Robert Frank returns to the point he made in Alpha Markets, i.e. that Charles Darwin provides the "true intellectual foundation" for economics. Though the example this time is male elk rather than bull elephant seals, the central point – and it’s one worth giving more thought to – is that "Individual and group interests are almost always in conflict when rewards to individuals depend on relative performance." In these situations, which occur frequently in economic and social relationships, the assumption in neoclassical economic models that the maximization of self-interest is consistent with the maximization of social interest does not hold, and failure to recognize this has " undermined regulatory efforts … causing considerable harm to us all":
Smith’s basic idea was that business owners … have powerful incentives to introduce improved product designs and cost-saving innovations. These moves bolster innovators’ profits in the short term. But rivals respond by adopting the same innovations, and the resulting competition gradually drives down prices and profits. In the end, Smith argued, consumers reap all the gains.
The central theme of Darwin’s narrative was that competition favors traits and behavior according to how they affect the success of individuals, not species or other groups. As in Smith’s account, traits that enhance individual fitness sometimes promote group interests. For example, a mutation for keener eyesight in hawks benefits not only any individual hawk that bears it, but also makes hawks more likely to prosper as a species.
In other cases, however, traits that help individuals are harmful to larger groups. For instance, a mutation for larger antlers served the reproductive interests of an individual male elk, because it helped him prevail in battles … for access to mates. But as this mutation spread, it started an arms race that made life more hazardous for male elk over all. The antlers of male elk can now span five feet or more. And
Obama’s plan to save the housing market (and, with it, the economy) relies on mortgage modifications: Specifically, reducing monthly payments so strapped borrowers can stay in their houses instead of getting foreclosed on.
The Obama program is just a drop in the bucket. About 131,000 mortgages have been modified so far, most on a trial basis (the idea is to test whether borrowers can actually make the new payments before making them permanent). That’s better than nothing, but it’s less than 5% of the 3.5 million foreclosures expected this year.
Mortgage servicers aren’t staffed to modify mortgages…they are staffed to accept payments and/or initiate foreclosure proceedings. Modifying mortgages requires a different skill set, namely underwriting analysis. To modify a mortgage, the servicer has to figure out what payments the borrower can actually afford. So far, they haven’t been in the business of doing this, and it’s hard to turn on a dime. This is why so many homeowners who are interested in modifying their mortgages aren’t getting calls returned.
Some delinquent mortgage owners "self-cure"…so why should the bank give something away for nothing when the problem might go away on its own? Anyone would like to pay less if you offer to let them do so. But if you gently say, sorry, you agreed to these terms and we’re sticking to them, some borrowers will actually eventually do what they promised to do (which is better for the banks).
A $1,000 government payment isn’t enough to compensate servicers for the hassle. A free $1,000 per modified mortgage sounds like a lot, but after one considers the weeks of back-and-forth with the homeowner, the analysis, the paperwork, etc., it isn’t.
If banks modify mortgages, they have to write down the value of the loan. This is a big one. Remember, our bailed-out banks are now telling the world that they’re profitable again. They’re also claiming that their balance sheets have been purged of the godawful loans that they made or bought from 2004-2007. If the banks actually modify a loan, they’ll have to admit to their accountants and the public that it’s not worth
If you’ve been around these markets for a while you generally know by the time the retail investor is piling into a group, chasing huge scores – it’s generally time to run away (at the least) and for the 5% among us who short, begin to think seriously about betting against the small fry. It sounds cold, but this is just the way it tends to work … trust me, I used to be one of these people, so I learned the hard (read: expensive) way. As we read the piece below let us trust in the fact that none of these people were buying in early March, but most likely jumped in when it was "safe" a month or so later.
Contrast the lemmings running into "what’s hot" with what you’ve been reading here – about a month ago I was saying commodities is crowded and I would not want to be exposed highly there. People who heeded that thought process avoided the sand blasting that has gone on for 3 weeks running in this sector. While I do like these emerging markets for the long term, I think they are vulnerable here as well; some are beginning to roll over – Russia has already been in a "technical" bear market (down over 20% from peak). And I am saying the same thing I said in commodities a month ago, now for the latest darling – technology. It is crowded – everyone is hiding there. Beware.
I don’t really talk much bonds but while junk bonds (highest risk) has provided the most juice the past 3-4 months, its basically been a parallel to the stock market. The ‘worst of breed’ has run up the most as green shoots flower across the world. Just as with the green shoots themselves, I find the junk bond love way premature. This economy is stalled and I expect many more companies to suffer – so buying bonds of the worst seems not such a great intermediate term strategy. I’d be more interested
The latest piece out of ML’s RateLab, the bank’s US Rate Strategy group, is arguably one of the weakest analytical reports issued in a long time. With statements such as:
As the reality of the FED’s firm hand sinks in, disgruntled traders operating in discombobulated markets will relax. We may have violent moves in both level and shape, but as the risk of a 1930’s depression or a Zimbabwe inflation dims, risk vectors will slide back into their longer-term ranges.
