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Friday, September 30

Red-Blooded Risk: The Secret History of Wall Street

 Aaron Brown is now out with a new non-technical book Red-Blooded Risk: The Secret History of Wall Street on the history of risk and quantitative analysis. He draws a timeline of how quants entered diverse fields from black jack to finance and transformed them by their actions.

Aaron is not just another Bachelor of Journalism writing intellectually lazy pamphlets filled with headline collections, anecdotes and catchphrases. He is one of the most respected risk professionals who has worked at top places, doing top work, for a long time. He is an avid forum participator on nuclearphynance and is not scared of putting his name and photo under his statements.
Man who has it all and is not afraid to lose it is the best possible writer, thus you should read the first chapter for free on Amazon, buy the book and probably check out his previous book, The Poker Face of Wall Street as well.

Commentaries from professionals on
"I read the first six chapters after my daughter fell asleep today...just couldn't put it down. I have questions for Aaron already but I will hold off posting until I finish the book." - dgn2, 1822 posts
"I have to admit it sounded good." - Nonius, 10594 posts

"Aaron was kind enough to let me read through an early version. It is a book of guiding principles rather than specific quantitative recipes. it is almost about meta-risk. i read it cover to cover and have found myself dipping back into it every week or so. there have been a lot of "ah, now i get it" moments. some of these have been helping me clarify what i was trying to think while others were completely new. The style is very conversational. it really is like sitting down with the author for a chat. If anyone is disappointed with this book it says more about them than it. - filthy, 1111 posts

"I read an advanced copy and have pre-ordered the real deal. I'd recommend it to anyone on this forum. Partly historical, partly organic, partly yarn, with a pinch of sensationalism. Most of what Aaron says on these subjects, either in person, from a lectern, or on-line, falls into two camps with me: highly thoughtful or unconventionally insightful. Re the latter, it is not uncommon for Aaron to says things such that my initial gut reaction is to disagree, then I go through my phases of acceptance: I can't think of anything to refute his logic, I start thinking of examples to corroborate, and, finally, I tend to agree. The parallels with gambling and organized crime will intrigue some, infuriate others, and entertain many. Aaron is an original thinker and this book is another example of this fact." - chiral3, 4412 posts 

"I read the galleys . . . like it enough so that I'm buying copies for myself and a couple of the young whippersnappers in the office. Though I have had a policy of trying to buy books on Kindle (when available) in order to reduce the ''way out of control book footprint'' in my apartment I am making an exception in this case. The comics make the physical copy worth having . . . and I have yet to figure out a way to get an author to sign my Kindle. Can't think of a better way to inculcate folks with insight into risk and risk trade-offs." - TonyC, 1087 posts

Thursday, September 29

29th Sep - Waiting for something to give

Summary: Another zombie day. Today's links include alphaville's review of results from a proper stress test and two comments on the BIS paper on FX HFT, but otherwise a slow day on quality texts. Check the posts from the previous days for some proper reading, after you've done the above.

Feedback is always appreciated: leave a comment, follow me on Twitter or email me. The MoreLiver's Daily is also now on Facebook.

Debt crisis: live – The Telegraph
Eurozone crisis: live blogFT
FX options: Vols, Risk Reversals & Pin Risktradingfloor

A genuinely stressful stress testalphaville / FT
Realistic but nasty scenario makes half of the banks close on Basel III requirements, but Basel II lets almost all of them survive. “European banks look to us as if in some cases they haven’t even begun the balance sheet repair process, with record high assets, large wholesale funding gaps, small cumulative loss realisations compared to total assets and thin capital bases.”

Buiter: Euro area recession likely to begin in Q4 alphaville / FT
Most likely date for Greek restructuring is after the ratification of EFSF enlargement, late October-early November.

