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The sell off is across the board because, as someone put it recently, the clerks on the margin call desk don't care about valuations.

The problem has been exacerbated by the restructuring of Wall Street because the relationship between the brokers and hedge funds has changed. The brokers let the hedge funds use a lot of margin debt, leveraging up to 4 times their capital, i.e. borrowing up to 75% of the value of the stock. Now that the brokers have either been bought by banks or are turning themselves into banks, they're reducing the leverage of the hedge funds. This has caused a lot of forced selling to meet margin requirements.

The stock market has been undervalued for the last 5-6 years if you compare the yield on stocks (1/EPS) to the yield on Treasury bonds. My "universal investment theory" is that a lot of fund managers were burnt by the bubble in stocks and were looking for other ways of making money. Mortgage backed securities looked like the answer. The profit potential wasn't as high as a good, fast growing stock, but they were viewed as being riskless, so you could make up the difference by using a lot of leverage. That dog don't hunt no more.

Both of the changes bode well for stocks.
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