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Sunday, July 22

22nd Jul - Weekender: Trading & Markets

I will soon post the Views & Off-Topic post. In this weekend's edition of Trading & Markets plenty of stuff: China, USA, Assets, Trading, Portfolio, Economics, Regulation, The Players, Other

Previously on MoreLiver’s:

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SocGen's Presentation On The Slowing State Of The Chinese EconomyBI
In a year of political transition, the Asian giant has to grapple with a deflating housing bubble, job creation, an economic slowdown, a massive shadow banking system, and reforms that would help internationalize their currency. (full 15-slide presentation)

Leaked China Documents Show Massive CorruptionThe Epoch Times
As of 10:15am on Nov. 26, 2011, Beijing had identified 225 corrupt officials, 58 of them at the local high-level (ditingji) and above, who had embezzled over 2.5 billion yuan

3 reasons why the surge in global grain prices won’t lead to inflation in ChinaASA

IOER, negative rates, and Benalphaville / FT
The ECB’s recent decision to lower its deposit rate to zero raised speculation in the market that the FOMC might be considering the reduction or elimination of the 0.25 per cent interest the Fed pays on excess reserves.

The QE Commodity MechanismThe Source / WSJ
there’s always a drought somewhere, and Middle East turmoil is the norm. Looking back over the past five years, commodity prices have tended to spike hard in the wake of central bank easin

Lack of product, cash on the sidelines, and low rates, all driving HY valuations to new highsSober Look

The Education of a Mortgage Bond Manager, Part IThe Aleph Blog
 (12-part series for corporate bond managers begins here.)

The Abysmal Earnings Season Explained In Two ChartsZH

Relentless rise in food prices already showing up in inflation indicatorsSober Look
Food inflation will prevent emerging markets nations's central banks from stimulating their economies in an environment of a global slowdown. This could lead to stagflation that impacts global growth.

Tired InvestingCabot Research
This essay examines the role that decision fatigue plays in investing and describes how self awareness and process can keep your portfolio energized.

Notes From Delivering Alpha Conferencemarket folly
Ideas from good names.

Why We're Driven to TradeWSJ
New research suggests that in order to avoid trading your accounts to death, you must counteract some of the very tendencies that make Homo sapiens the most intelligent of all species.

Jim Chanos: Psychology of short selling (15 min)Youtube
China makes Europe, U.S. debt look like child's play

Winning Methods of the Market WizardYoutube
Jack Schwager’s lecture

Mindless Money Series:
Part1: Focus on FailureThe Psy-Fi Blog
we don’t seem to learn from our mistakes, even when the feedback is quite obvious.

Part2: Don’t OversimplifyThe Psy-Fi Blog
oversimplifying stuff is a dangerous, mindless, trait for an investor.

Part3: Hold the Big PictureThe Psy-Fi Blog
hold a mental model – a cognitive map – of the important factors

Part 4: Stay Resilient, Be PreparedThe Psy-Fi Blog
Developing emotional resilience is, in part, about experience.

Part 5: Avoid OverspecificationThe Psy-Fi Blog
A mindful system is, by definition, a fluid one.

Trading Diary talk:
Weekend Project: Optimize Your Trading For Better Profitability – bclund
The #1 Indicator Professionals Focus On – The Trader’s Journal

Words of Wisdom by the late Barton BiggsThe Big Picture
“As investors, we also always have to be aware of our innate and very human tendency to be fighting the last war. We forget that Mr. Market is an ingenious sadist, and that he delights in torturing us in different ways.”

10 Spectacular Speculations of the Past 300 YearsGresham’s Law

Stock Picking ContestsMebane Faber

New Report Suggests a Better Way to Evaluate Currency TradersInstitutional Investor
The new paper fine-tunes their evidence that three basic ways to manage currency portfolios dominate most outcomes in currency markets, and any skilled money manager can replicate them.

Adaptive Asset Allocation: Combining Momentum with Minimum VarianceCSS Analytics
The alluring promise of AAA rests upon the ability to dynamically adjust to different economic conditions.

Not Equal: A Comparison of “Risk Parity” and “Equal Risk Contribution”CSS Analytics
it is best to simply consider Risk Parity as a broad class of risk-budgeting schemes where the risk of each asset in the portfolio is leveraged (if necessary) to have the same volatility.

Dynamic Portfolio ChoiceSSRN
The foundation for a long-term investment strategy is rebalancing to fixed asset class positions, which are determined in a one-period portfolio choice problem where the asset weights reflect the investor’s attitude toward risk. Rebalancing is a counter-cyclical strategy that has worked well even during the Great Depression in the 1930s and during the Lost Decade of the 2000s.

2 dimensions of portfolio diversityPortfolio Probe
Asset-portfolio correlation and the fraction of the portfolio variance that each asset accounts for.

The Rise of Global Stock Market Crash ProbabilitiesSSRN
…the probability of observing a global crash in a given week has increased fifteen times. This significantly and dramatically increased global crash probability shows the decrease in diversification opportunities in global stock markets. The Asian crisis and particularly the credit crisis contributed to substantially higher global crash probabilities.

Employment-Population Ratio and Stocks Over the Intermediate TermCXO
evidence from simple tests offers no support for a belief that monthly changes in the U.S. employment-population ratio usefully predict next-month U.S. stock market returns. For an annual horizons, there is slight indication of an inverse relationship.

