With stock markets crashing around the world, it is important to understand who is selling, besides the routine panic-seller. Two other things are also pushing the markets down strongly. First, the stock markets are the only source of new liquidity right now, as the credit markets are frozen. If you think you’ll need cash to weather the recession, you can only get it out of the stock market. Second, hedge funds have been hurt particularly bad, the worst in 20 years. Usually, clients can only get out of a hedge fund quarterly, not daily like stocks. When they got their 9/30 statements, a record number of clients elected to get out, which forces the hedge fund to sell stock to raise cash. Even more important, a great many hedge funds have reportedly received margin calls. The frozen credit market is crushing the stock market.

These are strange times indeed . . . but NOT the time to sell!