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This is reminds me of a 1980's creation of the rocket scientists, global
money market funds. They featured high yield short term paper from countries
like Italy, "cross-hedged" with the D. Mark. They blew up just after gaining
retail popularity.
>As I understand it, the hedge funds like LTCM try to capture the difference
>in spreads between debt instruments of different countries as one of their
>strategies. In my October 19, 1997 forecast "Whistling Past The Graveyard",
>I mentioned that one technical indicator called the "Ted Spread" (the
>spread in interest rates between T-Bills and Eurodollars), had widened to
>95 points, and that normally a spread of 85 points would be a warning sign
>to the markets. Historically, the Ted Spread has been a measure of Global
>risk, because Eurodollars are uninsured, whereas Treasury Bills are very
>safe. Well, using this analogy, it stands to reason that since hedge funds
>like LTCM are trying to capture what they think are inordinately wide
>spreads between issuers of different quality, they are doing what no
>professional trader should do, and therefore it is not surprising that they
>should get burned. Put another way, they are "fading" a warning sign! They
>are trying to put their market opinion above that of the market. This is a
>form of market arrogance, and the practitioners of arrogance usually have
>to learn humility eventually.
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