TVR [#41] 04-29-2016 COMEX IN TROUBLE AS CHINA GOLD EXCHANGE ROCKETS MET...

General Advice Disclosure: Please note that the advice contained herein is general advice and is for the purposes of education only. The risk of loss in trading futures contracts, commodity options, stocks, stock options and forex currencies can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results. You are reminded that past performance is no guarantee or reliable indication of future results. It has not been prepared taking into account your particular investment objectives, financial situation and particular needs.You should therefore assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. You should do this before making an investment decision based on this general advice. You can either make the assessment yourself or seek the help of a professional adviser.This commentary is not a recommendation to buy or sell, but rather a guideline to interpreting the specified indicators. This information should only be used by investors who are aware of the risk inherent in securities trading. The Vulcan Report accepts no liability whatsoever for any loss arising from any use of this expert or its contents.liability whatsoever for any loss arising from any use of this expert or its contents.For Related news and other stories please visit - http://www.wideawakenews.com/For Related videos on our Youtube channel please visit - http://www.youtube.com/user/pulsescan72Be Sure to register for faster updates and commentaries at -BLOG 1: - http://pulsescan.blogspot.com/BLOG 2: - http://seekingalpha.com/instablog/466159-pulsescan72/BULLS make money... BEARS make money.... PIGS get slaughtered!"TAKE WHAT YOU CAN .........GIVE NOTHING BACK"!!

04/29/2016 *****UPDATE**** STOPPED OUT OF LONG TVIX

SELL STOP TRIGGERED @ $3.91 FOR A .40 CENT PROFIT.

General Advice Disclosure: Please note that the advice contained herein is general advice and is for the purposes of education only. The risk of loss in trading futures contracts, commodity options, stocks, stock options and forex currencies can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results. You are reminded that past performance is no guarantee or reliable indication of future results. It has not been prepared taking into account your particular investment objectives, financial situation and particular needs.You should therefore assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. You should do this before making an investment decision based on this general advice. You can either make the assessment yourself or seek the help of a professional adviser. This commentary is not a recommendation to buy or sell, but rather a guideline to interpreting the specified indicators. This information should only be used by investors who are aware of the risk inherent in securities trading. The Vulcan Report accepts no liability whatsoever for any loss arising from any use of this expert or its contents.liability whatsoever for any loss arising from any use of this expert or its contents. For Related news and other stories please visit - http://www.wideawakenews.com/ For Related videos on our Youtube channel please visit - http://www.youtube.com/user/pulsescan72 Be Sure to register for faster updates and commentaries at - BLOG 1: - http://pulsescan.blogspot.com/ BLOG 2: - http://seekingalpha.com/instablog/466159-pulsescan72/ BULLS make money... BEARS make money.... PIGS get slaughtered! "TAKE WHAT YOU CAN .........GIVE NOTHING BACK"!!

TVR [#40] 04/29/2016 TAKE BACK FRIDAY, GOLD & SILVER RALLY HARD

General Advice Disclosure: Please note that the advice contained herein is general advice and is for the purposes of education only. The risk of loss in trading futures contracts, commodity options, stocks, stock options and forex currencies can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results. You are reminded that past performance is no guarantee or reliable indication of future results. It has not been prepared taking into account your particular investment objectives, financial situation and particular needs.You should therefore assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. You should do this before making an investment decision based on this general advice. You can either make the assessment yourself or seek the help of a professional adviser.This commentary is not a recommendation to buy or sell, but rather a guideline to interpreting the specified indicators. This information should only be used by investors who are aware of the risk inherent in securities trading. The Vulcan Report accepts no liability whatsoever for any loss arising from any use of this expert or its contents.liability whatsoever for any loss arising from any use of this expert or its contents.For Related news and other stories please visit - http://www.wideawakenews.com/For Related videos on our Youtube channel please visit - http://www.youtube.com/user/pulsescan72Be Sure to register for faster updates and commentaries at -BLOG 1: - http://pulsescan.blogspot.com/BLOG 2: - http://seekingalpha.com/instablog/466159-pulsescan72/BULLS make money... BEARS make money.... PIGS get slaughtered!"TAKE WHAT YOU CAN .........GIVE NOTHING BACK"!!

