We're sure Owen will represent well at his second birthday party tomorrow, and we all eagerly await photos of the exquisite Remy, but tonight let's share a round of cheer and a shout out to little Johny (and his handsome daddy, Noah)
Saturday, May 29, 2010
Beautiful Baby Sweepstakes
We're sure Owen will represent well at his second birthday party tomorrow, and we all eagerly await photos of the exquisite Remy, but tonight let's share a round of cheer and a shout out to little Johny (and his handsome daddy, Noah)
High Frequency Trading
While still apalled at what the investment banks have done to our economy and our society,I am not at this point hysterical, and present the article below simply because it is informative.
DK Matai.Chairman: mi2g, ATCA, The Philanthropia
Posted: May 29, 2010 06:39 PM BIO Become a Fan Get Email Alerts Bloggers' Index .
The Achilles Heel of Markets?
It has been the worst May for stocks since 1940. The last time May was this bad, neither had Pearl Harbour been bombed forcing the US to enter World War II, nor had the US recovered from The Great Depression. Although suppressed for much of the global markets recovery that began in March 2009, volatility has sprung back with a vengeance in May. On May 21st the "fear index" -- the "volatility index" of the Chicago Board of Options Exchange, also known as VIX -- rose to a 12 month high. May 6th, the day of the "flash crash," saw the biggest intraday point drop ever in the Dow Jones Industrial Average. The last-hour market swings, as the European debt crisis injects more uncertainty, are also increasing with every passing day. This volatility reflects a lack of buying interest among long term investors and an intra-day focus for high-frequency traders in the absence of a clear market direction.
High Frequency Trading
Super Arbitrage
The role of high-frequency trading is gathering pace, commanding a bigger and bigger share of financial markets' activity worldwide in equities, bonds, commodities, futures and currencies. High-frequency traders are behaving like computer jockeys. They run complex trading algorithmic software on superfast computers and search the markets for tiny price differentials so that they can carry out super arbitrage. By trading hundreds of millions or even a billion units a day at lightning speed, high-frequency traders pick up fractional pennies each time. The more volatile the market, the easier it is for them to make money jumping in and out of assets across multiple exchanges. High-frequency traders are really just trying to skim the bid to offer spread on a trade. It may only be as low as $0.01 on many trades but, if one does it for 100,000,000 -- 100 million -- units that's over one million dollars a day of profit! High-frequency trading firms rarely go home with a position if they can help it because they make money by maximising transactional volume and minimising risk.
What Does Volatility Mean?
Markets become volatile when liquidity dries up. This means people can't trade stocks at a fair price, when they want. High-frequency traders thrive off volatility, because when liquidity is in short supply, it becomes very profitable for them to provide it. On days with big movements, in the realm of triple digits, high-frequency traders can make a lot of money via this super arbitrage. As a result, May has proved to be the biggest gold mine for high-frequency trading firms since the crash of late 2008 and early 2009. While many long-term investors lost their shirts during The Great Unwind (2007-?) and The Great Reset (2008-?), the high-frequency traders posted huge profits, as they are doing now.
Shadow Markets
In their defence, high-frequency traders say that because their intense trading provides liquidity, they help markets run smoothly, improving the environment for all investors. They say their actions make the markets more functional and fair to typical investors. Given that the high-frequency traders and broker dealers have a symbiotic relationship, they are both actively masquerading as liquidity providers when in fact they are normally liquidity takers, the knowledge transfer of the transactional information being all important. It is clear that high-frequency trading serves no larger purpose. It does not raise capital for companies, create jobs or stimulate innovations in the broader economy. The trades remain completely divorced from underlying economic fundamentals. The high-frequency traders know little or nothing about the companies their computers are feverishly buying and selling. If one combines the speed at which they operate, the outsourcing of decision making to computer algorithms, and an almost complete lack of regulation, this shadow market can fuel and exaggerate volatility.
Anti-Value Investing
High-frequency traders have been branded as the new "black hats" of high finance. Their computer-driven methods, which now account for upwards of two thirds of all US equity volume, are proliferating. To a large degree, fundamental investment strategies -- such as buying and selling stocks based on a company's long term performance -- have taken a back seat to high-frequency trading algorithms hunting for inefficiencies in daily pricing and super arbitrage opportunities.
Reach, Richness and Speed
High-frequency trading has been spreading from the US and Canadian stock markets into new geographies -- Europe, Asia and Latin America -- and all asset classes including equities, bonds, commodities, futures and currencies. Assuming the new financial regulatory reform bill forces over-the-counter derivatives on to exchanges, high-frequency traders will no doubt trade them too. Every day, things are getting faster in the world of high finance and trading. Four years ago, executing a trade in a millisecond -- one thousandth of a second -- was considered fast; now the top high-frequency trading firms and broker dealers are trading in microseconds. That's one millionth of a second.
