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Saturday, August 18

18th Aug - Weekender: Trading & Markets

Ridiculous: no criminal charges over MF Global and Corzine actually thinks about starting a hedge fund (would you invest?), drug money laundering continues, Swiss banks sacrifice their employees so that the banks would avoid any quilt. Finance is

Enjoy the two attached videos: one is a lecture on momentum strategies, while the other one is Palantir's example of building a value/momentum trading system.

Yesterday on MoreLiver’s:

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Who gained the most from the euro? And does it matter?Wonkblog / WP
Who Really Benefited From The Euro (Hint: NOT Germany)ZH
Greece, Portugal and Spain really have benefited most from the euroalphaville / FT

It’s the Exchange Rate, StupidRebecca Wilder / EconoMonitor
I conclude that it’s the depreciation of the real exchange – the 12.7% nominal depreciation of the euro against the dollar, for example, and/or falling relative price levels with extra-EA economies - that’s the primary driver of the improving trade balances in key periphery markets.

Saving France, Saving Europe Project Syndicate
With the Socialists now in control of the presidency, the National Assembly, and almost all subnational governments, France is now witnessing a concentration of power that is unprecedented in its republican history. But the country's greatest concerns can still be resolved solely within the EU – and only if the EU survives.

(European) Debt Mutualisation: Lessons from the USAPlace du Luxembourg

Mariano Rajoy walking a fine lineSober Look

Finland prepares for break-up of eurozoneThe Telegraph
Finland is preparing for the break-up of the eurozone, the country’s foreign minister warned. (see my earlier post for the aftermath links in Finnish)

Sovereign Debt Sustainability in Italy and Spain: A Probabilistic ApproachPIIE

A Really Low VIX Doesn’t Mean It Can’t Go LowerMarketBeat / WSJ
Why VIX Is So Low, And What Comes Next?ZH

The decline of “real money” tradingalphaville / FT
But whatever the cyclical or seasonal drivers of recently declining volumes are, the stuctural forces — mainly electronic trading and market making, including high-frequency trading, and the rise of ETFs — have contributed to higher volumes over the past decade. Suggesting the possibility that as (or if) the cyclical factors fade away, volumes might continue their upward trend from before the crisis.
(also excerpts from a Credit Suisse Trading Strategy note)

Generating Investment Ideas: Interview with Futurist David HouleCFA Institute

What actually predicts the stock market?Macrofugue

Derivatives industry no likey new margin requirementsalphaville / FT
A survey of financial market participants most likely to be negatively affected by new regulations on uncleared swap trades revealed that they don’t like this new-fangled way of doing things at all.

A word about banks and the laundering of drug money Golem XIV
Drug money, criminal at the start, is criminal and dirty no matter how many times it is laundered. The bankers know this better than anyone. Yet they do it every day, every week, every year and every decade in every major financial centre and everyone knows it.

Bayou's Ponzi, Vodka And Cocaine, Murder, And Frontrunning The Fed's "Secret" Bond MarketZH
Think the attempted fake suicide by Bayou Capital's Sam Israel which dominated the headlines for a few days in 2008 was strange? You ain't seen nothing yet: as the following excerpt of Octopus, The Secret Market And The World’s Wildest Con by Guy Lawson via the Daily Mail explains, that was merely the anticlimatic culmination of an amazing tale of bogus London traders, 'secret' Bond markets, frontrunning the Fed, fake CIA and MI6 spies, ponzi schemes and staged murders.

Supervisory guidance for managing risks associated with the settlement of foreign exchange transactionsBIS
Since the BCBS's Supervisory guidance for managing settlement risk in foreign exchange transactions (2000) was published, the foreign exchange market has made significant strides in reducing the risks associated with the settlement of FX transactions. Substantial FX settlement-related risks remain, however, not least because of the rapid growth in the FX trading. (Full pdf)

HSBC, Credit Suisse Sacrifice Employees to U.S., Lawyers SayBB
Swiss banks are turning over thousands of employee names to U.S. authorities as they seek leniency for their alleged role in helping American clients evade taxes, according to lawyers representing banking staff.

Goldman Sachs, the Symbol and Essence of What Went Wrong with Western CapitalismJames Anderson / QFinance

No Criminal Case Is Likely in Loss at MF GlobalDealBook / NYT
Jon Corzine Will Not Only Not Face Prosecution, But May Be Launching A Hedge Fund ImminentlyZH

Barclays and Libor, the MPs’ reportalphaville / FT

Saving the banks, but not reckless
How to save the banks but not the bankers? This column argues that fines for criminal behaviour in banks are not enough – it may be time to start locking people up.

