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<DIV><FONT color=#000000 size=2>All,</FONT></DIV>
<DIV><FONT color=#000000 size=2> A good week for my
portfolio mostly due to my large DELL position, although the other positions
were up a little. Looking at the Dow Jones Industrial Average (DJIA) I
expect more of the same for the upcoming week. I use CandleVolume charts
and had the DJIA breaking out of its Short Term Down Trend Channel (STDTC) on
Wednesday, pulling back to the top of the STDTC Thursday, then moving up again
Friday. I realize that you don't get the breakout if you use a standard
OHLC bar chart, but that's why I use the EquiVolume type charts, I trust signals
that consider volume better. I don't think we are out of the woods by any
stretch of the imagination, but I do think we have a high probability of moving
to the top of the Horizontal Channel which I have around 8750 on the DJIA.
I'm going to commit the rest of my cash to another position. I'll
definitely tighten my stops and seriously consider closing any open positions
when/if the DJIA gets to 8700. Right now I still have stock positions in
DELL with a target of 72 and a stop at 60 3/4, RDC with a target at 22 and a
stop at 10 3/4, TRV with a target at 72 and a stop at 37 3/4, and WWW with a
target at 18 and a stop at 10 3/4. I also added some TRV Jan2000 50 LEAP
calls (LRVAJ) to leverage my TRV position. I'll close the LEAP position
when I close the stock position.</FONT></DIV>
<DIV><FONT color=#000000 size=2> This week I want to add
another high risk, high profit potential, bottom fishing, turn around
candidate. Since it looked like the Internet stocks were taking off again,
I wanted a stock in that group, but a lesser know one. My pick was my old
favorite EggHead.com (EGGS) which used to be EggHead Software that treated me so
good just a few months ago. I always like to revisit old favorites, but
this one is speculative and not for conservative traders <G>. EGGS
changed their name and closed all their EggHead Software stores. They now
sell software and other items direct from the Internet.</FONT></DIV>
<DIV><FONT color=#000000 size=2></FONT><FONT size=2>
EGGS at 8 1/8 is in a Short Term Up Trend Channel (STUTC) with the top at 10 3/4
and the bottom at 7 1/4. It set an all time high of 29 1/8 on 7/13/98 in
the last big Internet run, then collapsed to a low of 5 1/2 on 9/1/98 during the
Internet stock pullback. From there, it moved back up breaking out of its
STDTC on good volume Tuesday. It continued up Wednesday, then pulled back
on Thursday and Friday to the bottom half of its STUTC near its breakout
price. The fundamentals are good for an Internet stock. The
price/sales is at 0.74 and there is no debt. The earnings are negative but
internet sales have been increasing faster than expected. I'll open a long
position Monday. I'm looking for a big move on this one so I won't set a
target, but I'll set the initial stop just under the STUTC at 6 3/4 and move it
up whenever I can.</FONT></DIV>
<DIV><FONT size=2></FONT> </DIV>
<DIV><FONT size=2>Jim</FONT></DIV>
<DIV><FONT color=#000000 size=2>
</FONT></DIV></BODY></HTML>
</x-html>From ???@??? Sun Sep 27 23:05:57 1998
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From: "Lionel Issen" <lissen@xxxxxxxxxxxxxxxx>
To: <metastock@xxxxxxxxxxxxx>
Subject: Re: Hedge Fund Discussion
Date: Sat, 26 Sep 1998 10:28:55 -0500
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Tim:
Thanks for this posting.
I guess that our top bank officials, top investors, top money managers have
reached their level of incompetancy.
Lionel
-----Original Message-----
From: TKruzel <TKruzel@xxxxxxxxxxxxxxxx>
To: Metastock-Users-List <metastock-list@xxxxxxxxxxxxx>
Date: Friday, September 25, 1998 10:28 PM
Subject: Hedge Fund Discussion
>For Guy Tann and the rest of the list,
>
>Guy, like you I do not know about hedge funds. I took the following text
>from the
>Omega forum. So please do not attribute any of the following discussion
>to me.
>Obviously, I cannot answer any follow up questions.
>
>The following text consists of 3 e-mails that centered around the recent
>LTCM
>fiasco. I do not know any of the people who authored these e-mails so I
>cannot
>vouche for the accuracy. I did find the discussion interesting, however,
>and so
>I thought you might also.
>
>I separated each of the e-mails with two lines of
>========================.
>
>Regards,
>Tim
>
>P.S.
>I think that Rajesh should continue to post his Elliot commentary. At
>least it
>relates to the markets and trading. I certainly hope that the people who
>criticized
>him were not the same ones who blathered on and on about Bill, Monica,
>and the
>baseball homerun conspiracy. Now THAT was a waste of bandwidth (on a
>TRADING discussion forum).
