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

To: James F. Hopkins who wrote (28777)	9/24/1998 4:59:00 PM
From: HairBall	Read Replies (1) \| Respond to of 94695

James: And to think, some people will never be convinced the game is rigged! <g> Regards, LG

To: James F. Hopkins who wrote (28777)	9/24/1998 5:03:00 PM
From: jim m.	Read Replies (1) \| Respond to of 94695

Thursday September 24, 2:52 pm Eastern Time READ LAST 2 PARAGRAPHS Hedge funds -- the high rollers of the markets By Andrew Priest LONDON, Sept 24 (Reuters) - Hedge funds -- the oddly misnamed investment firms which have become notorious for placing huge market bets -- have a key but potentially dangerous role in global markets. The decision late on Wednesday by U.S. authorities to get involved in the rescue of one of the world's largest hedge funds shows how important these mysterious firms have become for regulators and financial leaders. Analysts said the $3.75 billion bank bailout of Long-Term Capital Management (LTCM), as brokered by the Federal Reserve Bank of New York, was vital to avoid huge losses at banks which in turn could have led to sharp moves in all kinds of markets. The hedge fund industry is estimated to total $300 billion, but their use of bank borrowings, or leverage, means their exposure to markets can be even larger. ''If you allow a forced liquidation of such a large hedge fund's major positions then you could have a disastrous effect on global markets,'' said Nichola Meadon, managing director of Tass Management, a consultant for the hedge fund industry. ''Losses would cause a domino effect through the hedge fund industry not to mention the banks and securities houses who hold similar proprietary positions,'' said Meadon, based in London. Here is how it works: -- Wealthy private individuals or institutions invest money in a hedge fund, which has been set up to trade markets aggressively. Many traditional funds, such as pensions and mutual funds, are far more conservative. -- The hedge funds develop close relationships with banks, which value the heavy turnover generated by these market specialists. -- The funds, when they trade, borrow money from the banks and take positions in the markets. -- If the trade goes favourably, there is no problem. If it goes the wrong way, a bank will call on the hedge fund to put up more money behind the transaction, referred to as calling in a margin. But markets are so shaky these days that banks have turned cautious. ''As volatility has increased over recent weeks, lenders have increased the cushion, or ''haircut,'' they require to continue running the positions with hedge funds,'' said John Leonard, banking analyst at Salomon Smith Barney in London. As markets have fallen, the fall in funds' capital has meant they have had to close out positions to meet margin payments, adding to the selling pressure on the markets. More than three-quarters of hedge funds recorded losses in August with more than a quarter falling over 10 percent, according to Managed Accounts Reports, a U.S. hedge fund consultancy. Analysts estimate LTCM, a bond market arbitrageur, held positions totalling $100 billion or more by mid-September, supported by capital of only $500 million. The fund's capital was more than $4.8 billion in June. ''Running large, heavily leveraged positions...makes (hedge) funds the weakest link in the financial system and that link appears to have been broken,'' said Adrian Davies, senior bond analyst at ABN Amro in London. Tass's Meadon said not all hedge fund positions are fully collateralised. The terms vary according to the nature of the relationship between the hedge fund and securities firms. ''The leverage provided by counterparties is anything from gentle to exceptionally generous,'' she said. Hedge fund losses can send shockwaves with alarming speed. Sohail Jaffer, chairman of the London-based Alternative Investment Management Association, said trading in emerging markets showed this all too clearly. ''As hedge funds with leveraged positions have liquidated to meet margin calls from banks, this has had a cascading effect through the global system,'' said Jaffer. Of the 3,000 or so hedge funds in operation -- the vast majority based in the United States -- the most affected by the current global turmoil are emerging market and global macro funds. The guru-like status of many fund managers such as Quantum's George Soros and LTCM's John Meriwether has meant investors have flocked to their global macro funds, which invest in all kinds of assets worldwide. A proprietary trader at a London-based investment bank estimated the assets of the largest macro and emerging market funds could total around $50 billion to $60 billion. With leverage, the market exposure of these funds would be more than $500 billion, he said. Raising the spectre of the crash of 1987, Leonard of Salomon Smith Barney said hedge fund losses had the potential to snowball. He stopped short of predicting such a catastrophe, but said LTCM's problems were by no means unique. . Next Previous

To: James F. Hopkins who wrote (28777)	9/24/1998 5:11:00 PM
From: yard_man	Respond to of 94695

>>I'm not sure they should have done anything.<< If I lose a few grand on some options or a risky stock -- you'd make it good wouldn't you? <ggggg> Jim, Do you know for sure they were short selling our market? I had the impression that some of these losses were from overseas and some were interest rate sensitive losses not just equities. If you know where the actual positions are hinted at, would you post a link? I'd like to know more.

