"Sell Your Stocks or Lose Your Job" By Jason Bodner, Editor, Quantum Edge Pro Did you sell any stocks these last six weeks?
I didn't. I also didn't recommended selling in Quantum Edge Pro or TradeSmith Investment Report.
I didn't sell out of my kids' accounts. I didn't advise my parents to sell.
In fact, I don't know a single individual investor who did sell stocks these last bumpy six weeks.
That begs the question: Who the heck is selling, then?
The answer: the world's biggest investors.
The institutions and fund managers responsible for 70% to 90% of trading volume every day.
But these fund managers are not selling stocks because they want to or because they think it's the right decision.
They're selling because they must.
It's either sell... or get fired.
So they sell, and the rest of us get caught up in the bloodshed because this is the money that moves markets.
Their forced selling from the world's biggest funds makes our stocks drop in value. It makes some smaller investors join the frenzy and sell when they shouldn't. And it makes some of the absolute best stocks in the market trade at big-time bargains.
If you go by the headlines, you might think the reason for the correction is President Donald Trump's tariff announcements. At the same time, the Department of Government Efficiency (DOGE) is slashing jobs and spending.
They are catalysts for selling, but the real reason is going on behind closed doors in offices and trading rooms around the country.
Very few people ever experience "forced selling" firsthand – only those of us who have been in Wall Street's trenches.
I have. I've been through multiple episodes just like this, such as when the dot-com bubble was bursting in the early 2000s, or when Lehman Brothers collapsed in 2008. And I can tell you – no, show you – exactly what's going on behind the scenes... The Dreaded Margin Call Scene: Jan strolls into his office, sets down his Dean & DeLuca coffee, and flicks on his monitors. Just like he's done for the last 10 years.
He came out of Goldman Sachs a rising star and founded his own hedge fund, which has since grown to $20 billion.
"StarFund" charges 2% of assets and 20% of profits to manage clients' money. Jan's firm now makes $40 million a year just for existing. If the firm has even an average year with 10% returns, it books another $40 million in incentive fees.
Life has been good to Jan, especially the last couple of years with stocks rising more than 50%. As the fund's principal, his family won't have to worry about money again, probably for several generations.
Today, however, is not so good.
It is March 4, 2025. Over the past two weeks, the S&P 500 has fallen 6% from its Feb. 19 peak. StarFund is already down to start March, and Jan knows full well that a month with no profits means no incentive fees.
His day gets worse as he checks his email:
Hi, Jan. Can you give me a buzz when you get in? My mobile is fine. Thanks, Maria.
Maria is Jan's prime brokerage contact at Goldman Sachs, the custodian of his fund's assets. Goldman holds the assets, clears the trades, and even introduces potential clients.
Goldman also offers credit in the form of margin... the villain in this story.
Jan stares out at the Manhattan skyline for five long minutes, avoiding the inevitable as long as he can.
He picks up his phone and calls Maria.
"Jan, hang on," she says.
He overhears her talking to another client: "I understand... There's nothing I can do... It's coming from above... I get it... You're not the only one getting this call today... We need this taken care of by the close."
Jan knew that call. It was a margin call.
Maria returned to the phone. "Hey, Jan..."
She didn't need to continue. He knew what she needed.
"You need me to button up?" he asked.
"Yeah. Our macro guys just revised their models for slower growth – you know, the tariffs. They have the guys upstairs a little spooked, so we've lowered our credit extension. You're an alum and an amazing client, so we're giving you more notice. The official call will come in the next week or so."
"Could you let us slide?" Jan said in an innocent, almost flirty way. Like a boy who just broke a window with a baseball.
"I wish. Hammer's coming down. Can't really do anything."
"All right. I'll get it done. How much?"
"You're running about 250 gross... I'd drop it by half or so, but I leave it to you. Gotta run... more bad news to give." Intermission: Gross Leverage "250 gross" means Jan's firm has invested 250% of the value of the fund's actual assets. The $20 billion under management was leveraged up to $50 billion through margin – money borrowed from Goldman Sachs.
Why would Jan borrow $30 billion and run at 250% leverage?
StarFund's objective is to beat the S&P 500, which was up nearly 25% last year. That's hard to beat. No one pays fund managers to simply track an index when they can do it for free.
Outperformance is what matters, and leverage is the answer. When you leverage your exposure, you outperform the market without having to do anything different.
This was going on all over Wall Street. This past January had the highest margin debt balance ever recorded: nearly $1 trillion. 
Lending to funds is great when markets are smooth and predictable.
But when things go south, the broker isn't going to get left holding the bag. They're going to force fund managers to reduce exposure and make sure they'll get their money back.
Jan got a friendly margin call from Maria. The message was clear, though: "Take down your leverage, or we will do it for you."
