Mish's Global Economic Trend Analysis Message Board

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Strategies & Market Trends : Mish's Global Economic Trend Analysis

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To: mishedlo who wrote (40503)	11/2/2005 11:44:19 PM
From: LLCF	Read Replies (1) of 116555

Nice analysis... essentially they're 'short a straddle' in options speak, and if they can "buy high and sell low" (ie. quiet markets) to lose less than their premium decay, they do well... if not........ OOOOOPS! It should be noted bull markets typically provide a good environment via liquidity and "continuous markets" for them to do their 'dynamic hedging' optimally. This has pretty much without exception been the case during the entire interest rate decline over the past 25 years, with a few well publicized hicups. My understanding is that both of these factors are typically noticeably absent in bear markets... to say nothing of some of hellish scenario's where other markets move in tandem (foreign withdrawl via dollar or other problems}. I can't imagine there won't be a massive train wreck at some point. Someone is short curvature in the mortgage market to the tune of every fixed rate loan receives a free put option. DAK

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