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This is a story unfolding:
>From: LePatron@xxxxxxxxxxxxxxxxxxx
>To: trdoptions@xxxxxxxxxxx
>Subject: David Tice - The Not Insignificant Possibility of a Derivative
>Accident/More on TIger
>Date: Sat, 7 Aug 1999 12:11:33 -0400
>
>Le Metropole members,
>
>David Tice has served commentary at the Hemingway
>Table entitled,"The Not Insignificant Possibility of
>a Derivative Accident". Another must read in light
>of recent market developments.
>
>"financial system increasingly on the brink"
>"astounding-$50 trillion of interest derivatives"
>"are Fannie Mae and Freddy Mac properly hedged?"
>"will the flood insurance be useless?"
>"the computer assumes there will be liquidity"
>"another Russian-style derivative collapse?"
>
>The following article was in the Drudge Report. We have
>had much feedback on our Tiger "Bulletin". Much of
>it was to say that Tiger was OK. Maybe, but my
>information came from several great sources. The one that
>convinced me to put that bulletin out has given me
>many other tips over the past 5 months. Everyone has
>panned out including such items as: 1) GATA type
>questions would be asked in the House of Commons in
>England 2) Normandy Mining and Barrick Gold killed
>the millenium coin idea 3) the gold spreads would start
>to narrow ( Oct and Dec would gain over the spring-
>summer months )4) other significant tidbits that I
>cannot get into at this time.
>
>The Cafe is not out to spread rumors that we do not
>believe to be true and I try and do my homework as best
>as I can. The day of the BOE gold sale, I came out and
>said it was a shame. That notion has gained crediblity
>now all over the world. Ask Eddy George!
>
>Our source told us that the big redemption we spoke of
>"was coming", and therefore, not generally known yet.
>We shall see.
>
>Drudge Report:
>
>MARKETS FEAR HEDGE FUND COLLAPSE MAY BE LOOMING
>
>
>CONCERN IS growing in the financial markets that a
>major hedge fund is in difficulty, prompting fears of
>a repeat of last year's crisis when the Federal
>Reserve in the US had to mount a $3.5bn bail-out of
>Long- Term Capital Management (LTCM) in order to stave
>off a global financial collapse.
>
>The market for swaps, complex interest-rate derivatives
>which are widely used by hedge funds and the proprietary
>trading desks of the big investment banks to fund their
>high-risk trading strategies is, say traders, showing
>the same signs of distress that was seen after the
>Russian bond default last August.
>
>This has taken the form of a widening of credit
>spreads - the interest rate differential - indicative
>of concerns within the market of a major default.
>Spreads on 10-year swaps have widened on both sides
>of the Atlantic from the early 80s (0.8 per cent) to
>110 over the past few weeks. Over the past few days
>the widening has accelerated.
>
>The UK gilts swaps market is one of the most liquid
>in the world and a favourite haunt of big hedge
>fund players.
>
>Tiger, the $12bn hedge fund run by New York-based
>financier Julian Robertson, yesterday dismissed
>as "rubbish" reports that Goldman Sachs, and Chase
>had cut its credit lines. Sources close to LTCM have
>been similarly dismissive of reports that it too was
>again in difficulty, less than a year after being
>rescued by a consortium of 13 banks including
>Barclays, Deutsche and Merrill Lynch.
>
>Other accounts have referred to a big US or Swiss
>bank having taken a big hit.
>
>Worries about big trading losses have been exacerbated
>by a number of large trades in both the equity and
>swaps market yesterday and on Thursday, indicative
>of an unwinding of big market positions. Goldman
>Sachs was reported to have unwound a big swaption
>(combined swap and option) position, and was also
>rumoured to have lost pounds 200m on European options.
>
>There was talk, too, that the Fed was holding back
>on raising short- term interest rates to keep one
>of the big securities houses afloat.
>
>The problems in the swaps market appear to have
>initially been caused by concern about the pile-up
>of corporate issues ahead of the fourth-quarter
>when demand is expected to dry up because of Y2K
>fears. However, over the last few days talk that
>a major institution is in difficulty has come to the fore.
>
>Some of the big investment banks yesterday admitted
>privately to sustaining small losses over the past
>few days but nothing that would result in a
>material profits hit let alone a default.
>
>Adrian Davis, swaps analyst at ABN-Amro, said
>yesterday: "Over the past few months spreads
>have been widening out because of concern at
>oversupply in the bond market. However, in the
>last three or four days they have really blown
>because of concerns about the viability of a
>financial institution."
>
>Said another trader: "The markets are very strained.
>They are very like they were last year. In these
>kind of markets people will have lost money."
>
>Although hedge funds and Western banks lost up to
>$40bn when the Russians refused to honour their
>GKO bonds, the real problem that brought LTCM to
>the brink of collapse was the widening of credit
>spreads in the the swaps and high-yielding bond
>markets which blew its strategy of buying
>high-yielding bonds in anticipation of yields
>falling to bits.
>
><A HREF="http://www.lemetropolecafe.com/scripts/products.cfm";>Le Metropole
>Cafe</A>
>
>All the best,
>
>Bill Murphy
>Le Patron
>
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