At least one buy-side trader is loving the market turmoil right now: “lotta action right now,” he tells us.
Sounds sexy. But there’s a downside, he says, everyone — banks, Eurozone governments, the US, China, corporations, private investors — got in on the “action” and “slept with the same girl” years ago, and now they all have the same freaky STD.
It’s called “contagion,” and now everyone’s infected.
This past two months seemed like a wild time in the market to us. So we spoke to someone on the buy-side to get his take. We won’t mention his name, but he’s managed a small team of traders for about 20 years.
“It was a crazy summer,” he says. “Lots of action. Lots of volume.”
“I was long and short 18 different times,” he says, “and that was just on Tuesday [October 5].”
Traders are gearing up for what could be the impending collapse of Greece, a country where, if contagion were an STD, it would be a fiery mess. If everyone caught the same disease, it’s because they screwed someone who screwed someone who screwed Greece. Then the Euro got in the action and the contagion spread. Everyone knows they’ve got it, so they’re watching the markets to see what kind of symptoms this b*tch delivers.
This week there have been tons of rumours about what will happen to everyone. rumours about how the European Central Bank (ECB) will or won’t resolve the Eurozone crisis — will they or won’t they leverage the EFSF (the EFSF is like TARP for the Eurozone), will they let Greece default or not, just to name two of them — but until he sees something real, he doesn’t touch his positions.
Forget rumours, he says. “I do the opposite of rumours.” He admits its scary, but he goes for it anyway.
“The pursuit of alpha demands that you become fluent in how you manoeuvre.”
His manoeuvring is all about “blockbuster statements, like the statement by Bernanke that the Fed is going to keep their options open in regards to the economy. “That was a buy,” he explains, because “shorts will cover and try to jam it higher.”
Translation: because the U.S. government will do what it takes to ensure
He considers market movements that occur over a longer time period too, of course. Shadow banking is going to be difficult now because of the regulatory push. Also, because the flattening yield curve is bad for banks and it has an impact on hedge funds’ ability to use leverage in these markets. So he puts it to work in commodities and currencies.
But right now, all everyone’s talking about is Eurozone contagion, and whether it’s going to cause serious damage to the health of banks that have lent money to Greece, thereby hurting the banks that have done business with those banks, and whoever has done business with them.
It goes without saying but, it would have been helpful if *someone* had gotten tested a long time ago and caught this thing while ago. We might have a cure on our hands, rather than a bunch of anti-itch cream.