Today's premarket action looks exactly like it did on Thursday pre-Draghi. Was the entire past 24 hours a gigantic "just kidding" LOL clusterfuck? Futures ripping post-jobs report, central bank support surely coming even if delayed, "crisis averted, everything's super." The overriding message of this week seems to be that the market's belief in the Bernanke put (and the somewhat fucked-up but apparently still workable Draghi put) is even more powerful than anticipated. No point fighting it. Got some longs on deck for the first time in a while. If there is going to be faith, then let there be faith. From a philosophical perspective, Nietzsche is a good guiding light for traders. No such thing as "truth," only belief.
Did you read Abelson this week? He ripped on Knight and HFT'ers in general. He called them "big-buck gamesters".
Yep, read Abelson... Barrons is one of my fast Saturday night skims at the poker table. (Thank you iPad!) Re, HFMW review, already wrote it: http://www.mercenarytrader.com/2012...-funds-hedge-fund-market-wizards-book-review/ Was going to do a separate write-up of the individual traders, as noted, but decided that, in light of upcoming Trading Wisdom project, their insights would more efficiently be touched on that way (through relevant passages / individual quotes etc).
The following review, for Richard Bookstaber's "A Demon of Our Own Design," was written by yours truly in September 2007. Not new stuff, to be sure. But the recent HFT (high frequency trading) troubles of Knight Capital Group - and the spectacle of a complex "algo" running off the rails, to the tune of $440 million in losses, for 30 minutes straight with no "off switch" to be found - makes the discussion points newly relevant. The problems experienced by Knight are something of a "gray swan:" An event that is unpredictable in timing or magnitude, but was bound to happen at some point (and thus not truly a surprise). Such is the nature of tightly coupled complexity applied at scale. The remarkable thing was how resilient the system proved in the aftermath of the algo blow-up... but next time, will we be so lucky? Read full review here
In the West, being tan is a sign of upper class social status. The natural reasoning is that most people have indoor jobs, with little leisure time - so if you are tan, you must have access to the outdoors, which implies greater wealth than average. In China it's the reverse: http://www.nytimes.com/2012/08/04/w...on-can-include-a-mask.html?src=me&ref=general For legions of middle-class Chinese women - and for those who aspire to their ranks - solar protection is practically a fetish, complete with its own gear. This booming industry caters to a culture that prizes a pallid complexion as a traditional sign of feminine beauty unscathed by the indignities of manual labor. There is even an idiom, which women young and old know by heart: "Fair skin conceals a thousand flaws." A fascinating example of the potentially radical differences in socio-economic cultural norms. The status aspect comes from affluent social signals, which in turn come from setting one's self apart; if you were lean and tan in, say, India for example, such would impart no status because everyone is! As cultural signposts, these norm differences were first made present in the West via Renaissance paintings and the old masters. The reason all those women in your high school art books are plump and pale is because extra weight signified having enough food to eat, and paleness signified a life indoors (versus tilling the soil like a feudal serf). This seems a topic far afield from trading, but I don't think it is. Understanding human psychology, biology and culture - and the unique and curious ways that all three intertwine - can lead to rare but lucrative opportunities that others fail to see, and the study and contemplation of such pays dividends over time. That's why I agree more or less w/ Barton Biggs and Charlie Munger, re, the value of a global macro trader being a voracious reader, maintaining a passionate innate curiosity as to "why the world wags and what wags it."