>
>=============================================================
>=============================================================
>
>I'm certainly no expert on hedge funds, but I've read everything I could
>get
>my hands on over the past few days about them, and I now feel both
>better
>and worse about the whole situation.
>
>The good news is I think the meltdown scenario a lot of people are
>claiming
>will happen as the derivitives owned by failing hedge funds are unwound
>is
>greatly exaggerated. People are wondering which fund after Long Term
>Capital Management (LTCM) will need a bailout next. It appears LTCM
>really
>was the "worst of the worse," simply because they invest almost
>exclusively
>in bonds. Unlike most other assets, there is apparently no legal limit
>on
>the amount of leverage one can obtain on bond holdings. If you have a
>bond
>portfolio with a face value of $1,000, a bank can loan you $1,000,000+
>with
>only those bonds as collateral (incredibly stupid, but legal). LCTM
>therefore was employing a much larger amount of leverage than most hedge
>funds.
>
>The other thing to remember is that most of these derivatives employed
>by
>hedge funds were hedged, therefore losses on one side should have been
>offset by gains on the other. What has cost the funds so dearly is that
>in
>certain cases the party or institution on the other side of the hedge is
>not
>honoring their agreement (Russian banks...). Somebody on the list
>already
>pointed out very accurately that these funds shouldn't have even been
>entering hedge agreements with entities that were on very shaky
>financial
>grounds to begin with (Russian banks...), and therefore posed a serious
>risk
>of default. The good news is that the defaults seem to be fairly
>limited
>to just a few areas (as of right now...) , primarily in Russia and
>Malaysia,
>where currency trading has effectively been shut down.
>
>The last piece of good news is I think the quick intervention we saw
>this
>week by large financial institutions on behalf of LTCM was a smart move.
>Recent history has clearly showed that indecisive, half-hearted
>responses to
>global financial problems only end up making them much worse. I would
>rather see the parties involved overreacte now than do nothing.
>
>The bad news is in how this situation was ever allowed to happen, and
>what
>will stop it in the future. This part of the story really has me pissed
>off. Tim Morge is absolutely correct in saying one of the appeals of
>hedge
>funds is that there is very little regulatory control over them
>(especially
>those based offshore). However, there is supposedly PLENTY of
>regulatory
>oversight of the financial institutions that lent LTCM the money to go
>on
>their leveraged bond spree to begin with. How in God's name did these
>lenders not see this coming, and where the hell were the banking
>authorities
>and accounting firms that watch these lenders?
>
>Let's not forget that the Asian meltdown began over 1 1/2 years ago.
>You
>would think these people would have started pouring over the books of
>their
>borrowers to see what their overseas exposure was. Call me crazy, but
>I'd
>like to think that a hedge fund with only $4 billion in hard assets but
>over
>$90 billion worth of financial commitments would have raised some red
>flags.
>People shouldn't just be fired over this, they should be shot.
>
>I find it even more reprehensible that Greenspan and the Fed had to get
>involved to begin with. Some people take this as a sign of how the
>serious
>the problem is. I have a different view. I take it to mean that John
>Merriwhether of LTCM first went to these banks to bail him out, and they
>told him to go take a long walk off a short pier. He would've never
>gotten
>Greenspan involved unless he had been totally rebuffed on his own. A
>lot of
>people are speculating there was some kind of quid-pro-quo involved,
>like a
>promise from Greenspan to lower interest rates. Nobody knows the truth
>except for Alan, but I sure hope he didn't promise to overlook their
>past
>sins. Remember, most of the lenders who ended up giving LTCM money
>ALREADY
>had large amounts of outstanding loans to LTCM. An audit of their books
>may
>have sent a few people to jail (and should).
>
>It's bad enough that probably no one will ever get held responsible for
>this, but now Congress is going to hold hearings on hedge funds. Great,
>the
>same people who can't balance their own checkbooks with the House Bank
>are
>going to solve the hedge fund problem.
>
>The good news is I think the solution is pretty simple- TOTALLY BAN all
>leveraged investments in emerging markets. Want to short the dollar?
>Use
>all the leverage you want. Want to short the Thai Baht? Put up 100% of
>the
>money. Any lending institution providing leverage for a third world
>trade
>should be dissolved. These markets are simply incapable of dealing with
>the
>massive flow of money (both in and out) that hedge funds throw at them.
>They may grow at a slower rate because of this, but they'll be better
>off in
>the long run. Hedge funds should also have to report within 24 hours
>any
>leveraged investment they've made. If a hedge fund has a large
>leveraged
>position in a stock I own, I want to know about it so I can reach the
>exits
>first if I read their Brazilian bond trade has gone bad. They might
>have to
>sell the stock just to meet a margin call.
