Can you smell that?
Smells like fear.
If you can’t, maybe you can see it instead.
That’s the smell and sight of hedge fund laxbros getting fired in the June 2021 hedge fund blow up.
When they get canned due to performance issues, their bosses sell everything they were managing — whether it’s up, down or sideways.
And man, have there been some performance issues this year… HFRX’s Hedge Fund Index is showing an average return of 3.6% versus 11.3% for the S&P 500.
Source: HFRX, Bloomberg
I’d fire my money manager too if he was that bad.
So if you want to see exactly how serious Friday’s downturn is for the hedge fund blow up, there’s an easy way to tell…
All you have to look at is the S&P 500 volatility index (also known as the VIX).
When the VIX goes down, the market goes up.
And you can see as plain as day that this blip isn’t even as serious as this past month’s…
Which wasn’t even as serious as the spikes back in February and March…
Which wasn’t even as serious as the January short squeeze…
Which wasn’t anywhere near as serious as this past November’s mini-crash.
Need more confirmation? No problem…
There’s actually another side to all of those hedge fund panic-selling trades to which we need to pay attention.
You see, when a fund sells what it perceives to be “risk assets,” it does so in exchange for “non-risk assets,” which is little more than a fancy turn of phrase for U.S. Treasurys and cash.
Well, sure enough, look at the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) Friday morning, making a new four-month high.
Or the U.S. dollar, coming off of recent lows…
Both of these assets have been in a bearish trend for almost a full year now, and these levels are simply lower highs within that longer trend.
So the thing you want to keep in mind here is that once the dust settles — starting Monday morning…
All of this “safe haven,” “non-risk asset” capital will begin to be re-deployed into the market.
When that happens, if you’re long Treasurys and cash instead of STOCKS…
Then you’re going to have the worst case of FOMO anyone has ever seen.
So long story short… Days like the 2021 hedge fund blowup are where you BUY THE DIP.
All the best,
P.S. Future of Wealth Head Trader Lance Ippolito just revealed how he spots trades with the potential to return upward of five times his initial investment every single month.
Not only does this strategy protect his portfolio from long-term volatility, but it gives him the chance to bank massive winners in just 24 hours.
We’ve never seen anything quite like this before.
With Lance’s Weekly Blitz Alerts, we can throw old buy-and-hold strategies out the window. And forget spending hours reading through pages of earnings reports and squinting at stock charts.