Strategist Of Virtus Investment Partners, Ltd.; Virtus Investment Partners Owns More Than 1% Of (ABD), (ARE), (BIG), (CNW), (OFC), (DLM), (DRH), (DLR), (EPR), (EXR), (FL), (SLB), (LNET), (MAC), (DBC), (DBV), (SKT), (UA), (BLV), (VV), (CLB), (GWX), (IGE), (FSMXX); Virtus Investment Partners Owns Seagate Tax Refund Rights; Virtus Investment Partners Owns Seagate Technology Tax Refund Rights; Virtus Investment Partners Owns More Than 1% Of Shares Of Incitec Pivot Ltd.; Virtus Investment Partners Owns More Than 1% Of Shares Of Essex Property Trust Inc.

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