No fund manager ever wants his broker to start selling assets at random. Though it does happen if it needs to.
Back to the story... Tightening the Screws After hanging up with Maria, Jan got up out of his chair and went to Erin, the fund's risk manager.
"Hey. We need to take gross down to 175% in the next three days."
Erin's face said it all. That was like pulling a fire alarm in a crowded movie theater.
Regardless, her job was to reduce the firm's exposure by billions of dollars over three days. All she could do was execute the order as efficiently and calmly as possible.
Erin walked over to T.J. Schneider, one of StarFund's longest-tenured portfolio managers. She passes the message. T.J. didn't need to express how pissed off he was – Erin knew.
T.J. then combed over his book for the next half hour, figuring out which positions to sell.
Unfortunately, the best thing to do was to sell his biggest winners at much worse prices than just a couple weeks ago. As his biggest positions, that would quickly reduce gross exposure. "Damn!" he said as he handed off the sell orders to his assistant, who gave them to Mike, the head trader.
Mike now had to sell hundreds of millions in stock into a falling market. He called up his favorite broker, Gene.
"I don't suppose you have any buyers of NVDA out there, do you?"
After he was done laughing, Gene said, "Sorry, my man. It's a one-way flow today, and that's downnnnnnnnnnnnn."
Mike went to work spreading sell orders around to different exchanges. Some large and some small. This was his expertise. He started with NVDA, but he had 43 other orders to get to work on.
As Mike got to work, T.J. walked by and said, "Keep the impact low, but be done with this round by the close."
"This round? There will be more tomorrow?"
T.J. answered with his eyes as Erin moved on to the other managers. She would cycle through the "big 10" this morning, then tee up emails to the others with formal instructions. Everyone would have their marching orders by the end of the day.
The "fun" was just beginning. Big Money Will Start Buying Again Scenes just like this have played out in countless Wall Street offices over the last six weeks. In pension funds, in family offices, and especially in the estimated 30,000 hedge funds managing a collective $5.13 trillion worldwide.
That trillion in leverage has to unwind. And the unwind is always painful.
The good news is that it eventually ends...
Take another look at the table above and you can see that February's margin balance dropped by nearly $20 billion. I know from tracking Big Money in my Quantum Edge system that the biggest selling took place in March. So expect to see another drop in margin debt balances when March's numbers are released.
Being able to see Big Money flows is a huge advantage. At the moment, it tells us that institutional selling ended abruptly after March 13, which indicates that fund managers were told to clean up their margin debt by the middle of the month.
Here's how it looks in my system. Those red bars are Big Money selling stocks, while the green bars are Big Money buying stocks. The dramatic drop-off in selling is evident, even as buying remains tepid for the moment. 
Source: MAPsignals.com I wrote here in TradeSmith Daily on March 13 that my analysis indicated stocks might bottom on or around April 1. That analysis was predicated on my proprietary Big Money Index going oversold, which hasn't happened because of that abrupt cutoff in selling.
The dynamics of Big Money deleveraging and forced selling were still at work, and the S&P 500 dipped below its March 13 low in early trading on March 31. Stocks moved higher after that, and the retest of those earlier lows was on somewhat lighter volume. That also tells us that a lot of the selling has likely been done.
This has been a true correction – not just in stocks, but even more importantly in the use of margin.
Margin balances got too high, and they would have gone higher without catalysts like tariffs and government cuts to bring them down.
Tariff headlines spooked markets and analysts, but the ones to really blame are the brokers who extend credit and the clients who are addicted to it.
So, here's the main takeaway from our little trip into the back rooms of Wall Street: This correction is good and healthy in the long run.
Institutions will start buying again once they are deleveraged and as the market strengthens.
The best stocks in the market with the highest probability of making you money are those with superior fundamentals, strong technicals – even if they are beaten down at the moment – and a history of Big Money flowing in.
If you own those kinds of stocks, now is not the time to sell them. And whether you own them or not, now is the time to buy. These are the stocks we focus on in Quantum Edge Pro, and they are the ones likely to bounce the longest, furthest, and fastest. Talk soon,  Jason Bodner
Editor, Quantum Edge Pro Note from Michael Salvatore, Editor, TradeSmith Daily: Jason has recently uncovered a huge window of opportunity in the stock market.
He calls this phenomenon a "retirement accelerator window" – because it provides a huge opportunity for folks to put their financial goals on hyperdrive. His backtests show that this window has appeared only three times over the past 35 years... And it's happening again right now...
But this time, he believes the gains will be bigger and faster than ever before.
To get Jason's #1 pick to buy ASAP to take advantage of this "retirement accelerator window," click here now. | 
No comments:
Post a Comment