Stay defensive from now

What lines ahead of us for the interest rate ? Concerns the Fed may curtail the bond buying, known as QE, helped push the yield on the 10-year Treasury note as high as 2.61 percent from as low as 1.63 percent in May. The carry trade effect caused the market turmoils in both US and Asian market last week as Chinese market hit 4-year low. And over the weekend, William Dudley, president of the Federal reserve bank of NY came out to clarify what Ben has said last week. However, we all know, Bernanke really meant what he said, the tapering of bond purchase will become reality in the coming 6-12 months. He just spoke in a way to test the market and found out only 5% correction happened and became stabilized with assistance from Central bank of China. So in short, a risk averse investors do not want to allocate to bonds in your 401k starting from now if you have not done so previously.

The money outflows from SAC may trigger sell-offs in some illiquid assets

Both SAC and its founder Steven A. Cohen have been at the epicenter of a federal investigation into insider trading for several years. However, the situation is getting worse recently as the Justice Department's case against the firm and Cohen appears to be ramping up.

Several employees have been charged with securities fraud, and the fund agreed to pay the SEC $614 million to settle those charges. But some clients became spooked two weeks ago after SAC told investors it had officially stopped cooperating with the government. Sources say many of SAC Capital's long-time investors, including the Blackstone Group and Morgan Stanley, are taking their money and walking away from one of the best-performing hedge funds of all time.

Most of time, when the prime brokers or institutions pull themselves out from a hedge fund, the fund must liquidate some of its assets for redemption. MS, on behalf of its investors, invested about $180 millions into SAC. And Blackstone had positions about $550 millions. So a total amount of $730 m will be taken out in a short time. This is still not the end, and sometimes it is almost certain this is not an end. A ripple effect of redemption driving up by investors who run fast to get themselves out may rush in within a short-time window. We will watch the progress closely in the following days.