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Monday, July 2

1st Jul - Weekender: Trading & Markets

In this week’s edition LIBOR manipulation, a new “must-have” book and some interesting quant strategies.

ECONOMICS
On the transfer of risk and the mystery of low yieldsalphaville / FT
By removing safe assets from the market and replacing them with base money, the central bank is hoping that investors will regain their risk appetite when faced with poor yields in Treasuries. But since that’s not happening –  because it requires a mental shift linked to expectations — it’s resulting in ever lower yields instead.

In the Balance: Is inequality good for us?BBC (mp3)
The chasm between rich and poor is growing around the world, but should that worry us? Maybe inequality is actually a good thing, a prerequisite for a productive economy. To find out, In the Balance has lined up a stellar cast. A Nobel prize-winning critic of the free market: Professor Joseph Stiglitz. A multi-millionaire friend and former colleague of the Republican presidential candidate: Edward Conard. And the Rector of Exeter College, Oxford: Frances Cairncross. Plus: are decisions at meetings taken for good logical reasons - or just because the person sitting next to you has a really annoying habit?

Historical Echoes: A Water Machine that Simulates the EconomyLiberty Street
In 1949, engineer/economist A. W. H. (Bill) Phillips unveiled a mechanical economic model, the Phillips machine, which could demonstrate—by pushing colored water through clear pipes—how money moves through the economy.

Economics, Good and BadKrugman / NYT
the fact is that these have been glory days for standard macroeconomics, which has done amazingly well under crisis conditions. If you’ve heard different, blame politics, not the economics itself.

On price stability during an ‘abundance shock’alphaville / FT

What microeconomists think about macroeconomicsmainly macro

Richard Layard explains the Manifesto for Economic Sensevoxeu.org
The Manifesto for Economic Sense aims to stop the recitation of meaningless mantras and start an economic discourse based on research- and evidence-based arguments.

Can Policymakers Stem Rising Income Inequality?iMFdirect

Rent-seeking lessons from Mubarak to Louis XIVJohn Kay
The real damage imposed by men such as Mr Mubarak is not the money they might have stolen. The tragedy is that the system that enables them to steal it destroys opportunities for others to generate wealth – not only for themselves but for the whole population.

REGULATION
Levitt on Failure to Save Glass-Steagall Bank ActBB (mp3)

Former Online Brokerage Chief Offers Handy How-To-Guide Re: Getting Banned From The Securities IndustryDealbreaker

LIBOR MANIPULATION
Banker to the Bankers Knows the Numbers Are LyingView / BB
The BIS, which acts as a bank for the world’s central banks, should know fudged numbers when it sees them. What may come as a surprise is how openly it has been discussing the problem of bogus balance sheets at large financial companies.

A Rate-Setting Mechanism of Far-Reaching EffectsDealBook / NYT
Two big remaining questions are why banks still use Libor and why regulators do not appear to have pressed for it to be used less. There have been reports of its manipulation since 2008, yet the benchmark continues to be widely used.

A Huge Break in the LIBOR Banking InvestigationRolling Stone

On The Corrosion of Moral LeadershipThe Psy-Fi Blog
This doesn’t happen by accident, it comes from the top, and the buck needs to stop with those who permit these festering cultures to survive. 

After Barclays, the golden age of finance is deadThe Telegraph
Retribution and regulation are sure to follow the Barclays scandal, but if the City is shackled, Britain as a whole will suffer

Record fines for Barclays are just the beginning of the Libor scandalThe Telegraph
If money makes the world go around, Libor makes the money go around first. It's at the heart of everything, and dishonestly manipulating Libor is nothing less than manipulating the price of money itself.

Barclays’ LIBOR embarrassmentSchumpeter / The Economist

The coarse talk of the banking tradeThe Guardian
The vulgar vocabulary of the trading floor may help to explain the hierarchy that allowed the Barclays scandal to continue

HIGH-FREQUENCY
The Achilles’ heel of high frequency tradingMacro Rants

Could a Delay Tame the World of High Frequency Trading?Institutional Investor

Mark Cuban: High-Frequency Traders Are the Ultimate HackersMarketBeat / WSJ

QUANT
FX Strategies in Periods of DistressSSRN
an overview of widely practiced short-term multi-currency investment strategies such as carry trade, momentum and term spread strategies. We provide evidence on their downside risk properties and illustrate their performance over historical episodes of financial market turmoil. We show that the strategies exhibit substantial tail risks and that they do not perform uniformly during distress periods in global markets. Interestingly, equity market investments feature even greater downside risk.

