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Strategies & Market Trends : Currencies and the Global Capital Markets
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To: Paul Berliner who wrote (854)10/9/1998 10:43:00 AM
From: Henry Volquardsen  Read Replies (1) of 3536
 
Paul,

You are essentially correct. The modifier I would make is that the margin calls on hedge funds are an even larger part of the equation, particularly recently. Margin requirements are not static. Many banks and brokerage firms significantly increased collateral requirements after LTCM. The increased margin requirements forced the funds to come up with more money before prices even moved. Once prices did begin to move it started snowballing and triggering even more margin calls. This type of cascading margin call is happening in many markets at the moment. I've seen where the dollar selling has come from and I am very confident a lot of it is margin call related.

Also the mark strength is similar. There was a lot of mark carry trades out there as well and these are being squeezed at the same time.

As to the theory of this being planned by Rubin, Greenspan et al, I strongly disagree. Most of the world wants a strong US dollar, they need strong US demand to suck in their exports. I believe, strongly, that US politicians have not supported the dollar for domestic political reasons. They are very aware that it is the hedge funds that are being obliterated at the moment. They have a very recent memory of being pilloried in public opinion for the LTCM 'bailout'. If they were to act to stop the dollars fall they would be open to renewed criticism that they are acting to save hedge funds. I believe they, and the foreign central banks, will allow this to run its course and then reiterate their support for a strong dollar.

Henry
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