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Strategies & Market Trends : Thai Funds -- Ignore unavailable to you. Want to Upgrade?

To: alan lewis who wrote (89)	2/27/1998 2:25:00 PM
From: peter michaelson	Read Replies (1) \| Respond to of 107

Alan: Thanks for your posting. I look forward to this conversation. Overall, I notice mostly the level of confidence you appear to have in your convictions. Do you have any concerns that you might be over-confident, or have you been at this spread strategy for long enough to induce that spreads ALWAYS come back around? I have been at this strategy for only about a year now. In early July 1997, having been at it only several months, when TTF and TC premiums suddenly went to 40% and 50%, I jumped to the conclusion that this would be a short-lived phenomenom. I quickly and carelessly created arbitrages with TTF and TC on one side and Thai-Euro and Siam Selective on the other - involving about 1/3 of my total portfolio. I was in such a hurry I didn't even realize that Schwab's commission on SSG would be USD0.04 per share (reduced to 0.03 on negotiation), or about 3% at the time. My principle concern was getting the position immediately, thinking that rationalization would commence very soon. Then, over the months, the spread didn't rationalize but became incredibly irrational (especially TTF), I became even more (much more) gunshy. Although my head told me that all would be OK in the long run, emotionally I was a bit shocked. I have not been comfortable with the executions in London, and being gun-shy anyway, have not reduced or increased the position since. Prior to July I had been working, successfully, the TTF/TC spreads and I continued to do so. For several months I was clearing consistent profits, usually shorting TTF and longing TC. The TTF/TC arbs worked well until early January 1998 when TTF premium went over 100%, and then the TTF NAV began to out-perform the TC NAV. About 25% of my portfolio got caught in that misfortunate turn of events. I'm now trying to work out of the positions at a reduced loss at a TTF/TC premium spread of 15% or less. Do you think I should wait until the premium spread disappears completely? Emotionally, the TC/TTF position was down about 28% of total capital invested for several weeks, but is down only about 11%. I fear going back to the big loss. Intellectually, I know that at some point the spread will disappear entirely, but perhaps not before it increases again and who knows how relative NAV will perform. I don't see too many compelling alternative investments, except the Korean ADR's, for which I have enough liquidity anyway. I continued with the TTF/TC arb because of the information and executions. I can trade quickly, watch the prices real-time and transaction costs are very low. These are confidence builders as well as economic advantages. The London positions have improved substantially in the last two weeks also, with the decline in TTF and TC premiums. The London arbs are currently down about 2%, plus cost of capital. Still waiting and wondering on those. I get tempted to put all the pain behind me and close out the position, yet I have to think that the spreads will rationalize sometime. What is your advice? And, if you don't mind, tell me something of your experience, so I have more context for your thoughts. Best regards, peter michaelson