views on markets, equities, bonds, derivatives, finance, investing, the economy

Quants, Algorithmic Trading, Individual Investors

Quants-R-Us? Algorithmic Trading Trickles Down To Individual Investors. - Forbes: "Armed with $4.5 million in funding, the 2011 Harvard grad recently launched a Web-based platform called Rizm, designed to let individual investors with no coding skills build computer programs that select and trade stocks automatically, similar to the trading programs used by quant funds and high-frequency trading firms. . . ." (read more at link above)

Shareholders, Supersized (video)

Shareholders, Supersized: "Shareholders, Supersized - The so-called activist investors flocking to Wall Street are major shareholders with hedge fund money, and they are using their clout to push around companies like Dell, Sony and Apple."

Predictions, Optimism Bias, Happy-Talking Gurus

Paul Farrell: Beware of Predictions, Optimism Bias | The Big Picture: "2007-2008 bank credit meltdown — the top . . . happy-talking gurus -- False predictions made before the 2008 subprime credit meltdown:
  • ‘Mad Money’ Jim Cramer: “Bye-bye bear market, say hello to the bull.”
  • Ken Fisher: “This year will end in the plus column … so keep buying.”
  • Ben Bernanke: No “serious failures among large internationally active banks.”
  • Goldman Sachs: “Fear priced into stocks is likely to abate as recession fears fade.”
  • Barney Frank: “Freddie Mac and Fannie Mae are fundamentally sound.”. . . ."
(read more at link above)

Chinese Scrap-Metal Hunter, American Trash Is Treasure

To a Chinese Scrap-Metal Hunter, America's Trash Is Treasure - Businessweek: "He’s in the market to buy scrap metal he can ship to China, and this is the first stop of the day in the middle of a two-and-a-half-week road trip to regular suppliers that started in Albuquerque and will end in Spartanburg, S.C. But that, Zeng says, is nothing. “My last trip with Homer,” he recalls, referring to Homer Lai, the scrap importer in China’s Guangdong Province who provides him with most of his business, “we drove 9,600 miles in 26 days.” The result? Millions of pounds of metal worth millions of dollars left the U.S. for China."

Central bankers, storytellers, charlatans who have no shame

Central bankers ready if markets don't 'obey'- MSN Money Bill Fleckenstein - " . . . Four years ago Ben Bernanke and company talked about exit strategies. Now, they discuss only reducing the amount of monthly money printing from $85 billion to $70 billion -- and if they try to do even that, they are going to find out they have to reverse gears and go the other way. Only the bond market can put this insanity to rest. I believe we are very close to the world realizing that the Fed is trapped. The only question is when will people realize it and understand the consequences? . . . Speaking of trapped central bankers, an Aug. 22 article in the Financial Times by Gillian Tett, headlined "Central bank chiefs need to master the art of storytelling," concluded with what I thought surely had to be a spoof. "The next Fed chair also needs to be a masterful storyteller and cultural analyst, who can read social sentiment, shape norms, (re)create trust and persuade us all to think in a manner that suits the Fed's economic goals, without us even noticing. "Somebody, in other words, who can cast spells with both their spreadsheets and words. In short, what is needed is nothing less than a monetary shaman.". . . "

Seek wisdom, constantly learn, read, develop independent views based on facts

Farnam Street — Seeking wisdom by mastering the best of what other people have figured out.: "In the world of investing, that means constant learning—which entails constant reading. So I would encourage my younger self to read widely, to constantly learn, and to develop points of view independent of what others say and based on facts. Specifically, I would recommend developing the habit of reading. Constantly ask good questions and seek to answer them." -- Michael Mauboussin

Nasdaq Shutdown, Software Malfunction

Shutdown at Nasdaq Is Traced to Software - "Though the Nasdaq market calls itself home for the stocks of the world’s biggest technology companies, the exchange acknowledged on Thursday that a three-hour halt in trading arose from a problem with its software. The Nasdaq OMX Group, the parent company, on Thursday released preliminary findings that provided the clearest official insight into what caused the trading halt, being called in trading circles as the “flash freeze.”"

HFT, NASDAQ, System Failure

In Markets' Tuned-Up Machinery, Stubborn Ghosts Remain - "Why is this happening, and happening so often? One reason is the need for speed. Another is increased competition. The need for speed comes from a market in which high-frequency traders expect to be able to get in and out of positions within a second. Any market that cannot offer such speed will be at a competitive disadvantage. But such speed is not compatible with safety features that could cause suspicious orders to be delayed while someone — a slow person, perhaps — checked to see whether something was amiss. The competition comes from the fact that there are now numerous exchanges for every stock. That has caused the cost of trading to plunge. But it has also meant that each exchange is under pressure to keep costs to a minimum, which itself could be a deterrent to safety features."

