Stock Market

Trader who lost $1 billion during financial crisis is up 90% during the pandemic

‘There are dislocations today that are as large as they were three months ago. ‘

— Boaz Weinstein

That is Boaz Weinstein, the former star Deutsche Bank

trader who now runs his own hedge-fund firm, Saba Capital Management explaining his investment outlook during the pandemic in a recent Bloomberg interview.

Weinstein is up 90% so far this year on a series of bets that have produced hit after hit for the hedge-fund investor. According to Bloomberg News, that performance has thus far helped the 47-year-old trader outperform nearly all of his rival investment firms.

And, Weinstein sees more gains to be had in the coming months amid the global pandemic that has rocked global markets and driven much of the developed world into a deep recession.

“Markets are at an unstable place right now. I look out at the next five months, and there are lots of known unknowns,” Weinstein told Bloomberg in a phone interview.

In a separate interview with Institutional Investor back in May and again in June, the relatively youthful investor, said that predicting the pandemic wasn’t the secret to his success, but instead spotting price dislocations in derivative securities that are often used to insure against bond defaults in a company.

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Weinstein began purchasing credit default swaps, or CDS, that looked cheap compared against others in their category. Notably, prices for CDSs on companies like United Airlines Holdings

cost about the same as those for high-grade companies such as Verizon Communications

or McDonald’s Corp
the magazine reported. 

So Saba began to exploit those pricing dislocations.

“June has been one of our best months of the year, even though markets have been buoyant,” Weinstein told Bloomberg.

Meanwhile, June was also a good month for the overall stock market, with the Dow Jones Industrial Average

up 1.7%, the S&P 500

rising 1.8% and the Nasdaq Composite Index

notching a 6% return, and July also is looking to register a fourth straight gain for those indexes.

Back in the 2008-09 financial crisis, Weinstein, then a mid-30’s star who helped develop Deutsche Bank’s derivatives trading desk, suffered a rare $1 billion setback with ill-timed bets that crumbled on the heels of the bankruptcy of Lehman Brothers, which sent shock waves throughout the derivatives industry.

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