>
>=============================================================
>=============================================================
>
>Yes, you would think that bank regulators would be attuned to these
>problems.
>In practice, I assure you that the people that are overseeing the use of
>the
>bank's risk allocations only find out about the incredibly stupid
>overuse and
>abuse of leverage by fund managers when there is a problem.
>
>Let me start with a small example. I trade cash currencies. Sometimes I
>am
>active, sometimes I go a month without doing much. The clearing house
>where I
>have the majority of my accounts has a 24 hour cash currency desk. I can
>do cash
>deals there of easily 25 X leverage per trade of my ending account
>balance
>today. My account balance changes depending on my market activity, since
>I don't
>get adequate interest on my funds on deposit.
>
>Now, that cash currency desk is filled with young currency traders. I
>don't have
>any friends on that desk and their spreads are too wide [The reasons are
>fake,
>but the example is valid]. So to keep me a happy customer, the clearing
>firm/bank also lets me have EFP and cash currency rights, with no money
>on
>deposit with three other clearing firms/money center banks. And they
>also let me
>have EFP limits with two other FCMs that are not attached to any bank.
>They give
>me this nice treatment because I have been a great customer with the
>firm for 20
>years. And when I was managing large amounts of money, I did business
>with them.
>I like them, they like me.
>
>At each of those places I am allowed to trade at about 25 X my closing
>balance
>as of today. The limits haven't changed for several years. Now, imagine
>what
>would happen if I went on a crazy spree and began recklessly using those
>lines.
>Maybe I lost a bunch in the Globex session on S&Ps and I want to
>leverage way up
>to try to get some cash back... In miniature, this is what non regulated
>hedge
>funds, or regulated funds that are trading non regulated instruments,
>have
>available to them. many times, the granting of this ridiculous credit is
>the one
>thing a bank trading area can do to capture a fund's business. What does
>the
>bank get out of it? Wouldn't you like to have a half hour lead on the
>rest of
>the market with the news that Soros was selling 2 billion sterling? Or
>better,
>how about buying $500 million US against New Zealand? All you have to do
>is buy
>your $50 million US while you do his order and then watch him drive it
>your way.
>Is that enough profit to make a trading manager go throw a tantrum to
>get
>increased credit limits for a fund manager? In these times of
>non-existent
>spreads, you bet your life. It happens every day.
>
>I'll post more examples if anyone really finds this stuff interesting.
>When you
>start looking at letters of credit and derivatives and clearing risks
>that
>extend not to the party you lent to, but the third or fourth party down
>the
>chain, it's amazing how much 'risk' that can be generated rather quickly
>right
>in front of a bank's lending manager and the bank examiners.
>
>Again, I don't want to fill the list with off subject discussions.
>
>I hope all of you in the southeast US coast are safe, and I hope
>everyone has a
>very fine weekend.
>
>=============================================================
>=============================================================
>
>Thank you for your (as usual) insightful response. And, yes, I do
>happen to have a few questions.
>
>First, let me see if I'm correctly understanding the situation:
>
>(1) The brokerage firms who loaned Long Term Capital money to prevent a
>margin call now own 90% of the Hedge Fund. These loans were backed by
>various Banks who are being tacitly backed by the Federal government who
>is being backed by the taxpayer.
>
>(2) Hedge Fund investors have now lost 90% of their equity.
>
>(3) The brokerage firms who now own 90% of LTC are now invested in a
>situation almost as highly-leveraged as what existed prior to the loans.
>
>If this is true, what happens if/when this House of Cards begins to
>collapse? Do the brokerage firms then go to the Banks who then go to
>the Federal Government who then goes to the Taxpayer for yet another
>Savings-and-Loan-type Bail Out?
>
>What does the Federal Government do? Do they, under massive negative
>public pressure, back away from their tacit support of the Bank loans?
>
>If so, do we have a potential Bank collapse on our hands?
>
>Do we face the prospect of an OTC market collapse due to contractual
>payment obligations being broken by bankrupt brokerage firms?
>
>How does all of this effect already-weakened foreign economies and what
>effect does that then have on our own economy?
>
>What, if anything, can Alan Greenspan do to keep such a downward spiral
>from accelerating out of control?
>
>Are there other Hedge Funds beside LTC who have gone through (or are
>close to going through) the same scenario? If so, who and how many and
>just what is our total potential exposure?
>
>Did you *really* mean it when you said, "there are no regulations or it
>isn't clear which agency has jurisdiction"...or were you just being
>facetious?
>
>Is there reason for concern? Is it Trailing Ticks I'm hearing or "Tick,
>tick, tick, tick,...,BOOM"?
>
>=============================================================
>=============================================================
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