Income Inequality, Inflation, The Fed

Mish's Global Economic Trend Analysis: Income Inequality Explained: Why Wages Don't, Won't, and Can't Keep Up With Productivity: "....The Fed and its inflationary policies are directly responsible for the massive rise in income inequality, yet numerous economists promote more inflation and taxation of robots as the solution."

Merger makes second-largest U.S. stock exchange

Merger to create second-largest U.S. stock exchange: "The consolidation in the exchange business is a global phenomenon as 24/7 trading that begins in Asia, moves to Europe and finishes in the USA becomes entrenched. In addition to Kansas City-based BATS' U.S. business, it also operates BATS Chi-X Europe, the largest stock exchange in Europe. Direct Edge, based in Jersey City, N.J., has been working towards opening a stock market in Brazil. The IntercontinentalExchange (or ICE) is nearing the completion of its acquisition of NYSE Euronext, the NYSE's parent company. Banks and high-frequency trading firms were behind the creation of BATS and Direct Edge. Direct Edge's O'Brien summed up the deal's virtues this way: "Direct Edge and BATS were both founded on a commitment to create an optimal trading experience for a diverse member base, from retail investors to broker-dealers to institutions. Together, the best of both organizations will work to further improve how the world trades, consumes market data, and accesses capital markets.""

US QE, Emerging Markets

US to relax quantitative easing but emerging markets grow tense | Business | "Brazil last week became the latest country to take emergency action to shore up its currency as anxious investors piled out of emerging markets. India, Indonesia, Turkey: there was more than a whiff of panic in the air as policymakers tried to reassure financial markets they remain a good bet. The Brazilian real has lost 20% of its value against the dollar since the start of the year, the rupee is down 15% and the Turkish lira down 10%. The situation has alarming echoes of the catastrophic Asian financial crisis of 1997-98. "

Wall Street, Insurers, Fiduciary Duty

Why Wall Street, Insurers Don't Want Fiduciary Duty - Forbes: "For individual investors and retirement plan investors, requiring that brokers and advisers all be fiduciaries is a game changer. Fiduciaries have to disclose all investment costs, conflicts of interests and are legally bound to put their clients first. But brokers and the insurance industry hate the idea. It’s a disruptor that would alter their business models and change their bottom lines forever, which is why they are creating massive barricades for the Securities and Exchange Commission and Department of Labor in their efforts to mandate fiduciary rules."

US Equities Markets, Rube Goldberg systems

Pricing Problem Suspends Nasdaq for Three Hours - "While regulators and market participants have taken several steps to strengthen their systems, the problems this week suggest that the flaws in the markets have not been repaired, and may actually be getting worse. “You have a very Rube Goldberg system,” said Gene Noser, co-founder of the brokerage firm Abel/Noser. “We’ve just put patches on it without attacking the basic problems.” The persistence of technical flaws — each seemingly coming from a different part of the system — has been blamed on the complexity of the trading technology and the fragmentation of the market itself. In contrast to the days when the New York Stock Exchange competed only with the Nasdaq, today there are 13 public exchanges competing in a fast-changing and low-margin business." (read more at link above)

The Fed, Stimulus Effects

At a Fed Conference, Views Differ Sharply on Stimulus’s Effect - "Policy makers from developing countries urged the Fed to clarify its plans so they can prepare for potential disruptions. Low interest rates in the developed world have sent vast quantities of money sloshing into those countries. Ms. Lagarde said that net flows to those countries had risen by $1.1 trillion since 2008, about $470 billion above expectations based on long-term trends. As rates rise, history suggests that some of the money may come sloshing back, with hugely disruptive consequences. Investors already are selling foreign currencies and buying dollars in the expectation that the Fed will begin to decelerate its stimulus campaign, allowing the dollar to strengthen. The Indian rupee lost 4 percent of its exchange value in about a week, prompting the Reserve Bank of India to impose restrictions last week on the outflow of money. Agustín Carstens, governor of the Bank of Mexico, said, “Advanced country central banks should mind the spillover effects of their actions.” He added, “Otherwise the crisis will be reactivated with new actors.”"