28th Sep - Eurovision and War in Middle East

Summary: Parliaments in Slovenia and Finland have now voted yes on the EFSF expansion. All eyes on Germany’s vote. Waiting for the stupid, pre-arranged parliamentary debates and votes on the EFSF feels just like watching the Eurovision song contest for the music's sake. Again a new plan on the Greece. The leveraged EFSF is not fashionable anymore, and now the talk is that the next stop is the G20 meeting much, much later. Meanwhile the Greeks cannot collect taxes as they’ve run out of ink cartridges. Jesus Christ…

Views: It is late and duration calculations have kept me from writing. After too much caffeine I figured I might throw here some of my wilder scenarios of what might happen or go wrong in the world. Yes, of course it involves proxy wars, hydrocarbons and the Middle East.

As Pakistan seems to become a lost case, eyes are turning towards other opportunities. The main driver is the global reliance on stability in Saudi-Arabia. Should Saudi-Arabia become radicalized, new power bases would be sorely needed. Recent war games have confirmed the essential role of Saudi Arabia and strategically, it is dangerous to be too dependent on a single player. What might happen if the Saudis were out of the equation?

Tuesday, September 27

27th Sep - Death Star

Latest winner, source: Zero Hedge

A look at the “Death Star” and why the Germans don’t like it.

Quest post by Macronomy:

Surf's up ! Much ado about nothing and CPDO redux in European Style
“No one loves the messenger who brings bad news” - Sophocles in Antigone

So what?

We have an epic rally in the equity space because of some news of a possible plan to leverage up the EFSF,
CDO-SIV style? What has materially change today? Not much.
And my good credit friend to comment:
"Another volatile day in the equity market …. On rumors, rumors and more rumors of EFSF, ESM, EIB, ECB …. And overall leveraging of the existing system …. It may make the trick for a while, but I tend to think it will not be long before Mr Market rejects that “too complicated to work” puzzle."

The plan so far is sketchy at least and fraught with danger.

Monday, September 26

26th Sep - Throw Death Stars at it!

“There is no plan, and we don’t need one”
CRRAAZZYY weekend, journos told us the participants to the IMF’s annual meeting looked really worried. Quick, they thought, we need another rumor of a plan, or better yet, a rumor of rumor! The outcome from Saturday was that the Greek debt would be given a haircut of 50% (too little), the mostly French banks would be recapitalized and a SPV would be created in order to leverage the EFSF 8 to 1 to buy European bonds, ring-fencing the rest of the PIIGS from the core.

Massive two trillion, more than the worst estimates of the total cleanup cost! Fight leverage gone too far by introducing more leverage! Only to have ze German finance minister then tell that no leverage plans are in the air and the current size of EFSF (440 bn) is enough. Given enough time, he might have a point: in the not too inconceivable future, it could be enough to buy all the French banks and most of the PIIGS government debt.

Saturday, September 24

24th Sep - Wasted Weekend

This is how it goes, click to enlarge, source: BBC
Edit: many people are coming to this old post through Simoleon Sense. Contrary to what SS said, this site is a twice-daily blog. Welcome, hop around, hope you like it, please comment, OPM 4 Life!

Terrible week in the markets, no hope, only delusion, denial, empty promises, one more drink, one more turn, I will never hit you again. None of it is true anymore. Four weeks ago it used to be that the price was the news, in absence of solid, trustworthy politicians and central bankers. Price was followed, as it knew what was what. Now all markets are manipulated, squeezed, closed, restricted or kept in the dark. Market participants have no news, no prices and no statements or rules, so now rumors of rumors are moving the markets.

On Tuesday the Greek parliament will vote on austerity measures. The end result is uncertain, and if the parliament says no, the EU bailouts agreed on 21st July are not happening. They might be stupid enough to vote no and learn to eat stones and fight regional wars, or brave enough to vote no, as in this game of chicken the Germans, French and the ECB have more to lose. I gave my odds for Greek default here one week ago. I see no reason to change my view.

Friday, September 23


Due to other commitments, I will post today only one post later. Super Fed Aftermath and UBS rogue trader have been updated. What happens if Greece defaults? is still online, but not updated. Feedback would be much appreciated - what do you find most useful here? Follow me on Twitter or email me.