04/29/2016 - LONG GOLD POSITION STOPPED OUT

OUR LONG GOLD POSITION FROM THE PULSEWAVE BUY TRIGGER WAS STOPPED OUT LAST NIGHT @ 1275.00 GOOD FOR A $45.00 RUN!!!!

NOTE: TODAY IS TAKE BACK FRIDAY SO LOOK FOR SOME RETRACEMENT HERE POSSIBLY BACK DOWN TO THE 70-69 HANDLE.

General Advice Disclosure: Please note that the advice contained herein is general advice and is for the purposes of education only. The risk of loss in trading futures contracts, commodity options, stocks, stock options and forex currencies can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results. You are reminded that past performance is no guarantee or reliable indication of future results. It has not been prepared taking into account your particular investment objectives, financial situation and particular needs.You should therefore assess whether the advice is appropriate to your individual investment objectives, financial situation and particular needs. You should do this before making an investment decision based on this general advice. You can either make the assessment yourself or seek the help of a professional adviser. This commentary is not a recommendation to buy or sell, but rather a guideline to interpreting the specified indicators. This information should only be used by investors who are aware of the risk inherent in securities trading. The Vulcan Report accepts no liability whatsoever for any loss arising from any use of this expert or its contents.liability whatsoever for any loss arising from any use of this expert or its contents. For Related news and other stories please visit - http://www.wideawakenews.com/ For Related videos on our Youtube channel please visit - http://www.youtube.com/user/pulsescan72 Be Sure to register for faster updates and commentaries at - BLOG 1: - http://pulsescan.blogspot.com/ BLOG 2: - http://seekingalpha.com/instablog/466159-pulsescan72/ BULLS make money... BEARS make money.... PIGS get slaughtered! "TAKE WHAT YOU CAN .........GIVE NOTHING BACK"!!

America Is Losing Its Imperial Status, And Global Institutions Such As The IMF, G20 And BIS Are Filling The Void

America Is Losing Its Imperial Status, And Global Institutions Such As The IMF, G20 And BIS Are Filling The Void

