Meriwether Summary and Analysis

"If there was one article of faith that John Meriwether discovered at Salomon Brothers, it was to ride your losses until they turned into gains" (Chap. 1, p. 4). When he was working at Salomon Brothers in 1979, a dealer from J.F. Eckstein & Co. came to them asking for help. He was trading Treasury bill futures, and in the kind of position he had, he needed a relative change in the two prices.

Eckstein had bought bill futures and sold the cash bills. The way this kind of arbitrage position works is the trader makes money on one position and loses money on the other position. As long as the futures price rises less than the cash price, the trader gains. But this time, for some reason, the future price rose more than the cash price. Thinking the market would behave in it...