Conclusion
Law-makers and regulators are right to get nervous. Senator Ted Kaufman -- Democrat from Delaware -- who understands the risk of high-frequency trading, or HFT, says, "I'm afraid that we're sowing the seeds of the next financial crash." He has called for the Securities and Exchange Commission (SEC) to investigate high-frequency traders and the impact they have had on the broad markets.
In the aftermath of the May 6th "flash crash", the Securities and Exchange Commission (SEC) has recently voted to propose rules that would give the agency and securities exchanges more timely information about high-frequency trades so that they can better oversee the markets. The proposal requires exchanges and broker dealers that trade on the exchanges to provide detailed information about quotes, orders and trades to what would be a newly created central repository.
Whilst the creation of a central repository may be helpful, it is unclear how this could prevent a "flash crash" caused by high-frequency trades in the future. Human real time is measured and understood in minutes and seconds, whereas the machines are trading in millionths of seconds. In order to be able to understand what happens in a future "flash crash" the regulators would have to play the data from a central repository in slow motion over days or even weeks! What good is it to drive an open-top car at high speed with one's eyes glued to the rear view mirror?
Follow DK Matai on Twitter: www.twitter.com/DKMatai
Previously on The Financial Fix
DK Matai.Chairman: mi2g, ATCA, The Philanthropia
Posted: May 29, 2010 06:39 PM BIO Become a Fan Get Email Alerts Bloggers' Index .
The Achilles Heel of Markets?
It has been the worst May for stocks since 1940. The last time May was this bad, neither had Pearl Harbour been bombed forcing the US to enter World War II, nor had the US recovered from The Great Depression. Although suppressed for much of the global markets recovery that began in March 2009, volatility has sprung back with a vengeance in May. On May 21st the "fear index" -- the "volatility index" of the Chicago Board of Options Exchange, also known as VIX -- rose to a 12 month high. May 6th, the day of the "flash crash," saw the biggest intraday point drop ever in the Dow Jones Industrial Average. The last-hour market swings, as the European debt crisis injects more uncertainty, are also increasing with every passing day. This volatility reflects a lack of buying interest among long term investors and an intra-day focus for high-frequency traders in the absence of a clear market direction.
High Frequency Trading
Super Arbitrage
The role of high-frequency trading is gathering pace, commanding a bigger and bigger share of financial markets' activity worldwide in equities, bonds, commodities, futures and currencies. High-frequency traders are behaving like computer jockeys. They run complex trading algorithmic software on superfast computers and search the markets for tiny price differentials so that they can carry out super arbitrage. By trading hundreds of millions or even a billion units a day at lightning speed, high-frequency traders pick up fractional pennies each time. The more volatile the market, the easier it is for them to make money jumping in and out of assets across multiple exchanges. High-frequency traders are really just trying to skim the bid to offer spread on a trade. It may only be as low as $0.01 on many trades but, if one does it for 100,000,000 -- 100 million -- units that's over one million dollars a day of profit! High-frequency trading firms rarely go home with a position if they can help it because they make money by maximising transactional volume and minimising risk.
What Does Volatility Mean?
Markets become volatile when liquidity dries up. This means people can't trade stocks at a fair price, when they want. High-frequency traders thrive off volatility, because when liquidity is in short supply, it becomes very profitable for them to provide it. On days with big movements, in the realm of triple digits, high-frequency traders can make a lot of money via this super arbitrage. As a result, May has proved to be the biggest gold mine for high-frequency trading firms since the crash of late 2008 and early 2009. While many long-term investors lost their shirts during The Great Unwind (2007-?) and The Great Reset (2008-?), the high-frequency traders posted huge profits, as they are doing now.
Shadow Markets
In their defence, high-frequency traders say that because their intense trading provides liquidity, they help markets run smoothly, improving the environment for all investors. They say their actions make the markets more functional and fair to typical investors. Given that the high-frequency traders and broker dealers have a symbiotic relationship, they are both actively masquerading as liquidity providers when in fact they are normally liquidity takers, the knowledge transfer of the transactional information being all important. It is clear that high-frequency trading serves no larger purpose. It does not raise capital for companies, create jobs or stimulate innovations in the broader economy. The trades remain completely divorced from underlying economic fundamentals. The high-frequency traders know little or nothing about the companies their computers are feverishly buying and selling. If one combines the speed at which they operate, the outsourcing of decision making to computer algorithms, and an almost complete lack of regulation, this shadow market can fuel and exaggerate volatility.
Anti-Value Investing
High-frequency traders have been branded as the new "black hats" of high finance. Their computer-driven methods, which now account for upwards of two thirds of all US equity volume, are proliferating. To a large degree, fundamental investment strategies -- such as buying and selling stocks based on a company's long term performance -- have taken a back seat to high-frequency trading algorithms hunting for inefficiencies in daily pricing and super arbitrage opportunities.
