Archive for the ‘Trading’ Category
Friday, July 22nd, 2011
Wall Street, the Fed and money managers are betting there will be a deal to raise the U.S. debt ceiling, but are making backup plans for what they are calling “uncharted territory” in case they’re wrong.
“â€¦ you can see this coming; it’s being telegraphed,” said Reuters Markets Editor David Gaffen. “And yet there will still be a reaction right around when this whole thing happens, right around the beginning of August, August 2 or whenever that date is. And there will probably be some sort of freak-out at that time.” (more…)
Wednesday, July 20th, 2011
2100 Xenon’s Jay Feuerstein writes on Hedgeworld.com today that history suggests futures markets will not only return to trendiness, but yield the best opportunities of the past 30 years. Here are some excerpts from his piece:
Trading futures in 2011 has been tough because the budget, the budget deficit, the real estate crisis, the joblessness, the Federal Reserve, The European Central Bank and the IMF have all spawned surprise headlines that left well-thought-out trading strategies in shambles. Short-term traders find themselves whipsawed by the news while long-term traders own positions that appear to be going nowhere. Moreover, except for a brief respite at the end of 2010, the markets have been in this Bermuda Triangle trading environment for more than two years.
Once the global economy finds a clear pathâ€”up or downâ€”markets will price themselves accordingly, and disciplined traders will find a literal goldmine of opportunities. Just look at what happened in the 1970s. The recession of 1973-74 was the worst, at that time, since the Great Depression. War raged in the Middle East. The stock market lost 40 per cent of its value, housing prices plunged, workers lost jobs and for the first time the U.S. began to run a budget deficit. Fed Chairman Arthur Burns burst open the monetary spigots and was roundly criticized because commodities such as gold and silver began huge bull runs that saw their prices rise tenfold in less than five years. Emerging countries such as Japan were the miracle economies that kept the world afloat while the United States struggled with inflated union contracts and historic borrowing costs. Sound familiar?
At the same time, the resulting market opportunities in metals, grains, interest rates and soft commodities created the opportunities for the earliest trend followers such as Larry Hite and his Mint Asset Management. He and Ed Sekoyta are credited with being the first of their kind but they soon had company. Paul Tudor Jones, Richard Dennis, John Henry and Monroe Trout all amassed great trading records in the ensuing decade.
Today, the markets are in much the same place as they were when Gerry Ford left office in 1976. Commodity prices are booming. The stock market, though just two per cent from three-year highs, is flat over that period as well. The Fed is especially generous, and the Obama administration is desperately trying to stay afloat as the 2012 election nears. No tough medicine is yet in sight.
Meanwhile, the Fed says it is ready to continue to ease policy, though rates are already at zero. The only thing it could do is buy government debt, but that would not be the best idea given the possible downgrade that is coming. Still, the only bullets it has are in dollars, and it could flood the short-term money markets with cash in order to keep the economy afloat while Washington sorts out its problems. One of the differences between today and the late 1970s, early 1980s, is that the world is a much smaller place. Repercussions from Washington reach every corner of the world, with at least three of those corners in a pretty tough spot. The Eurozone is struggling with Greece, Portugal, Spain and Italy, whose defaults could throw French and German banks for a multi-billion dollar loss. Chinaâ€™s miracle is slowing, as inflation and real estate prices make workers there feel less successful than the economy they have struggled to build. And the Middle East, despite its oil profits, continues to be a violent place as nascent governments struggle with the new independence they have found in the wake of the deaths of Saddam Hussein and Osama bin Laden.
Ultimately, all of this will sort itself out.
Going forward, when looking at the political prospects for the country, possible results run along party lines. If the Democrats win, the markets will know what they stand for: inflation and a lack of fiscal discipline. The Obama/Bernanke team will revive the economy but at a severe inflationary cost. Nonetheless, markets will have direction. Bonds will fall, stocks and commodities will rally. Traders will have plenty of trades to choose from. If the Republicans gain office, trades will still abound but they will be the trades of a double dip, deflation and illiquidity. Most likely, the Republicans will cut the deficit, thereby removing fiscal stimulus. Bonds will skyrocket, the yield curve will flatten, stocks and commodities will swoon and swap spreads will dramatically widen. Even if the two parties work togetherâ€”Heaven forbidâ€”regardless of the presidential outcome, good trades would emerge because stocks would rally, bonds would fall, commodities would flatten out, however, but the dollar would rally. Markets would move enough for sustainable trends in any of the three cases. All traders need is some direction, and it is coming.
Read the Hedgeworld op-ed here.
Thursday, June 16th, 2011
Investors are using Twitter to access information and companies are springing up to sort through Twitter’s billion weekly tweets to find usable data for traders.
Josh Brown, vice president at Fusion Analytics, “You’ll notice I don’t have scrolling headlines on my main trading screen. I can access them in a click. You’ll also notice that there’s no TV, no radio on in the background.”
Brown says he now gets everything he needs and more from social media. (more…)
Wednesday, June 15th, 2011
An arms race has erupted as telecommunications firms bore below rivers and map ocean floors to build shorter, faster routes between financial capitals to shave milliseconds off high-frequency trading. The debate over high-frequency trading’s role in the May 6, 2010, “flash crash” isn’t stopping telecom companies from chipping away at latency. (more…)
Tuesday, June 14th, 2011
Aien Capital founder and Managing Director Ugur Arslan says that as profit margins shrink in major currency pairs, some high-frequency traders are dabbling in emerging markets currencies. His Aien Trading plans to start trading the Turkish lira early in 2012 and said he expects lira trades to comprise 1% to 2% of the firm’s trades. Aien is also looking at other major emerging market currencies to trade, including the Mexican peso and the Brazilian real. (more…)
Monday, June 13th, 2011
Staying liquid and holding defensive stocks will help investors ride out the end of the Fed’s second round of quantitative easing, known as QE2, 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, tell Reuters Insider.
“Wasn’t there an American preacher who said the world will end at 6:07?” Savouri said. “We’re still here. I think the same thing applies to QE2. Will there be a QE3? Is it a big Ponzi scheme, this game between the Treasury and the Fed? Whatever the view is out there, the catalyst for a U.S. Treasury sell-off won’t be the end of QE2. There will be a catalyst at some point, but I suspect the origins won’t be in Washington. It’ll be somewhere in the Far East.”
“So whether QE2 is the end of the QEs, whether they do a QE3 or QE4 or just some other version of it, they’re gonna keep pushing until there is inflation in the U.S.,” Ellis said. (more…)
Wednesday, June 8th, 2011
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 structureâ€¦. [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 tinyâ€¦. [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…)
Monday, June 6th, 2011
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…)
Friday, May 13th, 2011
Reuters Breakingviews columnists say metrics used to track hedge funds â€“ such as the Sharpe ratio â€“ 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…)
Friday, May 6th, 2011
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.
“â€¦ what we found is that this measure can predict such large price moves with about a 90% accuracy,” O’Hara said. (more…)