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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: William H Huebl who wrote (74919)	3/14/2007 10:10:28 AM
From: Real Man	Read Replies (1) \| Respond to of 94695

BK is not just possible, it's inevitable. It may not be now, though -g- I think chances are a bit higher now than in the past corrections. The inevitable BK will take a form of a LARGE and FAST decline, probably bigger than 1929 or 1987. The reason is "portfolio insurance" (selling puts short at low volativity) has been a very popular strategy for 5 years in a row now. We all know how this could end. -g- The very same strategies are blowing up as we speak in the bond derivatives AND currency (yen carry) derivatives. So? Will the players feel a bit of a cash crunch? These are LTCM strategies, only the size of the players now is 300 times the size of LTCM. These are the strategies that have lead to LOW spreads on junk, and declining Yen. Yen is rallying, junk spreads are getting wider, fast. Effectively the strategy shorts volativity. 2 large down days could mean it's failing. The Fed WILL inject cash, as they did Yesterday, and 2/27. But, given the size of that market, some day it may just not be enough. Usually, the failure of these strategies is tied to lack of liquidity, since these are arbitrage strategies, in a way. They work 99.9% of the time. 0.1% of the time all profits and all the capital, and more gets wiped out. The reason is, when they fail, the blow-up tends to have a large positive feedback loop, which enhances it.