Startup Bitcoin-only margin trading platform

Startup opens Bitcoin-only margin trading platform | ZDNet: "Currently, if an investor wishes to trade on a Bitcoin exchange like Mt Gox, they need to manage one or more traditional currencies along with their Bitcoin currency, increasing the complexity and potential risk to them. To overcome this, Lee has developed a margin trading platform,, that is completely void of all currencies other than Bitcoin. Trades are placed in Bitcoin, payouts are in Bitcoin, and the deposit required to open a position on the platform is in Bitcoin. The second core feature of Lee's platform is that it is focused on margin trading, allowing investors to use additional investment to leverage their existing Bitcoin and increase their payouts. As with all margin trading platforms, this multiplies the reward for investment decisions that pay off, and also multiplies the risk involved if the market turns sour. . . ." (read more at link above)

London Whale Trades exposes folly of Regulations

Would Better Regulations Have Prevented the London Whale Trades? : The New Yorker: "....But JPMorgan seems to have violated pre-Dodd-Frank laws by failing to properly disclose the London Whale trades, and the government’s failure to detect them resulted more from institutional shortcomings than from inadequate rules. JPMorgan was supposed to be an expert in risk management with a “fortress balance sheet,” as the bank put it. If the London Whale was able to swim undetected there, one has to wonder what problems are lurking in other financial institutions and whether—new rules or no—our government is up to the task of protecting the public interest."

London Whale Trades, Regulations

Would Better Regulations Have Prevented the London Whale Trades? : The New Yorker: "The risk-measurement tool known as “Value at Risk,” or VaR, emerged from the seismic changes that shook the financial industry during the last two decades of the twentieth century. Commercial and investment banks were merging, going public, and increasing in scale. Just as these financial supermarkets began attracting ever-larger pools of capital from investors, there was an explosion of trading in exotic and complicated securities based on mortgages and other consumer debt. After the stock-market crash of 1987, banks became much more interested in developing more sophisticated risk-control mechanisms for their increasingly large and volatile portfolios. ..." (read more at link above) 

London and UK, Sailing Away from the EU

“We would still be the world’s sixth-largest economy. Countries such as South Korea ... do perfectly without huge trading blocs,” he said. “Similarly, many of the world’s biggest financial centres — such as ... Singapore ... do not have huge domestic economies behind them.” (source infra)

Sailing away from the EU could be a boon for City, says Icap chief Spencer - Analysis & Features - Business - London Evening Standard: "Spencer, a former treasurer of the Conservative Party, made it clear that he would overwhelmingly prefer the UK to succeed in renegotiating its position in Europe — but it should pull out if that were to prove impossible. “I do think that the UK and the City could thrive outside the EU,” he said. “If we pulled out, we could quickly take away a lot of the regulatory burden which is imposed on the City.  There would not be an exodus of business, an exodus of banks or an exodus of staff.” Spencer, who created what was then Intercapital in 1986, says he believes David Cameron is right to have given renegotiation such high importance." (read more at link above)

Stock Markets, Insider Trading

George Gilder Explains Why Stock Markets Have Devolved Into A World Of Noise - Forbes:
.... George: “I agree. I mean, the whole goal of the SEC and all these fair-disclosure laws and insider trading rules is to create what they call a ‘level playing field.’ But a level playing field by definition is a playing field with no information in it. The result is that most of the returns in the economy, most of the profits, migrate to the legal insider traders. And the legal inside traders are venture capitalists and private equity companies that are dealing in whole companies — and thus are permitted to have intimate knowledge of every investment they make — and conglomerates like Berkshire Hathaway and General Electric GE +0.72%. Which aren’t truly companies in a usual sense; they’re aggregations of assets that are acquired through intimate inside knowledge. So, most of the returns in the economy go where inside trading and inside knowledge is permitted, and meanwhile the public is pushed to the random walk down Wall Street....

The Gray Art of Insider Trading

The gray art of not quite insider trading : ""We used to be able to talk to investigators on drug trials," says Source A, a hedge fund portfolio manager. Like all the analysts, research directors, and portfolio managers who cooperated for this article, Source A requested anonymity. People don't want their names in a story about gray areas of equities research that border on insider trading. . . ."

Yen Seen Weakening to 105 Versus Dollar by Year End (Video)

Yen Seen Weakening to 105 Versus Dollar by Year End: Video - Bloomberg: "Sacha Tihanyi, a Hong Kong-based senior currency strategist at Scotiabank, a unit of Canada’s Bank of Nova Scotia, talks about the yen, Australian dollar, Indian rupee and the Indonesian rupiah. He speaks with Zeb Eckert on Bloomberg Television's "On the Move." (Source: Bloomberg)"

Draghi Clever says Brooks (Video)

Draghi Has Been Incredibly Clever: Brooks: Video - Bloomberg: "'s Kathleen Brooks discusses the outlook for the euro and Japanese yen with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)"

Investors Still Cautious About China (video)

Investors Still Cautious About China: Hewin: Video - Bloomberg: "Standard Chartered's Sarah Hewin discusses the state of the Japanese and Chinese economies with Mark Barton on Bloomberg Television's "Countdown." (Source: Bloomberg)"

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