Thursday, September 22

22nd Sep Late - Carnage

Vols, Risk Reversals & Pin Risktradingfloor
FX option vols 22nd Sep 12:30 GMT

Europe’s Triple ThreatProject Syndicate
Michael Boskin: simultaneous sovereign-debt, banking and currency crises. Everyone knows how to proceed – debt restructuring and selecting which banks are worth saving – and saving them.

Rumor of Fed Cutting Rates on FX Swap Lines to EuropeMarketBeat / WSJ
Just a rumor, and would not have much effect anyhow.

European Liquidity UpdateZH
Libor dispersion continues, and the rates are not even workable.

22nd Sep Early - Waking up

Summary: After the FOMC everything back to risk-off. The Fed did little, and all of it and more were already priced in. I put all Fed-related links to a dedicated post, as the event is of great interest to some, and the rest could not care less, here: Super Fed Aftermath.  I also updated UBS rogue trader and the What happens if Greece defaults? is still there, if you haven't noticed. Leave a comment, follow me on Twitter or email me.

News roundups Wednesday early Between The Hedges and late Between The Hedges

Vols, Risk Reversals & Pin Risktradingfloor
FX option vols 22th Sep 07:00 GMT

** Maximum Intervention to take us to Crisis 2.0tradingfloor
possible next steps: extension of Greek debt, Fed indicates nominal inflation and unemployment targets, SnB raises EURCHF floor to 1.25, European Monetary Fund. But one more huge crisis, with a mother of all risk-offs could be required before the willingness to solve comes.

**Bundesbank ready to pull the Euro’s ripcordLighthouse IM
Two Germans leaving ECB – are they leaving the euro? Interestingly, during the cold war Germany had billions of banknotes with new design in case Soviets would have flooded them with counterfeit money. The Germans are probably prepared for the breakup now.

Super Fed Aftermath

Fed twisted, as was expected and markets tumbled. Here are the comments from the blogs and the banks:

Statement Regarding Maturity Extension Program and Agency Security Reinvestments – N.Y. FED

FOMC meeting flash: Bernanke does the twist – tradingfloor

USD in demand after the Fed implements full-blown Operation Twist – tradingfloor

More Causal Confusion: The FOMC Decision and the Market Reaction – A Dash of Insight

Wednesday, September 21

21st Sep Late - Waiting for Mr. Godot

Summary: This post’s euro bank links are really worth reading, as well as the latest Fed Watch links. Today's post title tells my view exactly - the Fed is practically toothless. You may wait, but he will not come up with anything that could solve the really important issues. If you need more Fed stuff, check my Super Fed Watch. UBS rogue trader and What happens if Greece defaults? have also been popular posts. Leave a comment, follow me on Twitter or email me.

I could not resist putting this video here, because every time I hear this, I just have to party! Safe for work, only the song plays. Happy Ben-Watch!

Super Fed Watch

Here are the Fed watch-articles I have linked to previously, nicely collected to a separate post. Have fun. Remember, you might feel powerless, prone to mishap and ridiculed, but you will never be as impotent as modern monetary policy.  Other similar posts are the collections UBS rogue trader and What happens if Greece defaults. Leave a comment, follow me on Twitter or email me.   Updated 16:30 GMT

21st Sep

Views from Barclays, CRT, Nomura, MS, GS, CS, ICAP, Janney

** Pushing on a String – The Big Picture

Presignaled: twist, lower interest on excess reserves or better communication.

** Don't expect miracles from the Fed – Humble Student of The Markets

21st Sep Early - Way of the exploding can-kick

Summary: European Commission was happy with the teleconference between the troika and Greece, so expect massive public sector layoffs and the payment of the next bailout tranche in early October. The can has been kicked, again. FOMC press coming later today, I will soon post a collection of the recent Fed watch links. Three posts yesterday. UBS rogue trader updated. Leave a comment, follow me on Twitter or email me. What happens if Greece defaults?

