Wealth Watch: Is Forced Selling Causing Downward Pressure?

Wealth Watch: Is Forced Selling Causing Downward Pressure?

March 15, 2022

From the desk of Vance Howard:

I have traded through about every market you can imagine. Up, down, sideways, straight down, kind of up, etc., but I have been perplexed as to why this has traded a bit different from the start of a waterfall selloff in January.

But, I found out why. Since the start of the Russian invasion of Ukraine there has been a lot of selling. There are a lot of Russians who have invested in our markets, along with large banks like Citi, JP Morgan, Chase, etc., as well as some very large hedge funds and private equity shops, and some mutual funds and fund companies like Fidelity and BlackRock. These funds who have been doing business with the Russian oligarchs’ money are being asked to leave their institutions before they are required to leave. Which means these companies and funds are doing mandatory redemptions of equities and bonds and sending the Russians’ money back to them in cash or Rubles, I guess. In other words, forced selling. It looks like at least $300 billion of selling in our markets and the overseas markets. $300 billion is a very large number to say the least. That is why every time the markets rally just a bit the selling starts back up; they are being forced to sell. Many institutions are in a bad situation and the easy answer for them is to redeem the Russian money and return it to them. This is where a lot of downward pressure is coming from.

We are having to walk, or trade as you might say, a very tight rope. Once the Russian money is liquidated this will ease the selling. I’m not saying selling will not continue, but it will ease the pressure.  There are still a lot of negatives, like 40-year high inflation and of course the war in Ukraine.

We are holding about $1.7 billion in cash or very short-term T-bills. To put it bluntly, we have a lot of purchasing power. The selling from the Russian money will dry up soon because forced selling creates way oversold markets that could create a once-in-a-decade deal.  For now, it is important to be patient and let the markets chop around. I don’t know what the future will bring, but if history is any indication I would not be surprised if the markets close up in the last half of 2022.

Vance Howard

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