Today an awesome 11 Billion shares were traded on the NYSE. I’m not sure how the record volumes are calculated, but that would be about a billion shares more than the previous record I know of. Surprisingly, the Dow only finished down 128 points.

Hedge funds are still unwinding. Yves Smith at Naked Capitalism asks Are Hedge Fund Margin Calls Leading to Stock Rout?:

But some believe that hedge funds are also liquidating stocks. And this research note claims that some prime brokers have arbitrarily tightened their margin requirements, This is not only plausible, but it has happened before.

Yves goes on to claim that rumors suggest the biggest margin calls are due on the 13th. If that’s the case, Monday could be another volatile day. I’m curious what the volume will be (though not a market holiday, Columbus Day is usually a light trading day).

CNBC tried to goad several talking heads into calling today the bottom. Since I have nothing to lose, I’ll go on record claiming today was not the bottom. Everyone is still looking to sell the rally. Except me. I was looking to sell my puts today but was prevented from doing so by an incompetent broker. I would love to be all cash for a while.

Random Aside

There’s a tie in the last 24 hours for “Scariest Thing I’ve Read.” Both are about socialism, involving both major political parties:

I found this via this. Obama is going to be our next president. I don’t know many people who believe otherwise. However, socialized medicine, socialized pay (fair pay), and protectionism (“fair trade, not free trade”) are going to make economic recovery very slow. I sincerely hope that we get some gridlock in Congress while Obama is president.

The other was found here. In it, Todd Harrison quotes an anonymous source:

“Under our Constitution and/or the International Emergency Economic Powers Act, the President has the right to suspend constitutional rights – including the Contract Clause of the Constitution – and to block transactions and assets.

In my opinion it is becoming rather apparent that the actual and pending debt defaults are growing large enough that the CDS liabilities triggered by these defaults will overrun the world financial system. We can argue whether from a philosophical standpoint the current financial markets should be allowed to disappear, but considering the social upheaval of such an event, philosophy will likely fall on deaf ears.

I suspect that Bush / Paulson / Bernanke may have no choice but to use their power to invalidate all Credit Default Swap contracts not held by holders of the underlying debt securities. These specs could then be given a right to assert claims against the under a statutory structure. This would re-establish parity between assets and liabilities and deleverage the system on the back of a few people who probably would be burnt at the stake if they were identified.”

Imagine you are a university endowment or pension fund that has invested a large amount of money in a hedge fund. That hedge fund chose to bet against the subprime crisis by buying CDSs. Imagine that all of the potential gains are wiped away by Paulson deciding that institutions writing insurance policies that they can’t afford to pay are more important than you. Those gains probably offset some significant losses. Everyone seems willing to sacrifice hedge funds, forgetting that they may be invested in them indirectly (very few people are invested in hedge funds directly, and they know who they are). This is like the amount of people that call for more taxes on Exxon, not realizing that a majority of retirement accounts collectively own a majority of Exxon: increased taxes just mean decreased gains in the retirement accounts.