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Colin,
> Here's my opinion of a phenomenon that with hindsight one may say
> was the cause of the very unusual flows in the bond market this past
> summer.
I think that the LTC position is not big enough to influence the bond
market in a noticable way. However as Timothy pointed out most of the
funds were playing the same game.
Ever since the Nippon banks got into trouble and the Yen hit 100
JPY/USD the Japanese Central Bank lowered interest rates and
encouraged their banks to borrow cheap Yen and invest into US
treasuries. This strategy was designed to bail-out the Japanese banks
that had accumulated large property related loan problems. The hedge
funds basically followed this strategy.
After the intervention against the Yen this summer we see unwinding
of these positions. Basically the central banks have set the signal
that the easy game is over.
I attribute most of the anomalies to the capping of the
Dollar vs. the Japanese yen.
Gerrit
> The mistake that LTC made, from which most of their other problems
> seemed to flow, was to build positions that overwhelmed the
> liquidity of certain markets. That is, slippage as a ratio to
> liquidity was clearly inverted, and therefore it became completely
> impractical to manage risk in the usual way that relative-value
> trading demands. The problem couldn't dissipate soon enough, as LTC
> was "the problem." Hedging against a hedge, against a hedge, against
> a hedge, ad infinitum isn't workable when the hedge becomes or is
> the risk!
>
> Regards,
>
> Colin West
> 303.741.8690
> Managed Capital Services
> Englewood, CO 80112
> http://www.managedcapital.com
> Hedge Fund Management
>
> -----Original Message-----
> From: Tom Rehberger [mailto:trehberger@xxxxxxxxxx]
> Sent: Monday, September 28, 1998 8:54 AM
> To: JRT@xxxxxxxxxx; Timothy Morge; omega-list@xxxxxxxxxx
> Subject: Re: Hedge Fund
>
> I havnt been following the discussion here on the fund. but Im
> wondering if everybody thinks these guys actted improperly. If you
> look at the margin on spreads they are very low and they were
> leveraged out in the cash probubly to a lower level then you could
> trade the futures spreads at. In my experience most big govie
> operations trade the spreads in a big way, these guys just got
> stuck. tom
>
>
> -----Original Message-----
> From: Gerrit Jacobsen <jrt@xxxxxxxxxx>
> To: Timothy Morge <tmorge@xxxxxxxxxxxxxxx>; omega-list@xxxxxxxxxx
> <omega-list@xxxxxxxxxx> Date: Monday, September 28, 1998 9:45 AM
> Subject: Re: Hedge Fund
>
>
> Tim,
>
> > Someone posted here that the managers of such funds were indemnified
> > from prosecution--I would say this is not generally true. There are
> > always ways to get to the managers, and in the past five years, many
> > managers have found themselves staring down the uncomfortable hand
> > that held out a subpoena.
>
> I did not state that the managers are indemnified from prosecution.
>
> Most funds imdemnifiy their investment managers. Which means that
> the directors of the fund will not go after the investment manager
> in case of losses.Furthermore the fund reimburses the investment
> manager's legal fees in case investors or prosecutors go after him
> personally.
>
> Gerrit
>
>
>
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