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To all,
The Omega list I have referred to regarding the hedge fund
discussion is the forum used by people who own and use software
products written by Omega Research (e.g. Super Charts, Trade
Station, etc.).
It is the parallel of the MetaStock user forum. To enroll, send an
e-mail
to:
omega-list-request@xxxxxxxxxx
Type "subscribe" in the subject (without the quotes).
Here is another entry in the discussion.
Regards,
Tim
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I'd agree with your assessment. As I have said a few times, there are
very
little regulations that are applicable here. Many of the products traded
by
hedge funds are not traded on regulated exchanges and there are little
or no
regulations in most of the cash markets that cover these situations.
Another complicating matter is the nature of the markets and the
incestuousness
of many of the traders in these markets. One reason why a firm would be
interested in investing money [making the firm's capital at risk] in a
fund or
making markets to a fund [which would mean the firm has counterparty
risk if the
fund failed], is because funds like this deal in markets where the firms
can
make money several ways: First, the firm can make markets to the fund on
exotic
products that have better spread profit potential; two, the firm also
runs a
'book' in many of the same markets the fund trades actively and so that
department of the firm gets 'inside information' from from the fund,
allowing
the firm's traders to position themselves to ride the same profit wave
as the
fund; and third, the firm assumes the fund managers are experts in their
field
and by investing, the firm can accrue profits from the investment, since
the
managers are not available to be hired.
It is the second matter that is truly dangerous here. The world of fund
managers
is rather small and many talk to each other about the same trade, day
after day.
You can bet that there were many funds besides LTC that positioned
themselves
with those instruments. And if part of the risk was counterparty risk
[meaning
risk from non-payment or non-delivery by a counterparty, ala Russian
banks or
Asian banks], you can bet the funds that have those positions have the
same
counterparty risk and problem as well, since dealing with those
counterparties
is done both because of the profit potential.
This in itself would cause Greenspan to be interested, even if the firms
individually were not initially interested. Greenspan knows that many
firms may
face the same problems--in fact, he probably knows better than most
firms. As I
said, the real decision makers of a firm probably won't know about their
own
problems until the balance sheet is already in dire trouble, and that is
the
true danger here: You have to pray that the Fed is able to put out a
fire when
it's discovered, and one day, it may come too late for a very large
financial
institution.
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