Monday, August 13, 2007

Hedge funds braced for more pain

All is not gloom and doom. If you're long natural gas and don't use much of it, it's is up another 28 cents this morning. 18% in a week, depending on your margin, a 100-150% profit ("AND" as the salesmen say "then you annualize it").

Back to the hedge funds, from the Financial Times:

The much-heralded financial rocket scientists responsible for the explosion in complex mathematical trading strategies are bracing themselves for fresh pain after what one team of analysts called “the perfect storm” last week.

Quantitative strategists, or “quants” as they are known, attempt to profit from pricing inefficiencies identified through mathematical models. These send buy and sell signals on small variations in price between different securities.

One hedge funds manager said the average quantitative fund manager was down about 15 per cent in the first few days of August.

“Nothing seems to be working. Previously uncorrelated factors* have recently been falling with the same pace, leaving investors with very few places to hide,” said Citigroup analysts in a report to clients last week. More

That's just pathetic, they were correlated alright, the greedy bastards just didn't know how.

More leverage. More cowbell.

A little insight into modeling. Speaking of models, there are three million volcanoes under the oceans. That we didn't know were there. I don't know how that affects the climate models. And neither do the modelers. We are all morons (not you mom).

*Compare with "In court Sylvain, prosecuted by the lady, explained that his equation should have succeeded, but bad luck pursued him."
From "How to Win Safely at Baccarat" below.