Published on 04-27-2010

Source: Washington’s Blog IMF As Grim Reaper of Austerity? As I wrote last June: When the International Monetary Fund or World Bank offer to lend money to a struggling third-world country (or “emerging market”), they demand “austerity measures“. As Wikipedia describes it: In economics, austerity is when a national government reduces its spending in order to pay back creditors. Austerity is usually required when a government’s fiscal deficit spending is felt to be unsustainable. Development projects, welfare programs and other social spending are common areas of spending for cuts. In many countries, austerity measures have been associated with short-term standard of living declines until economic conditions improved once fiscal balance was achieved (such as in the United Kingdom under Margaret Thatcher, Canada under Jean Chrétien, and Spain under González). Private banks, or institutions like the International Monetary Fund (IMF), may require that a country pursues an ‘austerity policy’ if it wants to re-finance loans that are about to come due. The government may be asked to stop issuing subsidies or to otherwise reduce public spending. When the IMF requires such a policy, the terms are known as ‘IMF conditionalities’. Wikipedia goes on to point out: Austerity programs are frequently controversial, as they impact the poorest segments of the population and often lead to a wider separation between the rich and poor. In many situations, austerity programs are imposed on countries that were previously under dictatorial regimes, leading to criticism that populations are forced to repay the debts of their oppressors. What Does This Have to Do With the First World? Since the IMF and World Bank lend to third world countries, you may reasonably assume that this has nothing to do with “first world” countries like the US and UK. But England’s economy is in dire straight, and rumors have abounded that the UK might have to rely on a loan from the IMF. And as former U.S. Comptroller General David Walker said : People seem to think the [American] government has money. The government doesn’t have any money. Indeed, the IMF has already performed a complete audit of the whole US financial system, something which they have only previously done to broke third world nations. Al Martin – former contributor to the Presidential Council of Economic Advisors and retired naval intelligence officer – observed in an April 2005 newsletter that the ratio of total U.S. debt to gross domestic product (GDP) rose from 78 percent in 2000 to 308 percent in April 2005. The International Monetary Fund considers a nation-state with a total debt-to-GDP ratio of 200 percent or more to be a “de-constructed Third World nation-state.” Martin explained: What “de-constructed” actually means is that a political regime in that country, or series of political regimes, have, through a long period of fraud, abuse, graft, corruption and mismanagement, effectively collapsed the economy of that country. The IMF is – in fact – now saying that the U.S. must live more austerely. As the Washington Post noted Saturday: In the lingo of the International Monetary Fund, the future of the world hinges on “rebalancing and consolidation,” antiseptic words that would not seem to raise a fuss. *** But the translation is a bit ruder, something on the order of: “Suck it up. The party’s over.” To keep the global economy on track, people in the United States and the rest of the developed world need to work longer before retiring, pay higher taxes and expect less from government. And the cheap imports lining the shelves of mega-chains such as Wal-Mart and Target? They need to be more expensive. That’s the practical meaning of a series of policy papers and statements issued in recent days by IMF officials, who have a long history of stabilizing economies and solving global financial problems, as they plot a course to keep the world economy growing and reduce the risk of another “great recession.” *** It means a pretty serious reworking of expectations in the developed world: changes in labor rules, product prices, currency values and even the social contract between governments and an aging citizenry. “It is not that living standards will lower, but they will not increase as fast as they have been,” said Domenico Lombardi, a former IMF executive director. The ideas being discussed by world leaders “are coded words,” he said. “They don’t like words like ‘imposing higher taxes’ and ‘cutting spending.’ ” *** The level of the correction needed is large, perhaps 10 percent of gross domestic product. In the United States, that would amount to roughly $1.4 trillion annually, to be cut from government programs or raised through new taxes. Dean Baker notes: Back in the 90s the IMF came to be known as the “Typhoid Mary” of emerging markets as its policy prescriptions led to sharp economic downturns in one country after another. The “grim reaper” might be a better analogy. IMF As World’s Central Bank? Not only is the IMF treating America like another failed state, but the IMF may – in some ways – replace the U.S. As I pointed out last May, the IMF may be taking over world’s financial regulator: AP writes: The Group of 20 countries have made the [IMF] the linchpin in their efforts to combat the worst economic downturn since the Great Depression The Washington Post notes: Global financial chiefs agreed yesterday to reshape the International Monetary Fund, moving to broaden its mission … The IMF, which in recent years had become largely an advisory body to nations in crisis, will now be charged with aggressive monitoring of the global economy. Underscoring that role, Treasury Secretary Timothy F. Geithner said yesterday that Washington had consented to a rigorous IMF review of the U.S. financial system for the first time since the fund was created at the end of World War II. And the IMF’s currency – Special Drawing Rights (SDRs) – may become the world’s reserve currency. See this and this. And some say that the IMF will become the world’s central bank. According to Jim Rickards – director of market intelligence for Omnis – the purpose of the G20 Summit in Pittsburgh on September 24 was as follows: The IMF is being sort of anointed as a global central bank. Rickards also said that the plan is for the IMF to issue SDRs as a global reserve currency to replace the dollar, and then America will gradually depreciate the dollar to reduce the size of its enormous debt: However, the Wall Street Journal argued in October that – while the IMF would like to be the world’s central bank – the G20 is relegating it to a lesser role: International Monetary Fund Managing Director Dominique Strauss-Kahn is using the IMF’s annual meeting here to campaign for turning the fund into a kind of global central bank with at least $1 trillion for lending developing nations in a crisis.But a very different reality is taking shape: The IMF is essentially being turned into the staff of the Group of 20, an organization of industrialized and developing nations that doesn’t have a headquarters, staff or rules for membership. With the leaders of the G-20 effectively functioning as the board of directors of the global economy, they need the IMF’s help to carry out their role. Ellen Brown argues that the Bank for International Settlements (BIS) has been, and will continue to be, the real power behind the throne, even though the IMF seems to be gaining power. I don’t know who is right. But it does seem like America is losing its imperial status, and that global institutions such as the IMF, G20 and BIS are filling the void. http://www.blacklistednews.com/news-8418-0-13-13--.html

