The big hedge funds and FX traders were betting BILLIONS AND BILLIONS (of borrowed QE dollars) that the Swiss would print Francs like crazy to maintain the peg to the Euro, driving the franc's value down, after this weeks Euro QE announcement.
This just wasn't supposed to happen. I've even seen it said, in print, that the Swiss move "Just wasn't fair!". OOPS...
6th or 7th very large hedge fund to go under in the last 48 hours.
A massive short position. I think I see the problem. The risk is unlimited in such a position.
Kind of funny that hedge funds, where the “hedge” should mean to mitigate financial risk, are the first to explode during any unexpected market move.
The House of Cards is finally beginning to crumble. And I’m thrilled. Maybe we can start over with the financil mistakes of the last 20 years or so uppermost in our minds.
If the amount of effort that has been expended to keep the kludge afloat had been instead directed towards growing economies, think how much better off the world would be.
Is this why a few days ago, the US Congress passed some legislation that protects US banks from derivative losses?
I think it would be more interesting to learn who scored big on this move.
This ought to give all the muckity mucks at Davos something to talk about. The World Economic Forum is next week.
Right. When I saw the 30% move, I thought, “Everyone with a position in Franc options just made or lost billions of dollars each.”
Massive currency contract leverage x massive options leverage x 3000 basis point move (instead of a few dozen points) x number of contracts = billions.
I wonder what the George Soros position was.
Guess it wasn’t a true hedge fund. Supposed to bet on both sides not take a massive position on one side. Some of the smart money crowd never learns.
George Soros is known as the “man who broke the Bank of England.”
Every hedge fund operator dreams of such a legendary payoff, and apparently some have taken outsized risks trying.
But, it’s the way of life—sometimes you get the bank, sometimes the bank gets you.
A FX trading analyst that I greatly admire had talked about the possible removal of the SNB line in the sand if pressure to hold it by buying Euros became too great.
Yet he maintained a long Euro/Chf position and admitted that he lost 6% of his assets when the dam broke. Analysts always tell you not to have more than 2% of assets in any one trade, but perhaps he got caught by “slippage” when the currency went past most stop losses.
I had also had a long position for a while, but the market stalled out and didn’t move for weeks so I got out of all CHF positions. Lucky hunch.