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Strategies & Market Trends : Mr. Pink's Picks: selected event-driven value investments -- Ignore unavailable to you. Want to Upgrade?

To: Terry Thomas who wrote (4234)	10/16/1998 6:43:00 PM
From: Muhney	Respond to of 18998

Terry, LTCM had a huge short position in US Treasuries and a huge long position in foreign treasuries...wrong side on both. I have a theory that the FED was prepared to lower rates 50 bps in Sept. but after hearing from some of the large money center banks learned that would be catastrophic for LTCM. I think the fed agreed to lower rates 25bps..allow LTCM to cover and maybe go long US Bonds (hence the incredible rise in long bonds, and an inverted yield curve) and then lower another 25 bps before the next FOMC meeting. If LTCM was forced to liquidate in Sept due to margin calls or lack of liquidity it could of been an apocalyptic event for the capital markets. I have had this theory since the last Fed meeting...but it is just speculation. I still think LTCM and other hedge funds have some big issues to overcome. Regards, Muhney