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Quant or Quack?

Long-Term Capital Management

From Wikipedia, the free encyclopedia

  (Redirected from LTCM)

Long-Term Capital Management (LTCM) was a U.S. hedge fund which used trading strategies such as fixed income arbitrage, statistical arbitrage, and pairs trading, combined with high leverage. It failed spectacularly in the late 1990s, leading to a massive bailout by other major banks and investment houses,^[1] which was supervised by the Federal Reserve.

LTCM was founded in 1994 by John Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Board of directors members included Myron Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences.^[2] Initially enormously successful with annualized returns of over 40% (after fees) in its first years, in 1998 it lost $4.6 billion in less than four months following the Russian financial crisis and became a prominent example of the risk potential in the hedge fund industry. The fund was closed in early 2000.

Contents  [hide] 1 Founding 2 Trading strategies 3 Tax avoidance 4 Downturn 5 1998 bailout 6 Aftermath 7 See also 8 Notes 9 Bibliography 10 Further reading

[edit]Founding

LTCM Partners
John Meriwether	Former vice chair and head of bond trading at Salomon Brothers; MBA,University of Chicago
Robert C. Merton	Leading scholar in finance; Ph.D.,Massachusetts Institute of Technology; Professor at Harvard University
Myron Scholes	Co-author of Black-Scholes model; Ph.D., University of Chicago; Professor at Stanford University
David W. Mullins Jr.	Vice chairman of the Federal Reserve; Ph.D. MIT; Professor at Harvard University; was seen as potential successor to Alan Greenspan
Eric Rosenfeld	Arbitrage group at Salomon; Ph.D. MIT; former Harvard Business School professor
William Krasker	Arbitrage group at Salomon; Ph.D. MIT; former Harvard Business School professor
Gregory Hawkins	Arbitrage group at Salomon; Ph.D. MIT; worked on Bill Clinton's campaign for Arkansas state attorney general
Larry Hilibrand	Arbitrage group at Salomon; Ph.D. MIT
James McEntee	Bond-trader
Dick Leahy	Executive at Salomon
Victor Haghani	Arbitrage group at Salomon; Masters in Finance, LSE

John Meriwetherheaded Salomon Brothers' bond trading desk until he was forced to resign in 1991 when his top bond trader,Paul Mozer, admitted tofalsifying bids on U.S. Treasury auctions. Because Salomon was the largest bidder ontreasury bonds at auction, the Treasury department feared that Salomon would be able to take astrategic position on the bonds in order to influence the price.^[3]

As such, Salomon (or any single bidder) was restricted from purchasing more than 35% of the bonds sold at any auction. Mozer circumvented this limitation by making fraudulent bids on behalf of Salomon clients and then transferring the bonds to Salomon's accounts following the transaction. The revelation of this scandal depressed the company's share price and drove investor Warren Buffett to sack its chief executive officer, John Gutfreund. Though Meriwether was not directly implicated, calls for his ousting rose within the company and he resigned before he was let go.^[4]

Future Nobel Prize Laureates Myron Scholes (left) and Robert C. Mertonadded a veneer of genius to the roster at LTCM.

In 1993 he announced that he would launch a hedge fund called Long-Term Capital.^[5] Meriwether used his well-established reputation to recruit several Salomon bond traders and some brilliant mathematicians.