Reach, Richness and Speed
High-frequency trading has been spreading from the US and Canadian stock markets into new geographies -- Europe, Asia and Latin America -- and all asset classes including equities, bonds, commodities, futures and currencies. Assuming the new financial regulatory reform bill forces over-the-counter derivatives on to exchanges, high-frequency traders will no doubt trade them too. Every day, things are getting faster in the world of high finance and trading. Four years ago, executing a trade in a millisecond -- one thousandth of a second -- was considered fast; now the top high-frequency trading firms and broker dealers are trading in microseconds. That's one millionth of a second.
Conclusion
Law-makers and regulators are right to get nervous. Senator Ted Kaufman -- Democrat from Delaware -- who understands the risk of high-frequency trading, or HFT, says, "I'm afraid that we're sowing the seeds of the next financial crash." He has called for the Securities and Exchange Commission (SEC) to investigate high-frequency traders and the impact they have had on the broad markets.
In the aftermath of the May 6th "flash crash", the Securities and Exchange Commission (SEC) has recently voted to propose rules that would give the agency and securities exchanges more timely information about high-frequency trades so that they can better oversee the markets. The proposal requires exchanges and broker dealers that trade on the exchanges to provide detailed information about quotes, orders and trades to what would be a newly created central repository.
Whilst the creation of a central repository may be helpful, it is unclear how this could prevent a "flash crash" caused by high-frequency trades in the future. Human real time is measured and understood in minutes and seconds, whereas the machines are trading in millionths of seconds. In order to be able to understand what happens in a future "flash crash" the regulators would have to play the data from a central repository in slow motion over days or even weeks! What good is it to drive an open-top car at high speed with one's eyes glued to the rear view mirror?
Follow DK Matai on Twitter: www.twitter.com/DKMatai
Previously on The Financial Fix
Friday, May 28, 2010
My brother Mike and I
It's been a turbulent week. Very busy and some complicated emotions involved. The best news was that my brother John's son Michael married a lovely girl named Caitlin in Alpharetta GA. A bad thing was the gulf oil spill which slightly eroded my confidence in President Obama and prompted this Facebook exchange
Me:
Abraham Lincoln "I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. . . . corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the pre...judices of the people until all wealth is aggregated in a few hands and the Republic is destroyed."
Mike:
Guess he missed ACORN, SEIU, fed takeover of GM with UAW, takeover of healthcare against voters' wishes w. bill no one read (have to pass it to see what's in it), apology to China (!) for AZ having to enforce Fed law vs. illegals whom administration considers unregistered Democratic voters despite their drug-smuggling, kidnappings, murders of agents and civilians, etc. Good thing he was not in business of predicting future; he sure got that wrong!!!
: )
Nephew Mike:
BP.
Mike:
As in BRITISH Petroleum?
Let's not drill there, let Cuba and China do so, and then buy it from them! Yeah, that's the ticket!
Better yet, let's go back to the horse & buggy! Then every city, not just Chicago and DC, will reek of horsesh-t.
: )
Brother John:
Spill baby. Spill.
Me:
Mike, they tricked you. BRITISH, as in Amoco. BRITISH as in Chevron, BRITISH as in Gulf Oil, and BRITISH as in Atlantic Richfield. Dont feel bad that's what they wanted to do.
Mike:
Right, Andy. It's all an evil capitalist plot to deceive us workers of the world, done in anticipation of oil spills. Oh, silly me, I feel so deceived. I should have listened to Marx and Lenin! They tried to warn me!
: )
Sister Dean:
calm down, brothers.
Do other families encompass such varying political sentiments?
Me:
Abraham Lincoln "I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. . . . corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the pre...judices of the people until all wealth is aggregated in a few hands and the Republic is destroyed."
Mike:
Guess he missed ACORN, SEIU, fed takeover of GM with UAW, takeover of healthcare against voters' wishes w. bill no one read (have to pass it to see what's in it), apology to China (!) for AZ having to enforce Fed law vs. illegals whom administration considers unregistered Democratic voters despite their drug-smuggling, kidnappings, murders of agents and civilians, etc. Good thing he was not in business of predicting future; he sure got that wrong!!!
: )
Nephew Mike:
BP.
Mike:
As in BRITISH Petroleum?
Let's not drill there, let Cuba and China do so, and then buy it from them! Yeah, that's the ticket!
Better yet, let's go back to the horse & buggy! Then every city, not just Chicago and DC, will reek of horsesh-t.
: )
Brother John:
Spill baby. Spill.
Me:
Mike, they tricked you. BRITISH, as in Amoco. BRITISH as in Chevron, BRITISH as in Gulf Oil, and BRITISH as in Atlantic Richfield. Dont feel bad that's what they wanted to do.