Views: Further easing from FED is completely expected by the markets, so instead of the normal sell-on-the-news, I actually think the opposite happens: expect a two-day risk-on party after the announcements, whatever they are.

Tuesday, September 20

20th Sep Extra - IMF reports, eat my shorts

Summary: Varied headlines from cooked up Greek stats,  CDS intervention, copper as a leading indicator for China, and then standard Fed watch and Greek misery. IMF reports came out, but nobody cares. Instead, leave a comment, follow me on Twitter or email me. UBS rogue trader updated

What happens if Greece defaults?

After couple of rounds of googling, here are some articles in mainstream media. Leave a comment, follow me on Twitter or email me. 

Citi’s and GS’s research

20th Sep Late - Risk on as nobody went bust last night

Joke of the day: Italy Rejects S.&.P. Downgrade – NYT

Quote of the day:Just as in approximately 250 of the previous 262 days of this year, the world’s least-sexy soap opera continues to mesmerize the market.” – MarketBeat / WSJ

Saxobank’s Jakobsen paints some scenarios. Either the North leaves, or the South leaves. North leaving would be better.

Short view from Rennaissance Capital: Eurocrats have tried to stop the price slides by intervention and bans, but markets have simply moved to other instruments.
** A slippery slope – Buttonwood’s / The Economist

20th Sep Early - Beijing has a fit as EU not fit

Summary: S&P downgraded Italy, Greece’s prime minister plans for a referendum on should the country stay or leave the euro. Chinese state bank has stopped dealing in FX forwards and swaps with several European banks, incl. SocGen, BNP, UBS.

Tuesday Watch – Between The Hedges
London headlines – beyondbrics / FT

FX vols 20th Sep 07:00 GMT
Vols, Risk Reversals & Pin Risk –


What happens to the CDS’s on Greek debt

Monday, September 19

19th Sep Late – Greek Advent, or Eve?

Summary: The Greek default is now a certainty. Only the timing and the possibility of getting the second bailout tranche are open questions. UBS rogue trader updated. Leave a comment, follow me on Twitter or email me. 

Today’s Headlines – Between The Hedges

FX options 19th Sep 12:30 GMT
Vols, Risk Reversals & Pin Risk –

Credit market overview with good charts and comments

19th Sep - Monday Blues

Summary: nothing new, this week’s main events FOMC (two days, announcement on Wednesday, not expecting much, but something), IMF meeting, continued Greek struggle. UBS rogue trader updated. Leave a comment, follow me on Twitter or email me. 

News roundup: Monday Watch – Between The Hedges
FX OTC options 19th Sep 07:00 GMT
Vols, Risk Reversals & Pin Risk –

Excellent roundup and commentary of the blogs and news
** Fed decision Wednesday a sideshow to Europe – Humble Student of The Markets

Sunday, September 18

18th Sep Weekender: Euromeet gone, Greece going

Summary: Moody’s did not downgrade Italy, but the downgrade is in the works. Nothing of substance announced during the weekend’s meeting, but Greece’s situation is looking really bad – prime minister turned his flight to Washington around and returned to Athens on Saturday, after a chat with his finance minister. FOMC next week. The UBS Rogue Trader-post has been updated.

From Friday evening
Today's Headlines – Between The Hedges

Summary of this week’s events, rated plus or minus.
Weekly Bull/Bear Recap – Rational Capitalist Spectator

Country-by-country list

Euro cannot survive in present form, eurobanks grossly under-capitalized, in 2008 governments could sort out banks, but now both have problems, EFSM not enough and substantially more required”

Friday, September 16

16th Sep Late - Fishy Weekend, Greek Gifts

My EURUSD view
Summary: I am posting early today, because quite frankly I am scared of the coming weekend and want to make the Greek note now, so fame-wise,  all your base are belong to MoreLiver before the European close. Rumors of Italian downgrade over the weekend. I just updated an earlier post UBS Rogue Trader.

