Top Takeaways Small Print? Reddit. We'll leave last week's "David versus Goliath" storytelling to the journalists. It's not that the story doesn't matter. It does. The week of January 25, 2021 may prove to be one of those seminal moments in the global capital markets' long timeline, like "The Big Short" (2007-08) or the bailout of Long Term Capital Management (1998). Last week's events provide more evidence that markets are broken. Retail investors learned a hard lesson about margin calls. Prime brokers, the firms that finance and enable short-selling by speculators, hedge funds, and risk managers, are said to have had their largest gross exposure drawdowns, an 8-standard deviation event. There's not a page in the risk management playbook for what happened last week. Maybe there should be. What did we learn? (1) know your liquidity, (2) asymmetrical risk exists in markets and in social media, (3) always read the fine print. The fallout from last week's events won't be on full display until the end of the first quarter.
Weekly Risk Radar
Weekly Risk Radar
Weekly Risk Radar
Top Takeaways Small Print? Reddit. We'll leave last week's "David versus Goliath" storytelling to the journalists. It's not that the story doesn't matter. It does. The week of January 25, 2021 may prove to be one of those seminal moments in the global capital markets' long timeline, like "The Big Short" (2007-08) or the bailout of Long Term Capital Management (1998). Last week's events provide more evidence that markets are broken. Retail investors learned a hard lesson about margin calls. Prime brokers, the firms that finance and enable short-selling by speculators, hedge funds, and risk managers, are said to have had their largest gross exposure drawdowns, an 8-standard deviation event. There's not a page in the risk management playbook for what happened last week. Maybe there should be. What did we learn? (1) know your liquidity, (2) asymmetrical risk exists in markets and in social media, (3) always read the fine print. The fallout from last week's events won't be on full display until the end of the first quarter.