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A couple of things really struck home yesterday. 1) Even the most novice
of trader knows that he must have an avenue of escape planned. I never put
on a trade without first knowing where Ill exit it. Limmiting my risk is
the first and last consideration in everything I do. I often know where my
stop loss is going to be before I know where Im going to enter the trade.
Frankly, after the stop, everything else is just details.
The funds that took exposure that couldn't be liquidated or hedged broke
every tenet of sound management and investment. If I took proportionate
risks with my costumers money and accounts you can bet that I would have
every regulatory agency in the country calling for my scalp. If your fund
is so big that you have to take insane chances to keep it invested... your
fiduciary responsibility requires that you reduce its size.
2) For 17 years I have watched the Pros take risk that even the rankest of
amateur traders would avoid. It seems as if everything from commercial
banks, to Wall street credit departments to mortgage banks..... are
infected with an arrogance toward risk that leaves me weak kneed. Leverage
x 50 - 100 - 200 times is criminal.
These are the kind of risks that if an individual or a bottom tier
institutional account wanted to take they would be laughed out of the
country. BUT: When an account gets large enough it seems as if they can do
as they damn well please ("If we don't do the business someone else will").
And then, when it all goes to hell...... who pays the price? Usually the
guy at the bottom of the feeding chain and the taxpayer.
The Niederhoffens and Merriweathers walk away and a year or two latter are
back in business as if nothing happened. The same group of insane Wall
Streeters are beating down the door to this sadder but now wiser managers
office to deposit customers funds.
As far as Im concerned, these kinds of behaviors should be considered
criminal and the principles prosecuted under RICO. You can't convince me
that the vast majority of these guys don't know better. Ive been around to
many of them to believe otherwise.
Anyway.... that's my two cents. Lets go trade.
Stewart.
Stewart Taylor
Taylor Fixed Income Outlook
Voice: 501-219-9774
Fax: 501-228-0963
E-Mail: staylor@xxxxxxx
Web Site: http://www.cei.net/~staylor/
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