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Whos Gaining From Volatility

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by Felix Salmon
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The Low-Water Lifestyle   US Shortchanges Artists

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Aug 08 2008 9:25am EDT

Who's Gaining from Volatility?

Most hedge funds had a hard time in July, losing twice as much money, on average, as someone invested in the S&P 500. It seems that a lot of people were rushing in to the short-financials trade, and got massively squeezed.

At the same time, however, Jim Simons's Medallion fund was up 7% in July and up 48% in the first seven months of the year -- and that's after taking out its fees 5-and-44.

All of which implies to me that investors did badly last month, while traders did well -- which is what you might expect in volatile markets.

What does this mean for stocks? Well, if you're looking at financials, Goldman Sachs might well end up surprising on the upside when it reports third-quarter earnings next month. It's got the best traders on the Street, and it hasn't seen any necessity to rein them in. As a result, there's a good chance they're having a monster quarter.

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