We have not changed our view. [T]he average yield of the Treasury 10yr over the past six years is 4.16% with considerable congestion at the 4.0% level. Using any combination of Real GDP plus CPI, it is hard to see a Nominal GDP of much above 4% over the medium term. So there is our cap. Conversely, with over $2 Trillion of new Treasury supply and a Foreign Central Bank community eager to diversify away from the USDollar, breaching 3% seems unlikely under even the most dire economic circumstances. This means that although professional options traders may profit from “delta hedging” the relationship between Implied and Realized Volatility, true end-users should soon significantly reduce their usage of options as a hedging tool.
Good thing black swans are just a figment of Nassim Taleb’s imagination. Dear Harley – pretty charts and all, but aside from your axed position, is there anything factual you can provide aside from references to CNBC anchors who claim that the recession is over, or maybe a counterpoint to the claim that your firm only exists because Ben Bernanke had some early onset amnesia and didn’t quite remember just why your new uber boss Kenny bailed all of you guys out in the last minute with your latent $15 billion in losses (and will eventually result in major civil lawsuits with huge monetary damages for BAC shareholders).
We agree with your observations that the market is pricing in virtually limitless Fed and Treasury support: if it wasn’t, the S&P would be at or near 0. However, unless you assume the Socialist States of America will be the new appellation for this country
When JP Morgan discusses high frequency trading, people listen. When the head of JP Morgan’s algorithmic product desk Carl Carries says that high frequency trading is merely a form of parastic market making, people should run for the hills (not in the least due to JP Morgan’s proficiency in transforming theory to practice especially as it pertains to various daily trading patterns in the SPY).
“The print that a Dark Pool leaves in its wake does not signal an aggressive buyer or seller as would a sweep, so the information leakage is reduced accordingly. Reduction of information leakage minimizes adverse price movement created by predators like high frequency traders who feast upon the signals of others.”
And a few more questions to add to the ever increasing roster of queries for the NYSE (Mr. Pellecchia- maybe the time has come to provide at least some answers?): some dark pools have banned use of third party algorithms in accessing them in order to prevent harm to their institutional clients. Why is this good for dark pools, but not NYSE?
Trader Magazine reports Pipeline Trading banned third party algo’s from accessing its dark pool. http://www.securitiesindustry.com/news/-23514-1.html “Algorithm Switching Engine was introduced in October 2007, six months after Pipeline Trading banned third-party algorithms from accessing its own electronic block trading market…. Pipeline claims to be more effective than competitors in finding block matches because of its 50,000-share average execution size; large block orders are executed automatically without the possibility of sniffing out institutional interest with a small probing order.”
Trader Magazine reports that ITG has banned third party algo’s from accessing its dark pool POSIT. http://www.tradersmagazine.com/issues/20_275/100083-1.html “Investment Technology Group, for the second time, has banned broker-dealers from accessing its POSIT crossing system via algorithms…. ITG chief executive and president Robert Gasser told analysts on the day of the decision that ‘third-party dark aggregation has not been beneficial to our institutional POSIT constituency.’… Heckman told Traders Magazine that some brokers offering customers algorithmic access to POSIT appeared to give preference to their own or other liquidity through the algos. He said that adversely impacted the order flow POSIT received.”
Sergey Aleynikov’s code dump page has been uncovered, courtesy of the Sergey Aleynikov Fan Club on Facebook. The site can be found here. Intrepid hackers, nascent program traders, Goldman lawyers and DHS lackeys should be all over this. As Zero Hedge will be out of pocket for the next few hours, it might make sense for a reader to create a mirror of the content as I have a sinking suspicion this Google page will be taken down faster than Tila Tequila’s modesty.The Google Code linked wiki page is already responding with a 502 Server Error and it is odd that this page has not also been removed.
Among the projects on the Code site include:
The Erlang Plus Interface library (EPI) is a tool set of C++ classes to easily build applications in C++ what comunicates with Erlang. The intention of the library is to cover the holes that EI library offers:
An object oriented implementation
A simple API
Abstraction of comunication mechanism
Simplified management of incoming messages (mailboxes)
The Which Sergey was allegedly putting together in conjunction with user “Keymon.”
I hope some of our enterprising readers take the time to make some sense of all this code in my immediate absence. While the probability of a smoking gun contained here is marginal at best, strangers things have happened.
For me, trading is not a hobby, not a game of chance not some intellectual odyssey filled with clashing egos and chest pounding pissing contests. No, for me, trading is a way to make a living, doing something I love and am good at. So my approach is a little different then some of you may be used to.
Yet every so often a communication from one you impacts me with frustration and dismay. By now I would think that if you have been with me for six months, or a year, or longer, you would be making money trading, using some ideas and techniques that I have described over the months and years of writing AllAllan. But I hear something else from these communications, I hear that many of you are not getting it.