Views: I believe there is a 70% probability of a Greek credit event this weekend, 20% next week and 10% in the next three weeks, a total of 100%. I guess the total haircut will be 50%, but it should be 70%. With bad luck (and there has been plenty of that lately), a too low of a haircut will mean the same crap is again ahead of us in two years.

16th Sep Early - Alphabet soup to Europe?

Summary: Interesting market day ahead: Geithner visiting Europe today and has already told Europe what it should do, and Europe has replied “look who’s talking” – statements probable during the weekend. Friday and weekend coming,  ongoing Greek crisis, markets in a slight “risk on”-mood after the USD swap line expansion and quad witching in U.S. (exchange-traded derivatives’ expiration day, usually causes heavy volume, price manipulation, position adjustments, pin risk, blah blah). This week’s major news was the swap lines (money that has to be paid back, but stops liquidity squeezes in short-term). Next news could be the European version of TALF, as proposed by U.S.

Good luck, follow me on Twitter or email me.

Views: EURUSD below a resistance level. I might tweet with trade ideas.

News roundups:Friday Watch – Between The Hedges
Credit update: After all tomorrow is another day – Macronomics
FX options update: Vols, Risk Reversals & Pin Risk – / Saxo Bank

1. Illiquid or insolvent, treat 2. bank recap 3. change policy from austerity to growth 4. redesign the system to prevent this from happening again.

4 truths: default by Greece, EU has agreed a member can default, Greece should cut deficit immediately, Italy and Germany are not ready for the next stage of the euro crisis.

Peter Tchir: “Notice how they have backed off how bad a Greek default would be and try and narrow it down to the fact that a default without adult supervision would be bad.”
** On Walking The Maginot Line – Zero Hedge

Thursday, September 15

UBS Rogue Trader

I plan to update this page occasionally, as the story develops. Last update 26th Sep 15:00 GMT, latest posts at the bottom of the page. The views on the incident seem to get nastier by the time. 

This is just crisis porn and more suitable for late-night viewing. Fortunes have been made and mostly lost, so this is a good primer on what to expect (FT writing about your Facebook status updates) when the middle office finds those hidden trade confirmations. If you have been lucky or only somewhat unlucky in the markets, this can be thought as a reminder that things could be much, much worse for you. Good luck, follow me on Twitter or email me. 

Dedicated section


Linkedin profiles of the perp and his boss. Delta One, just like in SocGen

Internal memo to employees
UBS rogue trader – alphaville / FT

Indirect cost increases: more risk management, investor risk aversion, bad reputation

FSA broker profile, Twitter account, also points out that similar trouble in quant funds can be expected.

Mandatory look at previous famous cases.

Points out that UBS’s risk management has been criticized in the past, too.

The timing just after the Vickers report puts an interesting twist to the debates on banking reform: “As for the bankers, they remind me of the post-1815 Bourbon monarchs who had "learned nothing and forgotten nothing".”
** What's $2 billion between friends? – Buttonwood’s notebook / The Economist

Is it even extraordinary? (Short piece)
** Too big to care – This is the Green Room

Points out that the loser rogues are tolerated because of winner rogues

Profile of the “man of the hour”
Meet Kweku Adoboli –

Speculates that the position was in EURCHF, and could have been a long volatility play.
UBS and the Big Trade? – The Trader

A rogue trader at UBS or a rogue bank? – Business blog / FT

You can probably guess Matt Taibbi’s view from the headline 

Neighbors tell he is a really nice guy, went to good school, blah blah.

16th Sep updates

Also suggests CHF as the culprit
Losing $2B Without Anyone Knowing About It Is Much Harder Than You Think – Kid Dynamite’s World

“Recent volatility in financial markets may have helped bring the losses allegedly racked up by a rogue trader at UBS to light, risk managers speculate....”

