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Sunday, September 30

30th Sep - Weekender: Trading & Economics

Sections this weekend: Regulation, High-Frequency / Algorithmic, Trading, Economics, Bubbles, Books, Other.

Previously on MoreLiver’s

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Not Making the Grade: Report Card on Global Financial ReformiMFdirect
Despite a host of reforms in the right direction, the financial structures that were in place before the global crisis have not actually changed that much, and they need to if the global financial system is to become a safer place.

The Bank of England busts myths on equity capital requirementsThe Economist
Studies of investment and commercial bank balance sheets show that these financial firms are extremely reluctant to alter the absolute amount of equity outstanding

FSOC pushes ahead on MMF reformalphaville / FT

Are HFT's Days Winding Down?Advanced Trading
They just might be in Europe where lawmakers appear to be at their wits' end when it comes to high-speed trading.

Beyond Wall Street, Curbs on High-Speed Trading AdvanceDealBook / NYT
Industry leaders and regulators in several countries including Canada, Australia and Germany have adopted or proposed a wide range of limits on high-speed trading and other technological developments that have come to define United States markets, reports Nathaniel Popper in The New York Times.

Germany Does What The SEC Hasn't - Prepares To Ban HFTZH
The measure seeks to require traders to register with Germany's Federal Financial Supervisory Authority, collect fees from those who use high-speed trading systems excessively, and force stock markets to install circuit breakers that can interrupt trading if a problem is detected.

Man vs. MachineInstitutional Investor
Can the technology be tamed in a way that ensures safe and efficient markets? Judging by a series of calamities that included the granddaddy of high frequency markets run amok, the May 2010 “flash crash,” the accidents are too normal — and the prognosis is getting worse… “In complex, nonlinear systems it is inevitable that at some time, two or more failures — perhaps trivial, individually — will interact in a way no designer could have anticipated and no operator can understand”

“As the only person in the room who has apparently never written a line of computer code…”alphaville / FT
Presenting, a rather charming tale from Nicholas Colas, group chief market strategist at ConvergEx, who recently attended an algorithm-themed conference, and discovered — to his surprise — that quants aren’t really like regular people.

Yale Versus Norway Greycourt (pdf)
Comparison of the two ”elite” portfolio strategies.

Gaming the System Above The Market
In all probabilistic fields, like investing and gambling, the best performers dwell on process… Maintaining good process is really hard to do psychologically, emotionally, and organizationally.  But it is absolutely imperative for investment success.  And for gambling success too.

Risk Assessment – And Why You Stink at ItRisk Management Magazine
People are prone to (at least) six errors in judgment when appraising risk. Learn them. Then try to avoid them.

Masters of Money: Friedrich Hayek, BBC Two, previewThe Telegraph
Producer Tristan Quinn on his documentary about one of the 20th century's most influential economists, Friedrich Hayek.
Part 1youtube

A time of hoarding and inflation fears, 1930s editionalphaville / FT
Our working theory is that the crisis results as much from the conjoined effects of a suddenly over-abundant and over-productive world (on account of technology advances) — something which has been exacerbated by a shortage of safe assets, credit and money relative to goods available — as it does from credit profligacy in the mid-naughties . In that sense, we believe that the credit binge, rather than being the ultimate cause of the crisis, was possibly only one of its symptoms.

Sovereign Debt Restructurings 1950–2010IMF / The Big Picture
60 years, 186 debt exchanges, 447 bilateral debt agreements. Coming soon to area near you….

Public debt: Easy does itThe Economist
Monetary policy is the secret ingredient to bringing down debt ratios

Notes On Internal Devaluation (Wonkish)Krugman / NYT
I guess it could slightly accelerate the adjustment by driving unemployment even higher; but if the biggest problem is actually one of maintaining social and political cohesion, which seems to be the case, it’s actually counterproductive even for the creditors.

Monetary policy in a downturn: Are financial crises special?BIS
Accommodative monetary policy during the financial crisis was instrumental in preventing a deeper recession. Views differ, however, on how long such measures should be kept in place. At the heart of this debate is the notion that a protracted period of policy accommodation could create distortions.

The Economic Crisis, Failing Orthodoxies and New Policy PrinciplesEconoMonitor
As time passes and economic circumstances change, and as theoretical advances, modelling and statistical investigations provide new knowledge and insights into the functioning of the economic system, then long-held policy views often need to be abandoned or adjusted.

Fiscal imbalances and monetary stabilityBIS (pdf)
Stefan Gerlach, Deputy Governor of the Central Bank of Ireland, to the German-Irish Chamber of Industry and Commerce, Dublin, 28 September 2012.

Is Low Inflation Always Good?Tim Duy’s Fed Watch
at least think about the possibility that while high and variable inflation is not ideal, perhaps neither is very low inflation.

Why Basel III won’t work Sober Look
Clearly some of the new rules are important - particularly those dealing with adequate liquidity. But the prescriptive methods used to solve every possible concern dealing with capital and liquidity will push financial organizations to focus on the "letter of the law" instead of the "spirit of the law". And loopholes will inevitably arise (as they did with Basel I) creating more systemic risks.

Asset price bubbles: What are the causes, consequences, and public policy options?FED (pdf)
This article discusses how the global financial crisis has forced researchers and policymakers to reconsider their understanding of both the economics of asset price bubbles and alternative policy options to address them.

Asset Bubbles – Causes, Consequences and Policy OptionsPragCap
comments the above paper from Fed.

What are asset bubbles and why do they happen? (Jan 2012) – Noahpinion

comments the above article from Noahpinion.

Investing books that go above and beyondAbnormal Returns
“Investing is hard.” In my day-to-day job as a blogger I have written this not altogether grammatically correct phrase any number of times. Now after having written a book on investing I should probably also note that: “Writing a book on investing is really hard.”

Book Bits The Capital Spectator

Book Review: Finance and the Good SocietyCFA Institute

Ten Observations as the Week Winds Down Marc to Market

Sponging boomersThe Economist
The economic legacy left by the baby-boomers is leading to a battle between the generations

The welfare state’s a worthy Ponzi schemeJohn Kay
The only bread fit to eat is bread baked today: but why should today’s bakers feed the retired bakers of yesteryear?

The secrets of Buffett’s successThe Economist
Beating the market with beta