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Re: Trillion Dollar Bet - anyone impressed ?



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THE DOCTOR <droex@xxxxxxxxxxxx> wrote:

>You are correct that LTCM was short bonds.  The traded the correlation 
>of bonds to big cap equities.  If you look at the market back then, one 
of the 
>position that created the greatest headache was when bonds and stock decoupled.
>Regrettably their equity choices went decoupled from bonds when rates 
>and equities decoupled.  They played rates against their correlation to 
>big cap  ...  when rates go down you expect stocks to rally  ..... when 
rates go up 
>you expect stocks to sell off.  Pat of their challenge was a "brief" decoupling. 
> When you are heavily leveraged   .......... relatively modest loses of 
correlation 
>can be devastating.   The point that many people missed from the piece 
was 
>they almost never never traded any outright direction bets ... what they 
used their 
>"models" for was to calculated the expected correlation and the delta hedges 
>to benefit from the moves.  When you trade that way and lose correlation 
  .. unless 
>you have enough capital to survive ... YOU DIE.


This is why there is no such thing as "intermarket technical analysis". 
 Supposed intermarket relationships are nothing more than figments of peoples' 
imaginations.