China's cash pile provides no shield http://www.ft.com/intl/cms/s/0/de41c970-dd44-11e1-aa7b-00144feab49a.html#axzz22i5wK0sp China sits on the world's largest foreign exchange reserves. Many people view Beijing's $3tn cash pile as providing economic insurance for years to come. From this perspective, the fact that China has just produced its first quarterly balance of payments deficit since 1998 looks inconsequential. After all, the $12bn deficit is a rounding error compared to the massive reserves. In fact, China's forex reserves are vulnerable on several fronts. And if the balance of payments deteriorates rapidly, the dysfunctional Chinese banking system will come under increasing pressure... 'Macro' funds struggle as officials whipsaw markets http://online.wsj.com/article/SB100...79908.html?mod=WSJ_hp_LEFTWhatsNewsCollection "Who's having a great year? A great year right now is if you're up three or four percent to date," said Vishaal Bhuyan, head of $15 million macro hedge-fund firm Nariman Point, which is flat this year. One of the largest hedge-fund firms in the world, Bridgewater Associates LP, has posted lackluster returns this year. The Westport, Conn., firm, which manages $125 billion, deftly navigated the post-financial-crisis markets and returned 36.3% in its flagship macro fund last year. But this year the fund is up 2% through July 20, according to a person familiar with the fund. Frustration was an undercurrent in a letter sent last week to investors by star hedge-fund manager Louis Moore Bacon...
GMO Quarterly Letter: Welcome to Dystopia! Entering a Long-Term and Politically Dangerous Food Crisis http://gmo.com/websitecontent/GMOQ2Letter.pdf Grantham's advice to l-t investors: Back up the truck on ag / resource plays...
Germany and Italy "near blows" over euro http://www.telegraph.co.uk/finance/...8/Germany-and-Italy-near-blows-over-euro.html http://www.spiegel.de/international...crisis-anger-german-politicians-a-848455.html "We must make it clear to Mr Monti that we Germans will not shut down our democracy to pay Italian debts." - Alexander Dobrindt, CDU "The tone of the debate has turned dangerous. We must be careful that Europe does not rip itself apart." - Guido Westerwelle, German Foreign Minister Germans are furious over the following comment from Italian PM Monti: "If governments allow themselves to be entirely bound to the decisions of their parliament, without protecting their own freedom to act, a break up of Europe would be a more probable outcome than deeper integration." What Monti is basically saying is that, to save the euro, democracy must be gutted. The will of the populace has to be subjugated to the will of the technocrats in Brussels, if they are going to push through the euro-saving measures that need to be pushed through. This is the worst fear of pro-euro German pols like Merkel et al, because it plays into exactly what the German electorate fears: That a bunch of foreigners they didn't vote for are going to raid their pockets while giving the average German no say in the matter. On a broader level, Monti's level of honesty is somewhat remarkable, and also shows why the euro as a project may be doomed: To really make it work, Brussels will have to unite against the will of the populace -- trampling sovereignty in the name of continental unity -- and this is basically a soft form of fascism. So who is really going to go for that, at the end of the day? Which euro zone countries are going to willingly cough up their sovereignty completely? It's a bad deal for every single one of them, due to the serious unknowns. If Spain, Italy et al give up sovereignty, they risk being crushed under the boot of relentless austerity. If Germany gives up sovereignty, it risks having its pockets picked and its currency destroyed by inflation. Not to mention the nationalist emotions undergirding the whole thing. Europe is really not any better off than before... and when we get to the next wake-up call impasse, the continent will seize up in crisis again.
China's answer to subprime bets: the 'Golden Elephant' This is damn near unbelievable. China is recreating the conditions of the Western subprime crisis: http://www.reuters.com/article/2012/08/06/us-china-banks-idUSBRE87501T20120806 Golden Elephant No. 38 is one of thousands of "wealth-management products", instruments aimed at monied investors, which have shown phenomenal growth over the last five years. Sales of them soared 43 percent in the first half of 2012 to 12.14 trillion yuan ($1.90 trillion), according to a report by CN Benefit. a Chinese wealth-management consultancy. ..."Some banks have been using new (wealth-management product) proceeds to cover losses from previous products in the pool," said David Cui, a strategist at BofA Merrill Lynch. "In our view, this is not fundamentally different from a Ponzi scheme. The music may stop at a certain point if and when WMP asset size stops expanding."