Mike:
Right, Andy. It's all an evil capitalist plot to deceive us workers of the world, done in anticipation of oil spills. Oh, silly me, I feel so deceived. I should have listened to Marx and Lenin! They tried to warn me!
: )
Sister Dean:
calm down, brothers.
Do other families encompass such varying political sentiments?
Tuesday, May 18, 2010
Remy
Remy Cangelosi was born last Wednesday, son of Ross and Kim, in Las Vegas. Here I am posting the news six days later. Of course we've shared a lot of facebook chatter and photos, but it's weird not to have commented here.
I think that's because I feel remote fron the event. Strange. Janett flew there Friday with Stephie to help Kim during her first days at home with her baby. She's returning today. I hope she'll have glowing descriptions and anecdotes to help me feel connected to the little fellow. I don't think I'll get out there til September.
I'll do some real bonding then.
Another explanation is that my primary sensation is one of relief, instead of jubilation. I worried, perhaps without cause, right up to the last minute. This little creature has been a very important part of Kimmy's life for a couple of years, and bringing him into the world wasn't as easy as Kim and Ross deserved it to be.
Now Remy is here, and Kimmy and Ross can rejoice and marvel at his beauty, and I can relax and thank God.
No fat fingers
The Securities and Exchange Commission and the Commodity Futures Trading Commission said in a joint report today that they found no evidence that mistaken orders, terrorism or computer sabotage led the drop, which briefly sent the Dow Jones Industrial Average down 998.5 points.
Just too many sell orders and not enough buy orders. That's how crashes happen.
Just too many sell orders and not enough buy orders. That's how crashes happen.
Saturday, May 15, 2010
Thursday, May 06, 2010
Audit the fed?
Heres a couple paragraphs from an interesting article.
If you recall, back in 2008, Hank Paulson, our treasury secretary at the time, convinced Congress over a weekend that he needed $700 billion of TARP funds to get the toxic assets off our commercial banks' books. Amazingly, within weeks of being given the funds by Congress, Paulson decided not to proceed with the purchase of toxic assets from the banks, instead giving away hundreds of billions of dollars to the commercial and investment banks and funding a series of bailouts — giving money to Chrysler, General Motors and AIG (some of which immediately found its way back to the commercial and investment banking community).
At the time, nobody explained what happened to the toxic assets on the banks' books whose purchase was the original stated purpose of TARP. We now know that the financial crisis was not caused solely by a liquidity crunch or an irrational loss of confidence, but rather by the fact that the marketplace realized that the commercial banks held more than a trillion dollars of very poor-quality assets, mostly mortgage securities such as collateralized debt obligations, or CDO’s, and that these bad assets were sizable enough to bankrupt even our biggest banks. How bad? Even the AAA tranche of the typical CDO is facing a mortgage default rate of approximately 93 percent today.
I believe the reason Paulson didn’t pursue his original toxic-asset purchasing plan is because such a purchase would have created a market price for these assets, and then all of the banks would have had to mark their poor-quality assets to this low market price. This would have resulted in the bankruptcy of almost all the major commercial and investment banks, because their leverage was so high that they couldn't withstand such a hit to their equity.
If you recall, back in 2008, Hank Paulson, our treasury secretary at the time, convinced Congress over a weekend that he needed $700 billion of TARP funds to get the toxic assets off our commercial banks' books. Amazingly, within weeks of being given the funds by Congress, Paulson decided not to proceed with the purchase of toxic assets from the banks, instead giving away hundreds of billions of dollars to the commercial and investment banks and funding a series of bailouts — giving money to Chrysler, General Motors and AIG (some of which immediately found its way back to the commercial and investment banking community).
At the time, nobody explained what happened to the toxic assets on the banks' books whose purchase was the original stated purpose of TARP. We now know that the financial crisis was not caused solely by a liquidity crunch or an irrational loss of confidence, but rather by the fact that the marketplace realized that the commercial banks held more than a trillion dollars of very poor-quality assets, mostly mortgage securities such as collateralized debt obligations, or CDO’s, and that these bad assets were sizable enough to bankrupt even our biggest banks. How bad? Even the AAA tranche of the typical CDO is facing a mortgage default rate of approximately 93 percent today.
I believe the reason Paulson didn’t pursue his original toxic-asset purchasing plan is because such a purchase would have created a market price for these assets, and then all of the banks would have had to mark their poor-quality assets to this low market price. This would have resulted in the bankruptcy of almost all the major commercial and investment banks, because their leverage was so high that they couldn't withstand such a hit to their equity.
Wednesday, May 05, 2010
It's a gusher
Here's a link to a seeminlgly objective commentator who says the gulf "leak" is a very serious problem. BP has been practicing PR and lobbying skills, but will end up wringing their hands and saying (like the bankers) "Nobody imagined this could go so horribly wrong. While we were getting paids millions to do it, it seemed like a really good idea."
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