He also recruited two future Nobel Prize winners, Myron Scholes andRobert C. Merton, both of whom worked in Salomon Brothers' fixed income trading department.^[6]Other principals in the firm included Eric Rosenfeld, Greg Hawkins, Larry Hilibrand, William Krasker, Dick Leahy, Victor Haghani, James McEntee, Robert Shustak, and David W. Mullins Jr.

Long-Term Capital consisted of Long-Term Capital Management (LTCM), a company incorporated in Delaware but based in Greenwich, Connecticut. LTCM managed trades in Long-Term Capital Portfolio LP, a partnership registered in the Cayman Islands. The fund's operation was designed to have extremely low overhead; trades were conducted through a partnership with Bear Stearns and client relations were handled by Merrill Lynch.^[7]

Meriwether chose to start a hedge fund to avoid the financial regulation imposed on more traditional investment vehicles, such as mutual funds, as established by the Investment Company Act of 1940—funds which accepted stakes from one hundred or fewer individuals with more than one million dollars in net worth each were exempt from most of the regulations that bound other investment companies.^[8] In late 1993, Meriwether approached several "high net-worth individuals" in an effort to secure start-up capital for Long Term Capital Management. With the help of Merrill Lynch, LTCM secured hundreds of millions of dollars from business owners, celebrities and even private university endowments. The bulk of the money, however, came from companies and individuals connected to the financial industry.^[9] By 24 February 1994, the day LTCM began trading, the company had amassed just over $1.01 billion in capital.^[10]

[edit]Trading strategies

The company used complex mathematical models to take advantage offixed income arbitrage deals (termed convergence trades) usually with U.S., Japanese, and European government bonds. Government bonds are a "fixed-term debt obligation", meaning that they will pay a fixed amount at a specified time in the future.^[11] Differences in the bonds' present value are minimal, so according to economic theory any difference in price will be eliminated by arbitrage. Unlike differences in share prices of two companies, which could reflect different underlying fundamentals, price differences between a 30 year treasury bond and a 29 and three quarter year old treasury bond should be minimal—both will see a fixed payment roughly 30 years in the future. However, small discrepancies arose between the two bonds because of a difference in liquidity.^[12] By a series of financial transactions, essentially amounting to buying the cheaper 'off-the-run' bond (the 29 and three quarter year old bond) and shorting the more expensive, but more liquid, 'on-the-run' bond (the 30 year bond just issued by the Treasury), it would be possible to make a profit as the difference in the value of the bonds narrowed when a new bond was issued.

As LTCM's capital base grew, they felt pressed to invest that capital and had run out of good bond-arbitrage bets. This led LTCM to undertake more aggressive trading strategies. Although these trading strategies were non-market directional, i.e. they were not dependent on overall interest rates or stock prices going up (or down), they were not convergence trades as such. By 1998, LTCM had extremely large positions in areas such asmerger arbitrage and S&P 500 options (net short long-term S&P volatility). LTCM had become a major supplier of S&P 500 vega, which had been in demand by companies seeking to essentially insure equities against future declines.^[13]

Because these differences in value were minute—especially for the convergence trades—the fund needed to take highly-leveraged positions to make a significant profit. At the beginning of 1998, the firm had equity of $4.72 billion and had borrowed over $124.5 billion with assets of around $129 billion, for a debt to equity ratio of about 25 to 1. It had off-balance sheet derivative positions with a notional value of approximately $1.25 trillion, most of which were in interest rate derivatives such as interest rate swaps. The fund also invested in other derivatives such as equity options.

