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Sunday, August 26

26th Aug - Weekender: Trading & Markets

Very nice material: good section on quants, Buffet’s alpha analyzed, book reviews. I will post yet another Weekender-post, with Finnish article links and my views later today.

Earlier on MoreLiver’s:

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Goldman Explains "Where To Invest Now"ZH
72 slides.

Global Value: Building Trading Models with the 10 Year CAPEmebanefaber
We apply this valuation metric across over thirty foreign markets and find it both practical and useful, and indeed witness even greater examples of bubbles and busts abroad than in the United States.  We then create a trading system to build global stock portfolios based on valuation, and find significant outperformance by selecting markets based on relative and absolute valuation.

The Trend is Our Friend: Risk Parity, Momentum and Trend Following in Global Asset Allocation - SSRN
Momentum and trend following have often been used interchangeably although the former is a relative concept and the latter absolute. By combining the two we find that one can achieve the higher return levels associated with momentum portfolios but with much reduced volatility and drawdowns due to trend following.

Strategic Briefing: Analyzing Asset ClassesThe Capital Spectator

How to Identify High Quality Stocks (Part 3a of 4)Turnkey Analyst

Speculating in Life and MarketsMortality Sucks
Troubled trading means a troubled life; a troubled life means troubled trading. They are both a reflection of you.

Working on Exit SkillsAdam Grimes
How can you be attached to a trade you generated through a flip of a coin or a roll of a die? Exactly, you cannot, so now you can focus all of your attention on trade management and learning to respond to the message of the market as patterns unfold.

Birds, Bees and Decoy EffectsThe Psy-Fi Blog
If there's one message I hope to get across here it's that we're our own worst enemy when it comes to making decisions if we're anywhere in the vicinity of money.  If there's a second one it's that if we don't damage ourselves with our behavioral biases then someone else will try and do it for us.  Nowhere is this more evident than with the fiendishly devilish decoy effect.

A cruel end to summer for hedge funds as they’re forced to “open their kimonos”qfinance

Tracking Top Funds Activity: Q2 2012Pension Pulse

A Look at 9 Quotes from George SorosIvanhoff Capital

GS: Only 11% Of Hedge Funds Are Outperforming The S&P In 2012ZH

Buffett’s Alpha Yale (pdf)
Berkshire Hathaway has a higher Sharpe ratio than any stock or mutual fund with a history of more than 30 years and Berkshire has a significant alpha to traditional risk factors. However, we find that the alpha become statistically insignificant when controlling for exposures to Betting-Against-Beta and quality factors. We estimate that Berkshire’s average leverage is about 1.6-to-1 and that it relies on unusually low-cost and stable sources of financing. Berkshire’s returns can thus largely be explained by the use of leverage combined with a focus on cheap, safe, quality stocks.  We find that Berkshire’s portfolio of publicly-traded stocks outperform private companies, suggesting that  Buffett’s returns are more due to stock selection than to a direct effect on management.
(For more on this, see also mebanefaber)

Secret Libor Committee Clings to Anonymity After Rigging ScandalBB

Examining the Ponzi Scheme Through the Mind of the Con ArtistDealBook / NYT

S&P Has A Perfectly Good Explanation For Rating Deals “Structured By Cows,” Which A Lucky Federal Jury Will Get To HearDealbreaker

Knight Capital's Rogue Algorithm a Wake-Up Call to the Buy SideAdvanced Trading
A head trader at a firm with more than $200 billion under management tells Advanced Trading that the buy side generally puts a lot of blind faith in the tools provided by their brokers, almost to the point of complacency.

Banking secrecy: Billion-euro whistleblowerEl País / presseurop
Hervé Falciani is the 40-year-old computer technician who provided several European governments access to files listing the names of the thousands of their citizens evading taxes via bank accounts at HSBC's Swiss affiliate. Arrested in Barcelona in late July, he is awaiting extradition to Switzerland.

OMG, Tax Evasion In Switzerland! By The Swiss! But At Least It’s “Officially Silenced To Death”Testosterone Pit

Five Myths about Glass-SteagallThe American

What Caused the Crisis?The Aleph Blog
I have wanted to write this article for some time, but decided to sit on it in order to consider the matter more closely. What caused the financial crisis of 2008?

The Year of JubileeThe View from the Blue Ridge
Over the years, Dalio has provided us with a working template of “How the Economic Machine Works” – a description far different than what most of us have been taught and unlike the descriptions offered by conventional economists.

