The notional amount of derviatives in play is massive - totals are unknown because many are off-balance sheet - dollar value can be in the trillions. Today, I hear on CNBC that an Asian official had underestimated the value of carry trades in their currency - to the tune of TEN TIMES more than he thought. The point is that the massive amount of money in the derivatives/currency markets equals massive systemic risk - and no one has a good grasp on the total risk level or its implications. You can run all of the models and valuations that you want - they don't factor in the dominoe effect that will happen when counter-parties reneg on their agreements - LTCM was ONE FIRM - and that sent a shockwave throughout the financial markets. If multiple firms go under with derivatives trades, then we'll REALLY see what the definition of volatility is :eek:
whats important to learn is you cant go against the psychology of the market at a moment in time. The market will steam roll you. Thinking your smarter then the market will spell doom. There is no such thing as a 'bargain' when you dont have the equity to wait it out till the macro situation or psychology changes. And thats what this guy found out. Hes basically saying look at all these tech stocks my my how cheap they are.. I'm going to buy them at half the price they were, and make a killing. And the stock gets proceeded to get cut in half. Using a March 2000 analogy.