Financial topics

[Gordo]

John, regarding Roubini, this is to be expected. The most attention grabbing analysts during any cycle will always be most wrong at key turning points. Roubini did his most bearish interview for CNBC on the exact day of the March bottom, and yesterday he was quoted as having shifted strongly toward a more optimistic outlook. We should be sending this guy gifts for marking exact bottoms and tops for us!

(also, it does not matter if he was saying this for months, its when the media finally makes a big deal about it that matters - when it comes to contrary indicators)

[Gordo]

Short again...

9:50AM Bank of America says 2nd half tougher than 1st (BAC) by Greg Morcroft

NEW YORK (MarketWatch) -- Bank of America Chief Executive Ken Lewis said on Friday that profitability in the second half of the year will be much harder to achieve than it was in the first, and that the company is unlikely to report normalized earnings for several quarters. "Profitability in the second half of the year will be much tougher than the first half, given the absence of several one-time items that were positive to earnings. I think we have to get through the next couple of quarters and into 2010 before it becomes apparent that the market strength of our various businesses will help us return to more normalized earnings," Lewis told listeners on a conference call to discuss the firm's second quarter financial results.




Commercial Paper Contracting at Fastest Rate on Record
by: Sold At The Top July 17, 2009

The Commercial Paper (CP) market is essentially a private debt market used by corporations as a cheaper means of funding typical recurring operations than drawing on a line of bank credit.

Commercial paper, as a financial instrument, is by no means a recent innovation and, in fact, you can read about how the CP market was affected by the many historic financial shocks experienced by the U.S. (read Panic on Wall Street: A History of America’s Financial Disasters or this account).

Although the Federal Reserve was able to artificially bring CP rates down significantly since the shocking 615 basis point spread blowout (A2/P2 spread) of late 2008, they have apparently not been successful in preventing an overall contraction in the CP market.

The Federal Reserve calculates and publishes the total amount of CP outstanding every week and as of the latest published period, commercial paper outstanding is contracting at the fastest rate on record, registering a whopping 37.33% decline year-over-year.

Another important insight, at $1.097 trillion the total CP market is now 13.75% smaller than the $1.272 trillion seen at the bottom of the last contraction in late 2003.

The CP market that expanded wildly throughout 2004, 2005, 2006 and most of 2007 is now no more, replaced instead by one smaller and contracting faster than at any other time in this century.

[greghaught]

Here is a calm explanation of high frequency trading from Advanced Trading magazine. the article confirms and further explains something that i said in a previous post to the effect that due to the scale on which these machines trade, they render themselves ineffective even as they change.

high frequency trading is just high speed market making and that's liquidity. they do try to profit, but that profit is not a foregone conclusion and the effort is extremely expensive in terms of hardware, software, energy, and operating costs.

once again, the truth hardly measures up to the hype.

[Higgenbotham]

Short again...

I'm short the September S&P futures from 937.75 this afternoon. My first trade this year.

[John]

Dear Gordo,

> John, regarding Roubini, this is to be expected. The most
> attention grabbing analysts during any cycle will always be most
> wrong at key turning points. Roubini did his most bearish
> interview for CNBC on the exact day of the March bottom, and
> yesterday he was quoted as having shifted strongly toward a more
> optimistic outlook. We should be sending this guy gifts for
> marking exact bottoms and tops for us!

> (also, it does not matter if he was saying this for months, its
> when the media finally makes a big deal about it that matters -
> when it comes to contrary indicators)

I agree with you here, but this whole thing has been turned into
something of a brouhaha, with Roubini apparently accusing CNBC of
misquoting him and making it seem that he's become more bullish.

In my opinion Roubini has changed his mind and turned from bearish to
bullish, even though he's saying the same thing.
http://www.rgemonitor.com/roubini-monitor/257299/roubini_statement_on_the_us_economic_outlook

In December 2008, when he said that the recession would end by
December 2009, that was a bearish statement because he was saying
that the recession would continue for another whole year, which was
considered very bad news.

Today, when he says that the recession will end in December 2009,
it's bullish because it's considered very good news.

Sincerely,

John

[John]

> Here is a calm explanation of high frequency trading from Advanced
> Trading magazine. the article confirms and further explains
> something that i said in a previous post to the effect that due to
> the scale on which these machines trade, they render themselves
> ineffective even as they change.
> http://advancedtrading.com/algorithms/showArticle.jhtml?articleID=218401501

> high frequency trading is just high speed market making and that's
> liquidity. they do try to profit, but that profit is not a
> foregone conclusion and the effort is extremely expensive in terms
> of hardware, software, energy, and operating costs.

> once again, the truth hardly measures up to the hype.

Thanks for referencing that article. It's very interesting, but
there are several points to be made.

