In the first of a series of breakfasts with top hedge fund managers, Savvas Savouri, partner at Toscafund; Chris Goekjian, chief investment officer at Cheyne Capital; and Luke Ellis, head of the multi-manager unit at Man Group, talk about how their funds are playing the Euro zone crisis and how the short- and long-term views are affecting investment.

“If you look at a macro fund, you know, they’re absolutely trading,” says Ellis. “They have a strong view on the negative future of the Euro structure…. [S]o the percentage likelihood of a Euro zone break-up is tiny, but the cost of putting a trade on to take advantage of that is also tiny…. [T]hat particular team is bearish about the future for Europe, for the economy, that basically politicians are going to mess it up until, you know, and so they trade with that bias on a day-to-day basis.”

“There are 17 Euro zone nations, and there are another seven or eight that pretend to be in the Euro zone, and we’re talking about everyone from Bulgaria through to Latvia, and even including non-E.U. economies like Croatia and Serbia,” Savouri says. “That’s where you’re going to start seeing currency weakness, that’s where you’re going to start seeing debt concerns.”

“Looking on to knock-on effects, or secondary effects [of a Greek default] is really how you have to position yourself because to us, again, just speculating on the, you know, event of the default itself is difficult,” Goekjian says. (more…)

Derwent Capital Markets Managing Director and founder Paul Hawtin tells Reuters Insider why Twitter can be used to gauge global macro sentiment.

“I was always a great believer in the Wisdom of Crowds concepts and that markets are driven by greed and fear,” Hawtin says. “So I came across an article on a media station back in October detailing a piece of work, an economic piece of work which found high correlation between sentiment on Twitter and the closing values of the Dow Jones Industrial Average index.” (more…)

Reuters Breakingviews columnists say metrics used to track hedge funds – such as the Sharpe ratio – could help U.S. regulators spot proprietary trading by banks. The idea is that prop trading is volatile and so banks engaged in prop trading would have low Sharpe ratios. (more…)

On the one-year anniversary of the “Flash Crash,” Cornell University finance professor Maureen O’Hara tells Reuters Insider she worked with researchers at Tudor Investment Corp. to devise a new formula, the VPIN, that identifies the risks liquidity providers face when trading with people with better information and how that may prevent flash crashes.

“… what we found is that this measure can predict such large price moves with about a 90% accuracy,” O’Hara said. (more…)

European policymaker Kay Swinburne tells Reuters Insider that European Union legislators should make so-called dark pool broker crossing networks subject to regulation and introduce other structural changes to encourage traders back into the “lit space,” or trading venues with more transparency.
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Reuters Insider’s Angeline Ong reports from the London TradeTech 2011 on high-frequency trading. As investors hunt for better returns, HFT is spreading to new asset classes, including futures, and new regions like Asia. (more…)

Here’s the gang at “Street Signs” coming to the realization that the massive share sell-off was not a panic in response to Greece or the euro, but instead some kind of computer-related issue.

News headline: Study shows why it is so scary to lose money

“People are afraid to lose money and an unusual study released on Monday explains why - the brain’s fear center controls the response to a gamble.

“The study of two women with brain lesions that made them unafraid to lose on a gamble showed the amygdala, the brain’s fear center, activates at the very thought of losing money.

“‘A fully functioning amygdala appears to make us more cautious,’ added … colleague Ralph Adolphs. ‘We already know that the amygdala is involved in processing fear, and it also appears to make us ‘afraid’ to risk losing money.’”

Knowing many traders over the years, I always suspected many of them were brain damaged in some way. This also may be helpful in explaining credit default swaps.

In the escalating war on Wall Street, few legislative measures are as universally loathed by securities traders as the “transaction tax” proposed in the House by Rep. Peter DeFazio (D-Oregon). A similar measure was introduced in the Senate last month by Iowa’s Tom Harkin, also a Democrat.

DeFazio’s “Let Wall Street Pay for the Restoration of Main Street” bill (his second attempt at such legislation following a failed effort in early 2009) would, among other things, levy a 25-basis-point tax on stock trades above $100,000, and, for all intents and purposes, do away with “high frequency trading” which has become increasingly prevalent.

House Speaker Nancy Pelosi of California has said she supports the tax, although Treasury Secretary Tim Geithner has indicated the White House would not be prepared to support it. Conventional wisdom has held that between the White House not being on board and furious lobbying against it, the transaction tax simply will never fly.

But then again, with President Obama apparently doubling down on his Wall Street reform campaign—indeed even staking his presidency on it—the transaction tax could be poised to gain traction. Obama said he’s prepared for a fight; on the transaction tax, he’ll get one.

Here for your viewing pleasure is StreetInsider.com’s look at JANA Partners’ latest 13F filing with the Securities and Exchange Commission. It covers the quarter ended June 30. You really have to love regulatory filings to compile this kind of information, and it’s nice that someone does.

StreetInsider also has the skinny on the latest 13Fs from the likes of Steven A. Cohen, John Paulson and others.

Given the time lag between the end of the reporting period and the filings, this information is mostly voyeuristic. But it just goes to show how valuable it can be to take raw data and provide even a surface-level analysis.