May 21, 2012 · 0 Comments
Check out this from Fox Business:
“I have seen several hedge-fund-type accounts liquidating various positions to make way for Facebook,” says John Glasmann of Precision Securities, a San Diego firm that specializes in IPOs. “But I have no firsthand knowledge of this to be factual as it relates to Apple.”
Independent trader Doug Monieson has heard about people selling Apple to buy Facebook shares. But he says it’s more a function of a portfolio balancing issue related to Facebook’s IPO that may be causing some tech fund managers to sell Apple.
This is interesting because what’s being described here is in, a way, a form of reverse Quantitative Easing.
When the Fed does QE, it buys assets with cash, and then that cash has to be redeployed elsewhere, thus creating a positive effect on markets through portfolio rebalancing.
In the case of Facebook, the entrance of a new must-own megacap (and it is a must own… every mutual fund, tech fund, etc. will have to buy it) prompted liquidation of other stocks.
It’s impossible to prove that this happened, but the fact that the NASDAQ 100 ETF (primarily comprised of big tech) underperformed the broader market does lend credence to it.
Worth noting too that even though the ultimate size of the Facebook float was a drop in the bucket compared to the broader market, it’s not unreasonable for the overall impact to be much larger. After all, the total size of the Fed’s QE schemes was tiny compared to the equity market moves seen in their wake. When everyone is rushing in the same direction thanks to an outside event, things get magnified.