LePatron(dougak)@LeMetropoleCafe.com - More on Tiger - Date: 8/7/99
David Tice has served commentary at the Hemingway Table entitled,
"The Not Insignificant Possibility of a Derivative Accident".
"financial system increasingly on the brink"
"astounding-$50 trillion of interest derivatives"
"are Fannie Mae and Freddy Mac properly hedged?"
"will the flood insurance be useless?"
"the computer assumes there will be liquidity"
"another Russian-style derivative collapse?"
The following article was in the Drudge Report. We have
had much feedback on our Tiger "Bulletin". Much of
it was to say that Tiger was OK. Maybe, but my
information came from several great sources.
The one that convinced me to put that bulletin out
has given me many other tips over the past 5 months.
Everyone has panned out including ...
The Cafe is not out to spread rumors that we do not
believe to be true and I try and do my homework as best
as I can...
Our source told us that the big redemption we spoke of"was coming",
and therefore, not generally known yet. We shall see.
Drudge Report:
MARKETS FEAR HEDGE FUND COLLAPSE MAY BE LOOMING
CONCERN IS growing in the financial markets that a
major hedge fund is in difficulty, prompting fears of
a repeat of last year's crisis when the Federal
Reserve in the US had to mount a $3.5bn bail-out of
Long- Term Capital Management (LTCM) in order to stave
off a global financial collapse.
The market for swaps, complex interest-rate derivatives
which are widely used by hedge funds and the proprietary
trading desks of the big investment banks to fund their
high-risk trading strategies is, say traders, showing
the same signs of distress that was seen after the
Russian bond default last August.
This has taken the form of a widening of credit
spreads - the interest rate differential - indicative
of concerns within the market of a major default.
Spreads on 10-year swaps have widened on both sides
of the Atlantic from the early 80s (0.8 per cent) to
110 over the past few weeks. Over the past few days
the widening has accelerated.
The UK gilts swaps market is one of the most liquid
in the world and a favourite haunt of big hedge
fund players.
Tiger, the $12bn hedge fund run by New York-based
financier Julian Robertson, yesterday dismissed
as "rubbish" reports that Goldman Sachs, and Chase
had cut its credit lines. Sources close to LTCM have
been similarly dismissive of reports that it too was
again in difficulty, less than a year after being
rescued by a consortium of 13 banks including
Barclays, Deutsche and Merrill Lynch.
Other accounts have referred to a big US or Swiss
bank having taken a big hit.
Worries about big trading losses have been exacerbated
by a number of large trades in both the equity and
swaps market yesterday and on Thursday, indicative
of an unwinding of big market positions. Goldman
Sachs was reported to have unwound a big swaption
(combined swap and option) position, and was also
rumoured to have lost pounds 200m on European options.
There was talk, too, that the Fed was holding back
on raising short- term interest rates to keep one
of the big securities houses afloat.
The problems in the swaps market appear to have
initially been caused by concern about the pile-up
of corporate issues ahead of the fourth-quarter
when demand is expected to dry up because of Y2K
fears. However, over the last few days talk that
a major institution is in difficulty has come to the fore.
Some of the big investment banks yesterday admitted
privately to sustaining small losses over the past
few days but nothing that would result in a
material profits hit let alone a default.
Adrian Davis, swaps analyst at ABN-Amro, said
yesterday: "Over the past few months spreads
have been widening out because of concern at
oversupply in the bond market. However, in the
last three or four days they have really blown
because of concerns about the viability of a
financial institution."
Said another trader: "The markets are very strained.
They are very like they were last year. In these
kind of markets people will have lost money."
Although hedge funds and Western banks lost up to
$40bn when the Russians refused to honour their
GKO bonds, the real problem that brought LTCM to
the brink of collapse was the widening of credit
spreads in the the swaps and high-yielding bond
markets which blew its strategy of buying
high-yielding bonds in anticipation of yields
falling to bits.
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All the best, Bill Murphy, Le Patron |