"Pre-crisis, there were three basic types of global macro players. There was Old School Macro. Think..."alphaville / FT
Why are Global Macro hedge funds struggling?Behavioral Macro
Dow Theory of Macro TradingMacro Man
TMM’s Guide to Macro TouristsMacro Man

Bridgewater to Spend $750 Million on New OfficesDealBook / NYT

Complete Q2 Hedge Fund Holdings SummaryZH

The “beautiful” deleveraging Lighthouse IM
While Mr. Dalio’s narrative reads well, it doesn’t stand up to common sense. Unfortunately there is lingering suspicion his views on government spending are a mere ploy to advocate fore transferring even more debt from “his” sector onto taxpayers, while at the same time transferring taxpayers’ money to his firm via tax breaks.

Labour productivity vs demographicsalphaville / FT

Interactive overview of global house prices and rentsThe Economist
Global house prices: Searching for solid groundThe Economist
An era of frothiness is over

Will Bernanke Bail Out An Incompetent Congress Once MoreZH
Excerpt from Citigroup’s recent To QE Or Not QE

Alan Greenspan on His Fed Legacy and the Economy Businessweek

Google searches give central banks new tool SFGate

Central Bank Balance Sheets and Inflationeconbrowser
Given several prominent policymakers have worried about central bank actions leading to high inflation, it seems reasonable to see how expansions in central bank balance sheets correlate with inflation.

Trend Following, Risk Parity and Momentum in Commodity FuturesSSRN

Market Timing with Moving AveragesSSRN

Long-Term Return Reversal: Evidence from International Market IndicesSSRN

Trend Following, Stop Losses, and the Frequency of Tradingideas.repec

A multi-agent nonlinear Markov model of the order bookarXiv

The Low Volatility Effect: A Comprehensive LookSSRN

Highlights of R in Finance 2012Portfolio Probe

Who Actually Uses Palantir Finance?Forbes

Basics of Using

HFT charts of the day, trading-cost editionFelix Salmon / Reuters

Knight Trading Loss Said to Be Linked to Dormant SoftwareBB
$440 million trading loss stemmed from old computer software that was inadvertently reactivated when a new program was installed, according to two people briefed on the matter.

On Wall Street, the Rising Cost of Faster TradesNYT

Liquidity and Asset
An excellent review book on liquidity and asset prices by three experts Yakov Amihud, Haim Mendelson, and Lasse Heje Pedersen. A good bed reading one. (full pdf)

Weekend Reading: Bulls, Bears, and High-Frequency Foul-UpsCFA Institute
Here are some compelling articles you may have missed

Lie Detection for Investment Professionals: A SummaryCFA Institute

10 Answers To The Biggest Market QuestionsMortality Sucks

Treasury Yields Are Soaringdshort

Paul Donovan, UBS: The Rise Of The Rich?UBS / ZH
So what has happened to the well-off in global society? A quick comparison of the development of incomes in higher income countries and key emerging markets bears out this story.

Five years on, the Great Recession is turning into a life sentenceThe Telegraph

Minding the Chastity Belts: Fiduciary Duties and 900 Pound LemmingsThe Psy-Fi Blog
Many advisors will avoid fiduciary responsibilities because a fiduciary relationship overrides any contract – in common law, if the fiduciary breaks the terms of the trust the contract is irrelevant.  This is generally covered by the first duty of the fiduciary, that of loyalty: to act in good faith, and to avoid conflicts of interests, such as taking commissions on products sold to clients, even where disclosed. 

You Are Now About to Witness the Strength of Street KnowledgeReformed Broker
If you've lost money being long shares of Groupon ($GRPN) this year, it's probably for one of the following three reasons

Risky ShiftsThe Psy-Fi Blog
“The analyses show that when the subjects reached decisions as members of a group they tended to advocate significantly more risky courses of action than they had chosen when they reached decisions as individuals”.

How Change HappensJohn Mauldin / The Big Picture
On complexity, why disasters happen and where do the fat tails come from.

Charting The Lost Generation Of InvestorsZH

Hard to Beat a U.S. Total Market FundRick Ferri

Should Trading Be Fun And What Is A “Skinny-Red”?bclund

The Time Has Come for Options Dark PoolsAdvanced Trading
A lot of the value in options dark pools would look surprisingly similar to those found in equity dark pools.

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