To: James F. Hopkins who wrote (28777)	9/24/1998 5:19:00 PM
From: yard_man	Read Replies (1) \| Respond to of 94695

From NY Post. I don't think they lost it shorting our market. >>The extent of Long Term's trouble started to be known a few weeks ago when the firm confirmed that it had lost $1.8 billion in August. <<

To: James F. Hopkins who wrote (28777)	9/24/1998 6:09:00 PM
From: yard_man	Read Replies (1) \| Respond to of 94695

>>Long-Term Capital has trading contracts based on securities worth nearly $1 trillion, an investment banker close to the talks, told the Post. The fund, like many hedge funds, uses a complex computer-based strategy to invest in bonds and currencies from around the globe. Earlier this month, Long-Term Capital said it had lost $2.5 billion or 52 percent of its net assets, in trading so far this year. Market sources told the Post some of the losses were related to the Russian bond market and the defaulting of ruble currency hedges by Russian banks. <<

To: James F. Hopkins who wrote (28777)	9/24/1998 7:40:00 PM
From: Darth Trader	Read Replies (1) \| Respond to of 94695

Who was saying gold was not involved? smh.com.au

To: James F. Hopkins who wrote (28777)	9/24/1998 7:41:00 PM
From: HairBall	Read Replies (2) \| Respond to of 94695

James: Check out the Mutual Fund Cash levels! marketgauge.com Regards, LG

To: James F. Hopkins who wrote (28777)	9/24/1998 11:07:00 PM
From: NickSE	Read Replies (1) \| Respond to of 94695

Article on the FED's role in the bailout. People were surprised at how fast the FED acted, well they didn't act all that fast, ( this was planed for at least two weeks) there is no way it could happen without collusion. ANALYSIS: LONG-TERM BAIL-OUT REINFORCES GREENSPAN EASE HINT By Steven K. Beckner WASHINGTON (MktNews) - The Federal Reserve's involvement in a bail-out for Long-Term Capital Management late Wednesday spoke as loudly as did Fed Chairman Alan Greenspan earlier in the day about the likely direction of U.S. monetary policy. The Fed has to be concerned indeed about the stability of the financial system and the strength of the economy to go to the lengths it did in brokering the $3.5 billion rescue for the troubled hedge fund. The Fed is minimizing its involvement, essentially claiming the New York Federal Reserve Bank played the Dutch uncle and merely provided a venue for 16 Wall Street firms to meet and hammer out the aid package, we are told. As New York Fed spokesman Peter Bakstansky put it, "We facilitated the meeting. We wanted to learn more about the exposures and the flows of funds and to what degree they might present a potential for systemic problems and also to help participants in the marketplace resolve these issues." Bakstansky said Greenspan "was kept aware" of the discussions under New York Fed auspices. But while there is no Fed money involved, the Fed's hands are all over the bail-out. It is questionable whether it would have been pulled together so rapidly in the Fed's absence. By contrast, recall the Fed's pointed refusal to assist Drexel, Burnham Lambert during its dismal denouement in 1990. As Drexel was going through its downward spiral, Greenspan was heard to say that he would "bail out the banks because I have to, but I'll be damned if I'll bail out Drexel." The Fed pulled the plug on the king of junk bonds and leveraged buy-outs to prove that not every financial institution is "too big to fail" and that there is a limit to the "moral hazard" the Fed is willing to propagate. Not this time. Not in this climate, when financial stability is already a bit shaky and the economy looking increasingly vulnerable. Ironically, the bail-out was being put together even as Greenspan was telling the Senate Budget Committee his concerns about the economy have grown and all but told the panel that a rate cut is on the way. The Fed's helping hand to Long Term Capital Management only underscores the Chairman's message. economeister.com