Most traders/hedge funds/investors who say they are market neutral aren't. Market neutral is a farce because of the one thing all arbs use - leverage - lots and

Most traders/hedge funds/investors who say they are market neutral aren't. Market neutral is a farce because of the one thing all arbs use - leverage - lots and lots of leverage. If you use leverage - you must assume that anything that can blow up in your face will - usually at the worst possible moment. That includes all shorters, derivative sellers and leveraged net-long funds. They win a little every day - keeping their volatility in check - as if that fucking measures risks, and they do that year, after year, after year. 5 years later - BA BOOM! They blow themselves out of the water because during crises all correlations go to one and counterparty and liquidity risk get you killed as your convergence pairs blow themselves to smithereens. Hell even the shorters can get perilously close to not getting paid. John Paulson made a ton of money, but only after his counterparties came through. They almost didn't pay up because the world was crashing around them and they had no cash on hand. Michael Burry also got himself into a similar situation. If you are betting for the end of the world, you should probably consider that no one will have enough cash to actually pay you and would rather default and see you squirm. Even when you bet for the end of the world - you're net long. This is fundamentally what shorters don't seem to get - you can't bet for the end of the world - because if you do a) no one will pay you, or b) if they do, you won't be able to throw out your gigantic mounds of paper fast enough to get your hands on guns, food, water and shelter. There is no such thing as risk-less arbitrage in the real world - just like there's no such thing as efficient markets, an economist who knows what he's doing, a finance major who knows how to invest or a hedge fund manager who is actually market neutral. Everyone is net long - always has been, always will be. If you're running real money, and I'm talking billions - the only proven long term strategy is either a) statistical short term highly liquid front running (RenTech/Shaw) or b) long term value (Buffett) - owning companies that do well and not owning those who do badly (this is much more important). Leverage in chaotic, short term, extremely path-dependent and correlated markets is just plain stupid.