Mohan, Any time there are big winners, bullish or bearish, there has to be big losers. True, many deals are hedged, but, lots are not, and somewhere, many players have to be without a hedge or woefully underhedged going the wrong way. And it isn't always me. <g>
You are right to look at the big NYC banks and brokers. They are lending money to floor dealers and hedge funds. Of course, they are pretty confident that AG will take whatever reckless move he has to take to bail them when the thing blows up. Except he is now faced with an all-time high in the trade deficit and higher interest rates.
I am not really as worried about the retail investors as the institutional ones. If an individual goes 30 cents under maintenance margin, he is cashed out and "thanks, sucker, who's next?" But if an institution violates margin requirements, a lot of fudging is done to make it look good. This is what happened to LTC.
I think we not only have one, but several of these disasters brewing. After all, Julian Robertson's Tiger Fund has fallen from $20 billion in assets to $8 billion. Only $5 billion was customers running for the hills. $7 billion was losses in assets. And, as much as I may call him names from time to time, Robertson is one of the smartest guys in the hedge fund business. If he is getting clobbered like this, what about the dumber players? And what about the illiquid players? Methinks there is a huge problem below the visible tip of this iceberg. |