[edit]Tax avoidance

Long Term Capital Management was found to have entered into certain tax avoidance transactions. Approximately $100 million of losses claimed by LTCM were disallowed by United States District Court of Connecticut. An e-mail dated March 10, 1995, to Jan Blaustein Scholes, Myron's girlfriend at the time and general counsel responsible for setting up leasing transactions associated with the disallowed losses, stated : "For our CHIPS III entity let's use a name unrelated to CBB. It makes it just a bit harder for the IRS to link all the deals together." Equally alarming, Myron Scholes stated that he was not an expert on tax law. A textbook, "Taxes & Business Strategy" (principally written by Myron Scholes), contains chapters on both economic substance and step transactions, which are the two concepts under which the tax loss was disallowed by the IRS.

In a memorandum to Long Term's management committee dated November 12, 1996, Myron Scholes wrote: "We must decide in the near future (1) how to allocate these capital losses; (2) how to "trade" them so that they are held in high-valued hands; and (3) how to plan to be able to enjoy the benefits of the use of these losses for the longest period of time. If we are careful, most likely we will never have to pay long-term capital gains on the 'loan' from the Government." He went on, "How should LTCM pay those who brought the Tax Losses to Fruition and allocate the expenses of undertaking the trade?"^[14]

[edit]Downturn

The value of $1,000 invested in LTCM,^[15] the Dow Jones Industrial Average and invested monthly in U.S. Treasuries at constant maturity.

Main articles: 1997 Asian Financial Crisis and 1998 Russian financial crisis

Although much success within the financial markets arises from immediate-short term turbulence, and the ability of fund managers to identify informational asymmetries, factors giving rise to the downfall of the fund were established prior to the 1997 East Asian financial crisis. In May and June 1998 returns from the fund were -6.42% and -10.14% respectively, reducing LTCM's capital by $461 million. This was further aggravated by the exit of Salomon Brothers from the arbitrage business in July 1998. Such losses were accentuated through the Russian financial crises in August and September 1998, when the Russian Government defaulted on their government bonds. Panicked investors sold Japanese and European bonds to buy U.S. treasury bonds. The profits that were supposed to occur as the value of these bonds converged became huge losses as the value of the bonds diverged. By the end of August, the fund had lost $1.85 billion in capital.

As a result of these losses, LTCM had to liquidate a number of its positions at a highly unfavorable moment and suffer further losses. A good illustration of the consequences of these forced liquidations is given by Lowenstein (2000).^[16] He reports that LTCM established an arbitrage position in the dual-listed company (or "DLC") Royal Dutch Shell in the summer of 1997, when Royal Dutch traded at an 8-10% premium relative to Shell. In total $2.3 billion was invested, half of which was "long" in Shell and the other half was "short" in Royal Dutch.^[17] LTCM was essentially betting that the share prices of Royal Dutch and Shell would converge. This may have happened in the long run, but due to its losses on other positions, LTCM had to unwind its position in Royal Dutch Shell. Lowenstein reports that the premium of Royal Dutch had increased to about 22%, which implies that LTCM incurred a large loss on this arbitrage strategy. LTCM lost $286 million in equity pairs trading and more than half of this loss is accounted for by the Royal Dutch Shell trade.^[18]

The company, which was providing annual returns of almost 40% up to this point, experienced a flight-to-liquidity. In the first three weeks of September, LTCM's equity tumbled from $2.3 billion at the start of the month. By September 25, LTCM had just $400 million in capital. With assets still over $100 billion, this translated to an effective leverage ratio of more than 250-to-1.^[19]

[edit]1998 bailout

On September 23, 1998, the titans of Wall Street – the chiefs of Bankers Trust, Bear Stearns, Chase Manhattan,Goldman Sachs, J.P. Morgan, Lehman Brothers, Merrill Lynch, Morgan Stanley Dean Witter and Salomon Smith Barney – met on the 10th floor conference room of theFederal Reserve Bank of New York (pictured) to rescue LTCM.

