This $1 Billion Collapse Shows It Pays to Take the Long View in the Markets

[Inside Wall Street with Nomi Prins]( Welcome to Inside Wall Street with Nomi Prins! It’s the only daily newsletter featuring the insights of renowned author and former Wall Street insider, Nomi Prins. Every day, Nomi shines a light on a massive wealth transfer she calls The Great Distortion. That’s the true cause of the permanent disconnect she sees between the markets and the real economy. And she shares ways you can come out ahead, if you know where the money is flowing. You’ll find all Nomi’s Inside Wall Street issues [here](. If you have questions or comments, send Nomi a note anytime [here]( or at feedback@rogueeconomics.com. This $1 Billion Collapse Shows It Pays to Take the Long View in the Markets By Nomi Prins, Editor, Inside Wall Street with Nomi Prins In 1998, one of the world’s biggest hedge funds collapsed into nothing. That hedge fund was Long-Term Capital Management, or LTCM. It was the brainchild of John Meriwether, a legendary bond trader at Salomon Brothers. Meriwether (and other so-called geniuses) started LTCM as a small hedge fund in 1994. By 1998, LTMC had attracted more than $1 billion of investor capital. But then, it collapsed under the weight of its bets and hubris. And as I’ll show you below, with the markets in turmoil… and major collapses like [FTX]( [Voyager, and Celsius]( rocking the investment world again… there is an important lesson we can take away today. Recommended Link [The #1 stock for 2023]( [image]( Investment expert Brad Thomas knows how to pick stocks. He bought Starbucks back in 2006… He bought Nike in 2003… And he and his team delivered a perfect track record from March 2020 to September 2022. Now, for a limited time, he’s revealing his #1 stock for 2023… [Get its name here.]( -- Hottest Trade in London Eventually, the New York Fed and 14 Wall Street banks bailed LTCM out… mostly because the other big Wall Street banks had exposure to it. But one firm didn’t come to LTCM’s rescue: Bear Stearns. I worked for Bear at the time. I ran its analytics group in London. In 1998, the buzz around town was that a new combination currency would surface in 1999 – the Euro… And when it did, Germany would pull all the weaker European countries up by its bootstraps. Certain investors believed that even countries that weren’t going to be part of the Euro would benefit, like Russia. But that’s where LTCM ran into trouble… [Featured: Former Goldman Sachs Exec: Everyone on Wall Street is investing, should you?]( One of LTCM’s bets was that Russian bonds would increase in value relative to German bonds. In Wall Street speak, we call this a “convergence” trade. Now, my team was also recommending convergence trades to our clients. But nowhere near to the extent – or with the leverage – that LTCM was doing them. And convergence was an extremely choppy path. When the Russian ruble crashed and Russia defaulted, that meant that being long Russia vs. Germany, in any way, was a trade headed for disaster. This was before 24/7 business news media. But word traveled fast at the pubs around where I worked, in London’s Canary Wharf district… When it became clear that a big shoe was about to drop… and LTCM was struggling to unwind its position… we all scrambled to contain our clients’ exposure. Recommended Link [This is the new normal… Don’t be left behind by a new reality]( [image]( A strange phenomenon is ‘distorting’ America’s financial system. If you listen to the mainstream media, you’d think a new crash is imminent. But today, former Goldman Sachs Managing Director Dr. Nomi Prins is coming forward with a different kind of prediction. She says: “We ARE about to see a crisis like nothing we’ve ever seen before. It won’t be like the crashes we saw in 2000… 2008… or even 2020. In fact, the next crisis won’t be a crash at all.” It has nothing to do with a pandemic, or inflation, either… But “Americans who are hoping for a return to ‘normal’ are about to be left behind by a new reality.” In Nomi’s interview she explains, in detail, what she predicts… and how she expects it to play out. [Watch her bombshell prediction for America’s economy now.]( -- It Pays to Take the Long View Fortunately for our clients, we weren’t directly involved in the Russia-Germany play. And we hadn’t recommended leveraged convergence positions. So we recommended they sit on most of their positions until the dust settled. Still, our clients weren’t happy about the chaos in the markets during the LTCM and Russian ruble debacle. A year earlier, there had been another bout of intense currency volatility with the Asian financial crisis. They had wanted to move past the choppiness. And here was LTCM messing everything up again! [Featured: One Stock Doubles Your Money, During Crisis?]( Some chose to exit their positions to avoid things getting worse, and they took small losses. But others stayed in the convergence trade for a longer time and did very well. One major British bank client sold two of their shorter-term positions at a small loss. But they held the rest of their investment through the latter part of 1999, as the Euro was born. And they nearly doubled their money on that. Recommended Link [The One Ticker Retirement Plan]( Over the Shoulder Demo Now Available [image]( Market Wizard Larry Benedict crushed the market in 2022. But he hasn’t done it with a “traditional” method… For a limited time, he’s sharing a free over-the-shoulder “demo” of his strategy in action. It takes less than 10 seconds… [Watch it here.]