April 20, 2010 – How Long Will the Risk Reversal Last?

(SPECIAL BLACK SWAN ISSUE)

Featured Trades: (EVERYTHING)


1) How Long Will the Risk Reversal Last? It looks like May came early this year, as in the ‘sell in May and go away’ variety. The first ‘black swan’ of the year has alighted on the market. The news that the SEC brought civil fraud cases against Goldman Sachs sent traders scrambling to cope with markets that simultaneously gapped around the world in the same direction. Anything hedge funds were long collapsed, while the shorts were sent screaming through the roof. There was only one real trade in play on Friday and that was immediate risk reduction across the board. That was the explanation for lockstep declines in all stock markets, corporate bonds, energies, commodities, and precious metals. The only positions that went up were in the yen and Treasury bonds, which everyone and their in-laws were short.  Mathematical models, algorithms, correlations, standard deviations, and yes, even fundamentals, were unceremoniously tossed out the window. The only priority was to raise liquidity, whatever the cost. The big question is whether this is a one day wonder, or the beginning of a major trend. Of course, you can tell all of your clients and friends ‘I told you so’ because you were uncannily warned on March 11 by technical analyst, Charles Nenner , that exactly something like this was headed our way in April (click here for the call). I did manage to get in touch with my various Goldman buddies at Goldman Sachs over the weekend, who were hiding out at various getaways. Suddenly, ‘hiking the Appalachian Trail’ has acquired new meaning. Below are my comments on the vampire squid’s latest affliction.

Goldman Sachs Group, Inc.

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