“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.
The real problem with LTCM, though, seems to be that they did not keep to their own knitting. They were bond pros, perhaps the best collection of same the world has ever seen. Somehow, maybe through pure egoism, maybe not, LTCM got sidetracked into trading (hugely, btw) paired stocks and ''emerging market'' debt and X amount of other crap.
Also, pls note, LTCM didn't ''double-down'' on any of these positions. Their policy, uniformly, was to undertake huge positions (you can't believe how huge...neither could Merrill Lynch when the crunch came!) at the very start in whichever instruments they decided to trade. This enormous size is risky enough, but then LTCM exponentiated the risk by deliberately seeking fantastic leverage, spookily overgeared.
When these two tactics, combined, work and the markets cooperate, the trader looks like a hero. When they don't, when the dice come up ''snake-eyes'', the trader visits Tap City straightaway.