First off, putting on my computer consulting and systems programming
hat, I knew from the moment I read the first story about the Goldman
Sachs robbery that most of it was crap. There is no way that
stealing some source code for such a large complex system is going to
be useful in any way to someone else.

You could see this in news stories of mergers for last few decades.
Two banks or two other companies would merge, through a takeover or
whatever, and they'd try to merge their computer systems, and it
would take years.

I wrote something along these lines in one of the articles I posted
last year:

> At a system level, managers constantly overlook integration
> issues. For example, in a telemarketing application being
> developed by Fidelity in the 1990s, the plan called for five
> components, each developed by a different programmer over three
> months. At the end of that time, the five components would be put
> together into a complete system. The problem was that the
> interfaces were poorly designed and the integration issues were
> poorly planned, and the entire project crashed and burned.

> Integration problems are the most common reason why cookbook
> programming fails, in my experience. Managers think that you can
> have one person broil the steak, another person make the
> vegetables, and a third person make the potatoes, and put them on
> the table and have a meal. Well you can do that in a restaurant,
> but not in an IT project.
** Boomers and Gen-Xers: Dumbing down IT
** http://www.generationaldynamics.com/cgi ... java080701

Integration is always the heart of the problem, and it's something
that almost everyone overlooks. As the article you referenced points
out, making use of the stolen Goldman Sachs source code would require
a huge integration project, and by the time it was done, the "secret"
algorithms would be obsolete anyway.

In fact, the only really valuable part of the "robbery" would be
Sergey Aleynikov himself, assuming that he fully understands the
Goldman Sachs system that he's been working on. He could bring his
knowledge of Goldman's systems and tell them how to implement
Goldman's algorithms in another system. Of course that would raise
various trade secret issues, but those are a lot harder to prove than
robbery.

However, if there's been a lot of "hype" about this story, then
Goldman only have themselves to blame. Here's a paragraph from the
original story:

> “The bank has raised the possibility that there is a danger that
> somebody who knew how to use this program could use it to
> manipulate markets in unfair ways,” Facciponti said, according to
> a recording of the hearing made public yesterday. “The copy in
> Germany is still out there, and we at this time do not know who
> else has access to it.”
http://www.bloomberg.com/apps/news?pid=20601103&sid=axYw_ykTBokE

Well, what the hell does that mean??

If Goldman has written source code that, when executing, is capable
of manipulating the market in unfair ways, that can mean only one
thing: That Goldman's system has the capability to manipulate the
market in unfair ways.

And since they went to the trouble to implement that capability, it
follows with near certainty that Goldman HAS manipulated the market
in unfair ways.

And so the "hype" is really the fault of Goldman itself.

But I've never even mentioned those two issues. My concern has been
about something else, which is also mentioned in the article that you
referenced:

> [H]igh frequency trading firms, which represent approximately 2%
> of the 20,000 or so trading firms operating in the US markets
> today, account for 73% of all US equity trading volume.

That's the problem, for reasons that I've stated several times
before.

Sincerely,

John

[greghaught]

let me start here.

My concern has been
about something else, which is also mentioned in the article that you
referenced:

> [H]igh frequency trading firms, which represent approximately 2%
> of the 20,000 or so trading firms operating in the US markets
> today, account for 73% of all US equity trading volume.



That's the problem, for reasons that I've stated several times
before.

for roughly 25 years the floor functions, floor traders and specialists (i.e. 98.6's) have been in the process of being replaced. it's been a long, ongoing, gradual albeit exponential process. we've now progressed to the point that the physical floor and 98.6's are hardly a remnant of their former selves. they're now just a barely existent shadow for display purposes only. they've been replaced with more efficient, effective, faster means: automation, machines and computers. the computers now perform market making and on-floor prop trading like the 98.6's always have. along the way, many individuals and firms have been faced with either adapting or making other arrangements. Themis Trading is, so far, not adapting. they're doing what's called "fighting the tape".

However, if there's been a lot of "hype" about this story, then
Goldman only have themselves to blame. Here's a paragraph from the
original story:

> “The bank has raised the possibility that there is a danger that
> somebody who knew how to use this program could use it to
> manipulate markets in unfair ways,” Facciponti said, according to
> a recording of the hearing made public yesterday. “The copy in
> Germany is still out there, and we at this time do not know who
> else has access to it.”
http://www.bloomberg.com/apps/news?pid= ... Yw_ykTBokE



Well, what the hell does that mean??

i just said it was hype, i concede that GS is now involved in the hype. they're now maximizing a PR opportunity that arose from the internet rumor mill. they're now the company that is believed to manipulate markets. the only thing that i see keeping this out of the non-fiction category is direct (noncircumstantial, noncoincidental, nonhearsay, nonprobably) evidence. GS is now cultivating this fiction for PR purposes. the customers love it.

i'm not trying to offend here. just providing my alternate viewpoint.