Long-Term Capital Management did business with nearly everyone important on Wall Street. As LTCM teetered, Wall Street feared that Long-Term's failure could cause a chain reaction in numerous markets, causing catastrophic losses throughout the financial system. After LTCM failed to raise more money on its own, it became clear it was running out of options. On September 23, Goldman Sachs, AIG, and Berkshire Hathaway offered then to buy out the fund's partners for $250 million, to inject $3.75 billion and to operate LTCM within Goldman's own trading division. The offer was stunningly low to LTCM's partners because at the start of the year their firm had been worth $4.7 billion. Buffett gave Meriwether less than one hour to accept the deal; the time period lapsed before a deal could be worked out.^[20]

Seeing no options left the Federal Reserve Bank of New York organized a bailout of $3.625 billion by the major creditors to avoid a wider collapse in the financial markets.^[21] The contributions from the various institutions were as follows:^[22][23]

• $300 million: Bankers Trust, Barclays, Chase, Credit Suisse First Boston, Deutsche Bank, Goldman Sachs, Merrill Lynch, J.P.Morgan,Morgan Stanley, Salomon Smith Barney, UBS
• $125 million: Société Générale
• $100 million: Lehman Brothers, Paribas
• Bear Stearns declined to participate.

In return, the participating banks got a 90% share in the fund and a promise that a supervisory board would be established. LTCM's partners received a 10% stake, still worth about $400 million, but this money was completely consumed by their debts. The partners once had $1.9 billion of their own money invested in LTCM, all of which was wiped out.^[24]

The fear was that there would be a chain reaction as the company liquidated its securities to cover its debt, leading to a drop in prices, which would force other companies to liquidate their own debt creating a vicious cycle.

The total losses were found to be $4.6 billion. The losses in the major investment categories were (ordered by magnitude):^[16]

• $1.6 bn in swaps
• $1.3 bn in equity volatility
• $430 mn in Russia and other emerging markets
• $371 mn in directional trades in developed countries
• $286 mn in equity pairs (such as VW, Shell)
• $215 mn in yield curve arbitrage
• $203 mn in S&P 500 stocks
• $100 mn in junk bond arbitrage
• no substantial losses in merger arbitrage

Long Term Capital was audited by Price Waterhouse LLP.

Unsurprisingly, after the bailout by the other investors, the panic abated, and the positions formerly held by LTCM were eventually liquidated at a small profit to the rescuers.

Some industry officials said that Federal Reserve Bank of New York involvement in the rescue, however benign, would encourage large financial institutions to assume more risk, in the belief that the Federal Reserve would intervene on their behalf in the event of trouble. Federal Reserve Bank of New York actions raised concerns among some market observers that it could create moral hazard.^[25]

LTCM's strategies were compared (a contrast with the market efficiency aphorism that there are no $100 bills lying on the street, as someone else has already picked them up) to "picking up nickels in front of a bulldozer"^[26] – a likely small gain balanced against a small chance of a large loss, like the payouts from selling an out-of-the-money option.

[edit]Aftermath

After the bailout, Long-Term Capital Management continued operations. In the year following the bailout, it earned 10%. By early 2000, the fund had been liquidated, and the consortium of banks that financed the bailout had been paid back; but the collapse was devastating for many involved. Goldman Sachs CEO Jon Corzine, who had been closely involved with LTCM, was forced out of the office in a boardroom coup led by Henry Paulson. Mullins, once considered a possible successor to Alan Greenspan, saw his future with the Reserve dashed. The theories of Merton and Scholes took a public beating. In its annual reports, Merrill Lynch observed that mathematical risk models "may provide a greater sense of security than warranted; therefore, reliance on these models should be limited."^[27]

After helping unwind LTCM, Meriwether launched JWM Partners. Haghani, Hilibrand, Leahy, and Rosenfeld all signed up as principals of the new firm. By December 1999, they had raised $250 million for a fund that would continue many of LTCM's strategies—this time, using less leverage.^[28]Unfortunately, with the Credit Crisis, JWM Partners LLC has been hit with 44% loss since September 2007 to February 2009 in its Relative Value Opportunity II fund. As such, JWM Hedge Fund was shut down in July 2009.^[29]

^{http://en.wikipedia.org/wiki/LTCM}