The Hedge Fund Bailout Worked: Citadel, Millennium And Point72 Recover Most Of Their March Losses

[Banjo]

"Anyway, enumerating what's wrong with any ZeroHedge article is a waste of time, but it makes for an entertaining read"
I know, I just don't know how erroneous it is, which is why I rely on you and a handful of others in the business to point it out. Thanks for the comments.

 

[trend2009]

Retail traders NOT know what a basis trade does not mean the problem they are trying to solve -identifying and capturing price patterns- is an easy problem. I would submit that is a problem that's 100x harder to "solve" analytically/mathematically than arbitrage trades.

This is why Rentech hires the best minds in math, physics, astronomy, compsci, etc. to do research. They are the only quant hedge fund I know that does deep research into price patterns.

Arb trades are idiotically simple once you identify the arb. Just buy one and sell the others(or short). I used to arb cryptos. It was a trivial. Of course, that trade stopped working once the window of opportunity closed. Anyhow. Long story.

how do you know rentec use price pattern?

 

[RedDuke]

how do you know rentec use price pattern?

read the book, plus over the years small bits of info came out.

 

[trader99]

read the book, plus over the years small bits of info came out.

Over the years, Jim Simon's have said it directly or indirectly through various interviews.

 

[The Humble Bunch]

capitalism at its finest. boy do we live in such interesting times.

 

[trader99]

Nobody wants to see wall street types "bailed out" but arbitrage serves a legitimate and useful market function, while providing liquidity against government bonds is perhaps the most basic task of a central bank.

I'm an uber capitalist myself otherwise I wouldn't trade everyday. But this kind of bs that it is promoting "socializing the losses, privatize the gains". Basically, socialism for the rich and their wreckless gambling habit.

If these quant funds were so good, then they should have used better risk management. Sure, these are small inefficiencies in a highly liquid market(Treasuries). Everyone knows this structural inefficiencies. Even as fasrback as LTCM in 1998, they were doing the basis trade.

The problem LTCM ran into was huge leverage. The same problem.

Without the Fed bailing out that market, a lot of players would have blown up.

But individual trader or smaller funds blowing up, no one comes to the rescue.

I think it was a mistake for the Fed to bailout LTCM. Moral hazard.

If these quants were really smart then they would have to do first rate deep research to find deeper alpha(Rentec) rather than trying to leverage up on a well-known structural inefficiencies.Every markets no matter who deep and liquid has its limits. And it turbulent times, dislocations will happen.

Jim Simons said in the early days they did basis trades in Treasures too. But they stop doing it because the gains were too small and the trade was too crowded. Not worth the risk.

That's how you generate 50%-80%+ annual return with low risk. lol. There is only one Rentec.

 

[Specterx]

If these quant funds were so good, then they should have used better risk management. Sure, these are small inefficiencies in a highly liquid market(Treasuries). Everyone knows this structural inefficiencies. Even as fasrback as LTCM in 1998, they were doing the basis trade.

The problem LTCM ran into was huge leverage. The same problem.

Without the Fed bailing out that market, a lot of players would have blown up.

There seems to be a lot of confusion on this thread between mark to market value of a position, and the arrangements financing that position. No surprise since the main source, Zerohedge, is basically a tabloid.

LTCM owned a bunch of positions at huge leverage which they falsely believed to be safe, based on their flawed models. When the Russia crisis hit, the MtM value of these positions fell and wiped out all of the fund's capital.

In contrast, if my understanding is right, then the basis-trade players were engaged in a genuinely safe arbitrage financed by repo. The problem last fall was that repo rates spiked far above any fundamentally justified level, which might have forced a disorderly liquidation of positions and resultant chaos in the Treasury market.

In this case there seems to be no question that it was a solvency rather than a liquidity issue - and if a central bank isn't going to lend cash against government bonds, the safest collateral there is, then what is it there for?

 

[comagnum]

The market liquidity is still piss poor. The book depth is a small fraction of what is once was. A retail trader can move the market it's so thin.


Jan ES book depth - Healthy

March ES book depth - ghost town

ZB-30 year Jan- Present. Shocking, looks like the music stopped!

 

[LargeTrader]

let's not forget that 80% is hidden liquidity.

 

[traider]

let's not forget that 80% is hidden liquidity.

How do you detect hidden liquidity?