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Tuesday, November 1, 2011

Is MF Global the canary in the coal mine?



MF Global’s demise came about as a result of a huge, highly leveraged position in Italian bonds.

Corzine was the former Co-CEO of Goldman. You gotta believe he talks to all the top players and hedge funds on the street. And we all know that they all trade pretty much the same way. (Case in point…how many other hedge funds were short Treasuries and long gold, just like John Paulson’s fund, which ended up costing him BIG? Lots.) Given this, it’s hard to imagine that MF Global is the only firm that has a big Italian bond position.

Don’t be surprised if we hear news emerge a couple of days from now that another big hedge fund or worse—some major bank—has the same position on and is in trouble.


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5 comments:

  1. Matt FrankoNovember 1, 2011 at 1:40 PM

    Mike,

    "hedge funds were short Treasuries"

    It's terrible but it's like their loss was the Fed's (/Treasury's) gain as the Fed is long the USTs.

    So their investors can thank the Fed for picking their pockets...

    Resp,

    ReplyDelete
  2. AnonymousNovember 1, 2011 at 6:17 PM

    Matt, you can be short treasuries if you think economy is gonna do well, inflation is going to raise sharply or stock markets will go up.

    Not necessarily because you think the US is gonna default.

    Though I will admit I think is a risky bet and they are better ways to position yourself if you think these scenarios will happen.

    ReplyDelete
  3. Matt FrankoNovember 1, 2011 at 8:11 PM

    Anon,

    Agreed, but there is a saying "dont fight the Fed"....

    Back in the QE2, the Fed needed lower bond prices to "get a good deal" on the bonds and bonds sank. Now that they have positioned their long portfolio, the Fed wants bond prices higher so they can "show a profit for the taxpayers".

    It has paid not to fight them...

    Resp,

    ReplyDelete
  4. SchittReportNovember 1, 2011 at 9:53 PM

    reports are emerging that there wasn't proper segregation of firm & client funds across many of its trading units.

    if this proves to be true, hopefully, criminal indictments will be on the way.

    ReplyDelete
  5. googleheimNovember 1, 2011 at 11:41 PM

    Corzine was a democrat Governor and has recently made a lot of Obama re-election fundraising happen.

    Solyndra, Corzine, what else ?

    ReplyDelete