17th Sep updates

The Rogue’s Gallery –

UBS rogue trader: You were warned about ETFs, says Terry Smith – The Telegraph

18th Sep updates

 Scapegoatia-UBS reveals details of Trades – The Trader

Whither UBS’s investment bank? – Felix Salmon / Reuters

UBS loss 'came from lots of small trades over months' - BBC

(REG) UBS's Gem in Asia – WSJ

(REG) Delta Desks Emerge as Mine Fields – WSJ

19th Sep updates

Analysis: The real rogue is not UBS’s Kweku Adoboli but Delta One trading – TBIJ

A failure of all offices – This is the Green Room

Because they Aarrgh – Macro Man

Make That $2.3 Billion – DealBook / NYT

UBS rogue trade – Kengeter memo – alphaville / FT

20th Sep updates


Spotting a Rogue Trader – Advanced Trading

21st Sep updates
The UBS-Adoboli Scandal Shows the Problem of Negatively Skewed Risk is Still With Us – EconoMonitor

22nd Sep updates
Why Banks Don't Listen to their Risk Managers and Risk Losing Billions – Advanced Trading

Rogue Watch: Beware False Trades – Advanced Trading

UBS CEO Gruebel says has board's backing – Reuters

A rogue trader speaks: 'You live in fear. Your whole life is a lie' – The Independent

UBS Says Investment-Bank Operations Won't Be Sold – WSJ

UBS Suggests Employees Savor This Weekend’s Pebble Beach Outing, As Next Year’s Event Will Be Held At The Hartford Pitch ‘N Putt – Dealbreaker

23rd Sep updates
(reg) UBS Trader Faces New Charge – WSJ

Is Oswald Grubel leaving UBS?Money Is The Way

UBS Trader to Remain in CustodyDealBook / NYT

24th Sep updates
UBS Chief Resigns Over Trading Scandal NYT
The board said it regretted Mr. Grübel’s decision. Sure, that’s why one week ago he told a newspaper that as CEO he was responsible for the trading loss, but did not feel guilty and gad not thought about resigning. You’re fired!

UBS’S CEO Is Gonna Take Off Now Dealbreaker

UBS’s trading loss: Swiss missThe Economist
A huge loss at UBS will make it harder to revive its investment bank

Meanwhile, in Downtown Zurich… – The Reformed Broker
“I take money from UBS "financial advisors" all day long.  I wrench people out of its horrible hedge funds and brokerage products and I take the calls from people who say ‘all I wanted was to work with my guy at PaineWebber, how did I end up dealing with these clowns?’”

UBS' CEO Booted – ZH
“The UBS "Rogue Trader" incident which was anything but rogue and certainly involved far more than just a trader, has struck at the very top”

UBS rogue trader: Oswald Grübel resigns – The Telegraph

UBS rogue trader: KPMG to lead investigation into bank failings – The Telegraph

UBS jobs in peril as CEO quits over alleged rogue trader scandal – The Guardian

25th Sep updates
UBS: Ossie out – Schumpeter / The Economist

New UBS boss seeks fresh start after trading scandal – Reuters

UBS hopes small is less risky – BBC

26th Sep updates 
UBS’s Grübel Steps Down, More May Follow – The Source / WSJ

UBS Shares Rise on Chief’s Departure – DealBook / NYT

Rogue Trading Leads UBS Chief to Resign – NYT

Who Wants To Be CEO Of UBS? – Dealbreaker

27th Sep updates

UBS in ‘Disarray’ as CEO Gruebel Is Replaced by Ermotti – Businessweek

UBS 'rogue trader' offices to be knocked down – The Telegraph

Minor UBS Shareholder Wants Everybody Out, Has A Few Ideas About Future Leadership – Dealbreaker

UBS Shareholders Push for Deeper Changes – WSJ

UBS’s New Chief: We Will Keep Our Investment Bank – DealBook / NYT

In Rogue Trading Scandal, a Reason to Enforce the Volcker Rule – DealBook / NYT