A Dynamic Factor Model of the Yield Curve as a Predictor of the EconomyThe Big Picture
The nonlinear model is used to investigate the interrelationship between the phases of the bond market and of the business cycle. The results indicate a strong interrelation between these two sectors. The proposed factor model of the yield curve exhibits substantial incremental predictive value compared to several alternative specifications. This result holds in-sample and out-of-sample, using revised or real time unrevised data.

Blogs review: HP Filters and business cyclesbruegel
a recent speech by St. Louis Fed President Bullard has launched a debate on the blogosphere over the use of a statistical technique called the Hodrick-Prescott filter. The technique – as well as so-called Bandpass filters – is used to decompose economic data into a trend and a cyclical component. The controversy came out as James Bullard pointed to these estimates – together with the fact that we don’t see deflationary pressures – as evidence that advanced economies are operating near potential, if not above.

Something Big happened in the early 70sNoahpinion
After that point, real average wages have stayed unchanged. Why? Bretton Woods, oil crisis, technology?

Has the right won on taxes?Salon
Just because a president does what voters say they want doesn’t guarantee they'll approve

Publication Research Bulletin No. 16ECB (pdf)
Does regulation at home affect bank risk-taking abroad? – Cyclical precautionary saving and monetary policy – What drives the US personal saving rate? The role of wealth, credit and uncertainty.

The value-added content of
Intermediates account for two thirds of international trade as production is increasingly fragmented across borders. This column argues this creates challenges for measuring international interdependence. It presents a measure of value-added exports based on a new global input-output table. Strikingly, it suggests the US-China imbalance is approximately 40% smaller when measured on a value-added basis.

The end of decouplingForeign Policy
there is not going to be a global growth engine in the foreseeable future

Bubbles and Bailouts: Why Some Economists FailedMark Thoma / The Fiscal Times
I don't think this failure can be blamed on economists. There was no shortage of effort from many of us to get policies like these enacted. The question is why nobody listened.

Monetary Policy and Long-Term Real RatesFED
Changes in monetary policy have surprisingly strong effects on forward real rates in the distant future.

How London became the money-laundering capital of the worldianfraser
The answer, I believe, lies in the fact that our many laws and regulations have never been effectively enforced by financial regulators, and banks and other financial institutions know they can get away with paying lip service to the rules.

Bank secrecy masks a world of crime and destructionThe Observer
Banks seem willing to exploit the loopholes found in tax havens and it's costing the British taxpayer dear

Trade minister Lord Green 'failed to halt flow of drugs cash' as HSBC bossThe Guardian
US Senate report shows that Lord Green was warned about money laundering linked to Mexican drugs cartels

Roll Call of Unscrupulous Bankers Is Unacceptably Long View / BB

Global banks are the financial services wing of the drug cartelsThe Guardian
As HSBC executives apologise to the US Senate for laundering drugs money, the fact is that nothing changes

Tax havens: Super-rich 'hiding' at least $21tnBBC
A global super-rich elite had at least $21 trillion (£13tn) hidden in secret tax havens by the end of 2010, according to a major study. (Alea says the article is “height of idiocy”)

Why Regulation Will Never Fix Sell Side Analyst ShenanigansLeigh Drogen
The purpose for the existence of a sell side Wall Street analyst is not to publish research and never has been. Wall Street analysts exist to provide corporate access to their buy side trading clients, at the same time they are beholden to making the companies they do investment banking business look good. Nowhere in this equation does the firm or the analyst get paid for putting out quality research, nowhere.

Happy 2nd Birthday, Dodd-Frankalphaville / FT
Already 8,843 pages of rules and regulation, and only 30% complete.

Swap Market, Like Libor, Is Vulnerable to ManipulationDealBook / NYT
To the market’s credit, there is no evidence that the process has become corrupted by big banks. Given the evidence of collusion in the rate-manipulation case, however, trusting it to remain that way doesn’t seem like a good plan.

No Evidence? No ProblemISDA
ISDA’s comment on the above article.

Hedge Fund Performance: First half of 2012Practical Quant
The different style indices trailed the S&P 500 through the first half of 2012.

Four Reasons the Hedge Fund Industry Is Structurally DeadMinyanville
1) The Incentive Structure 2) The Overhead 3) The Business Model 4) No Opportunity for Unproven Managers to Get Funded

Senior IMF Economist Resigns, Cites Suppression and Europe BiasWSJ
Departing IMF Economist Blasts Fundnaked capitalism
IMF's Peter Doyle scorns its 'tainted' leadershipBBC
A top economist at the IMF has poured scorn on its "tainted" leadership and said he is "ashamed" to have worked there.

Citigroup's Lost YearsBusinessweek
Citigroup’s suffering shareholders might be compelled to seek comfort from how the bank has overcome centuries of brushes with death. After all, some four years into its recapitalization, a shrunken Citi is still trying—desperately—to find its footing.

Equity markets are looking “dodgy”Kiron Sarkar / The Big Picture
Europe, US GDP, China, stock markets

Book BitsThe Capital Spectator

Lie Detection 101 for Financial Analysts: How to Spot Manipulators and ActorsCFA Institute

The Future is “Theory-Free”CSS Analytics
The complexity of the modern world, and the degree to which it is interconnected, has rendered simplistic linear theory almost meaningless.

The 2012 Financial OlympicsMacro Man
As London prepares for the Greatest Show on Earth, Team Macro Man have been giving some thought to their own favourites for the 2012 Financial Olympics.

Whodunit? Part II: The Weapon That Killed the Financial System Minyanville
Aaron Brown: Economists and regulators liked rocket scientist methods because they had been accepted on the trading floor, and also in the executive suite. Few took the time to understand them. (Part 1 here)

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