Is the Fed Pushing Out Primary Dealers?

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Oct. 24 (Bloomberg) -- Pine River Capital Management's Steve Kuhn discusses the parallels between playing poker and investing. He speaks with Trish Regan and Adam Johnson on Bloomberg Television's "Street Smart." Boone Pickens also comments. (Source: Bloomberg)

The poker table.

We had two of the top four performing hedge funds.

Now he is ready to do his victory lap.

Pine river capital, congratulations, really exciting night.

You beat some real legends, including david einhorn, who is known for his poker skills.

How did you do it?

Poker, like markets, is a combination of luck and skill.

The cards were in my favor.

If anybody watched last night, i had a keen 2 -- a king 2. a little bit of luck.

A little bit of luck and delivered of skill.

That was the big hand of the night.

Boone is also a poker player.

What are the similarities between poker and investing?

I often use poker for an analogy for markets.

One thing i have been talking to people about was how markets are changing.

A piece of research we saw from goldman sachs has shown how balance sheets are changing for dealers.

Wall street broker dealers are a shadow of what they used to be in the market.

Their balance sheet has shrunk.

If you think about who the dealers were, in poker terms they were a bunch of phil ivy's. they were looking for mispricing's in the markets.

I have gone down.

-- they have gone down.

The federal reserve is replacing them.

Who is the federal reserve?

They are somebody hosting the poker party.

We have a chart you sent to us talking about exactly this.

You can see the white line is the rocher dealer balance sheet.

That is in the klein.

The yellow line is the fed shee -- in decline.

The yellow line is the fed sheet.

I think this is a very important dynamic for the markets.

The fed is like somebody hosting a poker party.

I won the party to be a success.

They do not clear whether they win the poker game or not.

They are trying to make the whole evening something interesting.

They are like the casino.

They're trying to get the animal spirits.

Trying to get everybody happy about the market again.

But it is not working?

For me, it means, whether it is working or not, i think you could argue it is working.

At least looking at the s&p. it is working to inflate markets but is it working on main street?

I think it is working to inflict markets.

We will have to see how painful the bill turns out to be.

When does that come?

I do not know.

A few years?

What is your guess?

I think markets are way too complacent the bill will never, or good will come a long time for now.

People get used to it.

If you look at bullet chili beyond the s&p, the -- if you look at the s&p, this is at a time when the deficit is the highest it has ever been.

The fed is doing unique and strange events, not just our fed but the ecb, the japanese central bank, we have unprecedented events going on.

If you had said six years ago the fed was going to be the owner of 3 trillion securities, i do not think anybody would have thought that was possible -- and inflation would be 1.2%. the problem is, this is an analogy i have stolen, if you put out a lot of small fires, all of the brush builds up in the forest and all of a sudden the next fire is a big one and you can't stop it.

That is the analogy for markets today.

That is why volatility is too low.

This text has been automatically generated. It may not be 100% accurate.

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