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Market's Patients Need Their ‘Drugs': Investment Chief

As the stock market selloff accelerated late Thursday, I spoke to a bullish fund manager and a bearish hedge fund manager, both of whom told me they saw opportunity as the Dow approached its worst close since late 2008.

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On the one hand, the bull said he was picking up bargains and targeting stocks that had fallen by more than 10 percent in Thursday’s session. I asked him if this is going to be a once-in-a-lifetime buying opportunity. "The fifth in the last 18 months?" I asked, having a little fun with him. Completely unfazed, he assured me that trading conditions like these are a good opportunity for big returns.

The hedge fund manager, who had a difficult July, is short the market and, naturally enough, now expects a much better return for August.

A number of reasons have been put forward for the current selloff. Mohamed El-Erian, the CEO of Pimco, wrote on CNBC.com that the economic slowdown, the crisis in Europe and a hangover from the end of quantitative easing were behind the selling.

One chief investment officer who spoke with CNBC.com on Friday agreed with the final point and said the flight to safety we are witnessing is all about the end of QE2.

“We have been cautious for some time,” said Ashok Shah, the CIO of London & Capital.

“The patient has been on drugs and kept alive by QE. Once the drugs where taken away the patient got sick. If you don’t turn the drugs back on then the patient dies,” said Shah.

Asked when he believes the drugs will be turned back on, Shah said the banking system is the key to answering that question.

“When the banking system gets into trouble again and capital ratios come under pressure, the authorities will have to act and pump in more liquidity,” said Shah .

Given the political uncertainty facing Washington and the euro zone I asked Shah where this would come from. “The Fed” was his response.

“We heard a couple of days ago that the authorities are planning to deal with this when they return from their holidays on September 1, but what about August?” Shah asked.