( -- What This Means for Your Money The point is, if your strategy is solid, it’s best to take a longer view. This applies to the stock market today as much as it applied to my clients at Bear Stearns back in the ‘90s. As for LTCM… In 1998, there were around 3,200 hedge funds managing about $210 billion in assets. LTCM’s collapse didn't stop the industry from growing. Today, there are more than 11,000 hedge funds, and their assets have swelled to more than $4 trillion. So if you’re feeling anxious about the awful markets we had in 2022, remember this… At the end of the day, even if one or two companies in a sector go bust, the other ones will be happy to pick up the pieces. That’s why it’s prudent to spread your risk – even when you’re investing in what seems like an amazing opportunity. Never invest all your capital in a single name or idea. And invest in small increments, rather than all at one time. If you like an idea, consider investing half of what you’d allocate to it now… and half in a few months, or when you see a dip. You can also consider investing smaller amounts over a longer period of time. This is what we call “legging in,” or “dollar-cost averaging.” None of us can time the market with 100% accuracy. And none of us can get every investment right. But this approach can help you protect your nest egg if one of your investments doesn’t work out. Regards, [signature] Nomi Prins Editor, Inside Wall Street with Nomi Prins P.S. Insiders are gearing up for one of the biggest wealth transfers in history. Everybody is positioning themselves to profit from the coming revolution in how the world creates, consumes, and stores energy. Seven hundred and fifty-five billion dollars flowed into this energy shift in 2022. And the recent energy crisis has lit a fire under this shift. Forbes predicts that number will surge to $130 trillion. You probably won’t hear about it from the mainstream media. Elon Musk is changing Tesla’s entire business model to capitalize on this energy revolution. But you won’t hear about that on the news, either. [To find out all about it – and a way you can get in on the action – just watch this presentation I recorded recently](. --------------------------------------------------------------- Like what you’re reading? Send your thoughts to [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=Inside Wall Street Feedback). --------------------------------------------------------------- MAILBAG Nomi recently laid out her [top six holiday movie picks]( and readers are sharing their own favorites. Thank you for sharing your Christmas movie list. I have the movies that you listed three to six on my list as well. The one movie that I would add to your list is: Michael Curtiz’s (1954) White Christmas – Sergio H. If you haven't watched Family Stone, it's our favorite of all Christmas movies with a star-studded cast. – Richard M. All of the picks are great. I saw It's a Wonderful Life last year in a small concert hall with about 200 people and enjoyed popcorn, coke, and other goodies. I just watched Christmas Vacation for the umpteenth time with my family. We all know the scenes and iconic lines by heart, but it still is as funny as the first time. Steve Martin and John Candy were at their best in Planes, Trains and Automobiles. Another classic with iconic lines. Sad that Candy had his life cut short. Thanks for the list! – Ken M. Elf! Great movie! I laugh all the way through it. – Ted T. I am absolutely horrified that you left out Scrooged from your holiday movie list. I also must have a very strange sense of humor, but I absolutely love that movie. Maybe I too have Scrooge tendencies. Bah humbug! – J. A. Tell Nomi that Christmas Vacation was made in Summit County, Colorado. I used to live there. The house was built in the gymnasium of the old Dillon High School. The snow scene was on the Breckinridge golf course, and the drive under the logging truck took place on Hwy 9 just north of Silverthorne. We averaged 20 feet of snow in winter. – James D. And a few other readers want to thank Nomi for the insight she brings to Rogue Economics… Thank you very much for letting me invest in your site. I appreciate it and hope you will continue the good job. – Hanad A. I do wish to thank you for the insight and value your team brings to my understanding of the markets. I am also a Strategic Trader subscriber and have taken many of the recommendations since becoming a member. – John V. Are you prudent in spreading your risk – even when you’re investing in what seems like an amazing opportunity? Are you making any changes to your investment strategy as we start a new year? Write us at [feedback@rogueeconomics.com](mailto:feedback@rogueeconomics.com?subject=RE: This $1 Billion Collapse Shows It Pays to Take the Long View in the Markets). 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