When I see some kind of rushed trades buying junk financials the first thing that comes to mind is not why ( I know it's short covering) but what else happened?
The popular hedgefunds trades were:
1. short financials
2. long BRIC
3. long momo-basic material/metals/oil
4. short dollar
While indiscriminate buying happens in #1 because hedgefunds are in liquidation mode from misguided bets from #2-#4, the best one can do is move in gradually to short position in financials.
Don't get me wrong though, it is a bitch trying to time this correctly because who the hell knows which other one(s) will get margin call next. And when unwinding of bad bets happen, such as Amaranth's, we get to hear the news a couple of weeks after the facts (maybe a week for some).
Which brings me to the point of this conjectures, that could this sort of thinking be applied to today's situation assuming some hedgefunds did cover their pair trades this week and next?
Also the other thing to improve timing, maybe the one to watch is #2-#4 and spend less time analyzing the movement in #1, which is like analyzing why Joseph Stalin ordered the executions of this farmer or that plumber because its indiscriminate nature.
The right enemy
1 year ago