Why do we need to pay billions of pounds for big projects?John Kay
Perhaps technological advance has reduced rather than increased productivity, by offering enhancements that do not represent value for money.

Iceland Did It Right … And Everyone Else Is Doing It WrongWashington’s Blog

Public recapitalisations and bank risk: evidence from loan spreads and leverageBIS (pdf)
Capital Controls or Exchange Rate Policy? A Pecuniary Externality PerspectiveFED (pdf)

Unconventional Fiscal Policy at the Zero BoundFED (pdf)

The Zero Lower Bound and the Dual MandateFED (pdf)

Market Declines: What Is Accomplished by Banning Short-Selling?FED (pdf)

House price responsiveness of housing investments across major European economiesECB (pdf)

How to detect and respond to property bubbles - challenges for policy-makersBIS (pdf)

Bubble thy neighbor: portfolio effects and externalities from capital controlsECB (pdf)

The Effectiveness of Unconventional Monetary Policy at the Zero Lower BoundBIS

Quant: A Dangerous Word Frequently Misused and MisunderstoodMinyanville
Aaron Brown’s long and highly enjoyable piece.

Wizard of ETFsBarron’s
Ron Vinder of UBS shuns individual stocks in favor of exchange-traded funds. Armed with decades of data, he diversifies broadly—and sticks to his guns and got solid returns in a flat stock-market decade.

Quant Gold Book 2012:
Heavy Focus on Algorithms, Less Cloud Technology ExplorationAdvanced Trading
Despite the challenges buy-side traders face, this year's group of Quant Gold Book honorees have the drive and intelligence to reach their targets.

RBC's Ryan Larson Favors Man Over MachineAdvanced Trading
As the head of U.S. equity trading for RBC Global Asset Management, Ryan Larson often focuses on liquidity analysis to avoid being gamed by high-frequency traders. But he emphasizes the human element as much as quantitative analysis.

AJO Partners' Douglas Dixon Takes on the WorldAdvanced Trading
Douglas D. Dixon, principal and trader at AJO Partners, explains why AJO is eyeing emerging markets over the next year and why the firm isn't ready to store its tick data in the cloud just yet.

Quantavium Capital's Youngju Nielsen Is a Fixed Income Rock StarAdvanced Trading
Youngju Nielsen, co-founder of Quantavium Capital, believes there will be many changes on the horizon for fixed income trading to allow it to become a more transparent process that should attract for investors and traders. As Quantavium prepares to launch in the third quarter of 2012, Nielsen talks with Advanced Trading about the firm’s use of algorithms, the cloud, broker benchmarks and more.

EDAC Trading's David Allen Is Wired for SuccessAdvanced Trading
EDAC Trading’s David Allen says he considers the new fund management firm is ultra-practical and sensible in strategy design, heavily algorithmic in execution and data-dependent in R&D. He talks to Advanced Trading about EDAC’s use technology to support decision making.

Michael Mauboussin’s Behavioral Economics Reading ListFarnam Street
Michael Mauboussin is the Chief Investment Strategist at Legg Mason Capital Management. If you’re looking to learn about behavioral economics he recommends you start with the following books and articles.

Why Does Wall Street Always Win?Economix / NYT
Simon Johnson: But be warned: while fascinating, much of what is in this book will turn your stomach. Mr. Connaughton is now out of politics, and I very much doubt that he will ever return. Hence the complete honesty missing in most political memoirs; no bridge is left unburned.

FiveBooks Interviews: Robert Barro on The Lessons of the Great DepressionThe Browser
The Harvard Professor takes issue with some common assumptions about the Great Depression, and how America got out of it. And he doesn't mince his words about the recent past, calling President Obama's stimulus "stupid" and "awful"

Book Review: BailoutThe Aleph Blog

Book BitsThe Capital Spectator

Four Questions for the Retail Brokerage Compliance OfficerThe Reformed Broker

ConvergEx: So You Say You Want A RevolutionZH
Science – or paradigms – change, but they also evolve.

Women in finance: the past 50 yearsThe Guardian

Weekend Reading: Scoundrels, Birds and Bees, and Risky ShiftsCFA Institute
Over the past couple of weeks there have been lots of compelling articles for financial advisers. Here are some of my favorite reads in case you missed them.

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