Can dual-currency sovereign CDS predict exchange rate returns?ScienceDirect
We find that the spread difference between dual-currency sovereign CDS significantly affects the bilateral exchange rate returns. In addition, the difference could predict the cumulative exchange rate returns up to 10 days.

Effective Trade ExecutionarXiv
This paper examines the role of algorithmic trading in modern financial markets. Additionally, order types, characteristics, and special features of algorithmic trading are described under the lens provided by the large development of high frequency trading technology. Special order types are examined together with an intuitive description of the implied dynamics of the order book conditional to special orders (iceberg and hidden). The chapter provides an analysis of the transaction costs associated with trading activity and examines the most common trading strategy employed in the market.

Book Review: The Little Book of Hedge FundsThe Aleph Blog

Vector Autoregressive ModelsEuropean University Institute (pdf)

Bye-Bye, Wall Street: New Flavor Of Big Data May Be More Lucrative For QuantsForbes

Signal Extraction for Nonstationary Multivariate Time SeriesFED

HEDGE FUNDS
Hedge funds get exotic in hunt for profitsReuters
Investors fed up with losses from their mainstream hedge fund holdings are eyeing some exotic alternatives.

Kepos' quiet touch wins favor among quant fundsReuters
When Mark Carhart meets with the world's largest pension funds and endowments he brings along an appealing proposition: His new hedge fund makes money during a crisis.

TRADING
Some Important Lessons I’ve LearnedAdam Grimes

Investing Routines: A Pillar of Any Successful ProgramThe Trader’s Journal

First Principles in Technical Analysis (5/?)Adam Grimes

STOCK MARKETS
Charting The End Of 'Stock-Picking' AlphaZH
Charts from Goldman Sachs, conclusion: With currently elevated macro risks investors have a better chance to generate alpha by focusing on trading and picking equity indices rather than stockpicking - especially with ETF volumes now dominating individual stock volumes

Stocks for the very, very, very long runASA

Bull’s Eye Investing (Almost) Ten Years LaterJohn Mauldin / The Big Picture

Bob Janjuah on The S&P Trek From 1,400 To 1,000 To 800ZH

Learning from Experience in the Stock MarketFED (pdf)

Jim Chanos' Bearish Views on Some Value TrapsCan Turtles Fly

Of VIX, Correlation, And Building A Better MousetrapZH

HOUSING
The Aftermath of the Housing BubbleThe Big Picture

Housing bubbles and interest ratesvoxeu.org
Visit Ireland and Spain and you will find row upon row of empty houses – the remnants of a housing boom turned bust. Were low interest rates to blame? This column looks at the effect of a deviation in interest rates from the Taylor rule and finds that keeping interest rates ‘too low’ can explain up to 50% of the overvaluation of the property market in these countries and elsewhere.

Housing Bubbles and Homeownership ReturnsFED

CHINA
The death of China cultASA

China’s June manufacturing PMI beats estimateASA

Chart: foreign currencies deposits increased sharply in ChinaASA

“HISTORY”
Picture Guide to Financial Markets Since 1800The Big Picture

*Charting How Everything Changed In 2008ZH
Four charts from Barclays, with plenty of text. (more uncertainty, tails are fatter, rising systemic correlation, less liquid markets)

Does Uncertainty Have A Seasonality?The Big Picture

BizDaily: Lessons from historyBBC (mp3)
Can the the debt dramas of the ancient world offer guidance to modern statesmen? And how recovery from Europe's greatest trauma in recent memory, the Second World War, says more about today's troubles than you might think. Plus in the last of the Knowledge Economy series, we look at the importance of education in a warzone.

OTHER
Howard Marks On Mistakes, Biases, And The Efficient Market FallacyZH

Ex central risk manager The Guardian
'We missed the way risk had been re-concentrated' – A recently redundant risk manager says he and his colleagues saw the crisis coming, but not how awful it would be

Investment Management Fees Are (Much) Higher Than You ThinkCFA Institute

How Long Is Wrong? Reflections on Six Years of Insights from Two of the World’s Foremost Financial AnalystsCFA Institute

A Novel About Wall Street Borrows From LifeDealBook / NYT

"Dark Pools": An Exciting Thriller That Will Teach You About TradingMinyanville
Aaron Brown’s good piece.

I Robot: Thomson Reuters adds psych analysis to machine-readable newsFinextra
Thomson Reuters is adding "psychological analysis" to its machine-readable news service, interpreting the emotion and sentiment of stories and social media posts to help investors develop trading strategies.

Take 15: The State of Lie Detection in FinanceCFA Institute Blog

Predicting The FutureFarnam Street

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