[aedens]

A nation can survive its fools, and even the ambitious. But, it cannot survive treason from within. An enemy at the gates is less formidable, for he is known and carries his banner openly. But, the traitor moves amongst those within the gate freely, his sly whispers rustling through all the alleys, heard in the very halls of government, itself. – Cicero
aedens » Thu Apr 23, 2009 1:48 am
Posted by Tyler Durden
Just another day at the NYSE where people are either all buying, or all selling. NYSE is going from +1,300 (upticks) to -1,000 (downticks) in a matter of seconds.
Rick Bookstabber's solution to the M.A.D. problem of Quants: faster processors...
Yes he’s looking for a job also…
http://rick.bookstaber.com/2009/04/arms ... ading.html
“If we get out of the forest and look at what is going on, some questions come to mind. Does anyone really get a benefit in having the latency of their trade cut by milliseconds – except for the fact that their competitor is also spending the money to cut his latency?”
http://www.bloomberg.com/apps/news?pid= ... refer=home
Hibernating neutral <-------- Me that is
Back when we had to snip and sort .bin files to asci traffic is viewable. It is no stretch to reverse the process to strip data. The largest IP sniffer has been neutralized and that business unit already nailed shut. There locked up and that unit already closed. We suspected this and vanilla money was clipped on trades. Larger focus needs to be on dark pool trades. This is the mind’s eye of the issue and answer.

"I am concerned that (undisplayed quotes) may not promote public confidence in the equity markets," James Brigagliano, co-acting director of the U.S. Securities and Exchange Commission's trading and markets division, told a major market structure conference in New York last month.

[greghaught]

Larger focus needs to be on dark pool trades. This is the mind’s eye of the issue and answer.

"I am concerned that (undisplayed quotes) may not promote public confidence in the equity markets," James Brigagliano, co-acting director of the U.S. Securities and Exchange Commission's trading and markets division, told a major market structure conference in New York last month.

dark pools are either electronic or 'back room' order matching services. they're used by large institutions (e.g. funds, banks, trusts) to get in or out of positions.

institutions have always had problems getting it done in the market. they're whales in the liquidity pool. huge counterparties are hard to come by. so their orders are typically chopped up into smaller trades that are then filled over time at some range of prices. this range of prices happens because markets dont stand still for institutions or anyone else. in the market, size can produce a diseconomy of scale.

if you have to use a dark pool, then you have a target on your back. just by being in a dark pool, you're chumming for sharks. markets are predatory and in this technological age the sharks have become exceedingly efficient at slicing and dicing whales.

it's really nothing to lose sleep over. if you're going to be a whale, then you should be able to look out for yourself. if you're so big that you can't get it done, then you need to break up and get smaller.

[mannfm11]

John, I read that to mean the same thing, that GS was using the programs to unfairly manipulate the markets. Seems greghaught is intent on defending the obvious. Goldman generated a net to the company and their employees of roughly $10 billion. This is somewhere in the ballpark of the gross receipts of Microsoft corporation. I would like to know how they did this in a financial depression? For one, I believe they have a computer model that can drive prices in a direction, up or down and quite often liquidate a position to their advantage using news releases and their knowledge of where the other players in the market are positioned. Having the low volume over night futures to mechanically manipulate is all the better, as they can use the overnight excitement to unload or to drive a market all day long as they did last Tuesday over total nonsense. There is very little news that is worth 3 cents to the total markets.

Someone has to explain to me Goldman's $200 oil price prediction at the top of the market last year? They have to explain the $70 price of oil a few weeks back, which I suspect was nothing more than a systematic bailing out of Goldmans rolled positions from last summer. What kept 6 month futures prices $30 or so above spot at a time when it was clear that the oil markets were going to be glutted for the forseeable future? Any of you guys ever pay attention to the supply dynamics of oil over an inventory cycle? My best guess is they made $20 a barrel to deliver oil to themselves, using liquidity provided by government guarantee.

Explain to me Greg why it is necessary for Goldman and their cronies to trade 4 or 5 shares of stock for every the public trades? Why has the small trader been totally barred from doing the same thing? This is all about driving markets in a particular direction and not about liquidity at all.

Maybe you will digest what $40 billion is? They are forecasting SPX earnings at 40 points. A point of SPX is worth about $8 billion, maybe a little more. In any case, that puts the earnings of the entire SPX at less than $350 billion. That puts the earnings of Goldman and its employees at roughly 10% of the total earned on the SPX. How much paper do you think they are bringing to market? I highly doubt more than $200 bilion at best. IN any case, throwing outt the nonsense, the total GDP of the US is probably $10 trillion or less and the pure asset creation less than $1 trilion. This gives Goldman a claim of about 4% of the new real asset value outside of inflation created in the entire country. This could hardly be done be accomplished by what amounts to 1/5000th of the country's workforce. It is stunningly plain that they are allowed to do what is against the law for the rest of us