Safe Haven – Following a near melt-up in share prices at the beginning of this month, markets have suddenly become unstuck. Rattled in part by disappointing results from the likes of Intel, GeneralElectric and Citigroup, as well as jitters over Iran and sharply higher oil prices, many investors are looking to take money off the table and head for safety.
Unfortunately, there are signs that some exits are becoming blocked. What that means is, those looking to cash out in the months ahead may soon discover that they are trapped — with little or no way out.
Take last week’s debacle in Japan. When word of an investigation at former high-flyer Livedoor unleashed a wave of selling by small investors, volume surged. That forced officials at the Tokyo Stock Exchange to halt trading early because of capacity constraints, despite the fact that the internet company’s sub-$10 billion value paled in comparison to the $4 trillion capitalization of the overall market.
Then there are the problems in Germany. Since last month, two real estate mutual funds, with assets totaling $8 billion between them, have been forced to temporarily shut their doors to prevent runs by nervous investors. Under that country’s rules, funds investing in property need only hold five percent of their assets in cash — no doubt a problem if too many decide, as they have recently, to bail out all at once.
Doors are closing elsewhere, too. According to a recent report, one $12 billion U.S. hedge fund — among others — recently started enforcing longstanding policies designed to penalize investors seeking to withdraw more than a predetermined amount at one time. The reason for the sudden intransigence? Fears that investor nervousness over poor performance will spur a mass exodus.
