I can't excuse LTCM on the grounds that, if they'd been able to stay in their trades, they'd have prospered ultimately. Why can't I? Because of the well-known remark of Maynard Keynes, which has been true forever, to wit:
''Markets can remain irrational longer than you can stay solvent.''
I'm no fan of Keynes, but when one is right, one is right. LTCM, figuratively speaking, stuck their own dicks in the fan, and had no reason to expect, ultimately, any other result than what did occur.
And, btw, ''going directional'' on Russia in 1998, with VKOs offering NINETY per cent annual return, could have been nothing but utter madness.
LTCM got in the game at the right time; Euroconvergence was clearly going to occur, and they made a huge pile on convergence trades. However, when the convergences stopped paying off, they were sitting on a huge pile of capital, couldn't find a profitable home for it (Euroconvergence comes along, what?, once a century or so?), and were firm believers in their own infallibility.
That's a recipe for disaster that even Emeril could appreciate.
FReegards! ;^)
“And, btw, ‘’going directional’’ on Russia in 1998, with VKOs offering NINETY per cent annual return, could have been nothing but utter madness.”
don’t have any idea of their trade history on this, but gotta wonder if a single or set of personalities got stuck in a problem position and doubled or triple’d or far worse down into a declining debt market/situation re: Russia. Seen it too many times to not wonder if it could be the case here. Just the leverage abuse has the mark of someone without experience in being humbled by the market previously, but finding themselves in a very bad situation with no happy ways out.