Roger's 1998 Short Picks Message Board

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Strategies & Market Trends : Roger's 1998 Short Picks

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To: Eric Klein who wrote (14526)	10/8/1998 11:46:00 PM
From: Eric Klein	Read Replies (2) of 18691

I received this on another group: LTC did do better today... EK, LTC bet against long term rates going down, they shorted the long bond. That's what got them into trouble. But with the collapse of the dollar, yield curve steepened real quick, with Britain just announcing a rate cut (LTC was long European bonds). So at least for today, and probably tomorrow, LTC is back on track. That's part of the reason the market had such a tremendous comeback rally. DocStone My response is: Thanks for the info. I wonder if it'll be enough to pull their nuts out of the fire? The thing that really scares me about LTC is that (correct me if I'm wrong) it is run by a couple of Nobel prize winning economists (along with 3 others, including a former Fed member). What did they win the Nobel prize for? ans. They invented the formula that is widely used to price derivatives. What did they lose all their money doing? ans. Trading derivatives. Is there a lot of derivative trading going on now? Enough to upset all the US market applecarts? ans. You betcha. What criticism is often made of these derivative pricing formulas? ans. When markets move rapidly the formulas underestimate risk.

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