Today I am going to present to you three ways to trade using the simplest of strategies based on end of day prices and a minimal of necessary hardware or software. I am going to use an unleveraged ETF and remove all of my more sophisticated (read: expensive) tools, using only Market Club Triangles and 3 Line Break Point charts, both very similar in their construction and entirely objective in their application.
You can trade this going forward on XLF and probably not need anything else to be successful month to month, quarter to quarter and year to year. But it is my hope you will instead, glean from this the very basic premise of a simple rule-based system that can be applied and tweaked to any number of tradables, a simple trend following trading system from which anything is possible if you only have the discipline and desire to make it work.
XLF – Market Club Triangles -Daily Chart
Their are actually two systems shown on the chart:
(1) Enter trades on appearance of WEEKLY TRIANGLES and exit on appearance of reversing DAILY TRIANGLES. If flat, RE-ENTER on appearance of DAILY TRIANGLE in direction of most recent WEEKLY TRIANGLE;
(2) ENTER/EXIT on appearance of WEEKLY TRIANGLES (disregard DAILY TRIANGLES).
Here is gut wrenching story regarding firefighting and the California Division of Forestry.
I work in the aircraft repair/parts industry in California and thought I’d let you onto something. Many vendors to the CDF (California division of forestry) air operations have outstanding bills going back to last year. My company just put all California agencies on cash or credit card only. Many others are refusing to sell to the CDF because of huge amount of unpaid and late bills. We don’t even get Registered Warrants!
Mish, this is scary. I know of one company that is doing repairs knowing they won’t get paid just because they do not want to see fire fighting aircraft grounded!
Vendors must be given payment priority if the state wants to have any police and fire protection! Meanwhile the state is still purchasing new cars! Go figure.
Don’t put my name on this please. Thank you for your good work.
Normally I use initials, sometimes straight up and sometimes reversing them. In this case, I do not want a witch hunt so I will not post any initials at all. Meanwhile, California burns while the California legislature fiddles. Meanwhile Furlough Fridays are in.
California’s fiscal woes are in sharp focus again today, as state offices close on the first of three "Furlough Fridays" this month, idling tens of thousands of state workers; major banks stop redeeming state-issued IOUs at the close of business; and state leaders appear no closer to resolving the $26.3 billion hole in the state spending plan.
IOUs For Sale
The SEC said Thursday the IOUs are investment securities and anyone who wants to buy or sell their notes should go through registered dealers. This could make it safer.
Furlough Fridays Return
Gov. Arnold Schwarzenegger ordered most state employees to take two furlough days a month starting in February. He has since ordered a third furlough day per month, which starts today. The three days amount to a 14.2 percent pay cut for state workers.
The governor also has proposed a 5 percent pay cut on top of the furloughs.
This Is Outrageous
The Land of the Setting Sun
Buddy, Can You Spare $5 Trillion?
There is no doubt that the US is in financial trouble. Those talking of a strong recovery are just not dealing with reality. But the US is in better shape than a lot of countries. This week, we begin by looking at Japan. I have written for years about how large their debt-to-GDP ratio is, yet they keep on issuing more debt and seemingly getting away with it. But now, several factors are conspiring to create real problems for the Land of the Rising Sun. They may soon run into a very serious-sized wall. And it is not just Japan. Where will the world find $5 trillion to finance government debt? We look at some very worrisome graphs. Those in the US who think that what happens in the rest of the world doesn’t matter just don’t get it. There is a lot to cover in what will be a very interesting letter. I suggest removing sharp objects or pouring yourself a nice adult beverage.
This Is Outrageous
But first, I want to direct the attention of those in the US finance industry to a white paper written by Themis Trading, called "Toxic Equity Trading Order Flow on Wall Street." Basically, they outline why volume and volatility have jumped so much since 2007; and it’s not due to the credit crisis. They estimate that 70% of the volume in today’s markets is from high-frequency program trading. They outline how large brokers and funds can buy and sell a stock for the same price and still make 0.5 cents. Do that a million times a day and the money adds up. Or maybe do it 8 billion times. It requires powerful computers, complicity of the exchanges (because the exchanges get paid a lot), and highly proximate computer connections. Literally, the need for speed is so important that to play this game you have to have your servers physically at the exchange. Across the river in New Jersey is too slow. Forget Texas or California. This is a game played out in microseconds.
Things have taken a turn for the worse since the glory days of the mining construction boom, with companies responding to falling commodity prices by pulling the plug on new projects and laying off workers across the Surat Basin.
The increasing exodus of workers, investment and money from the mining towns has left houses empty and businesses struggling, with many of those left behind wondering what to do...
I’m Bedazzled by the Bewilderment Surrounding the Fed’s Behaviour... So I’ve De-engineered to the Bare Basics... and Oh Boy!
According to former Fed Chair Ben Bernanke in an excerpt from a Nov. 3, 2009 Bloomberg article, the Fed strategy is that “..large-scale asset purchases should boost economic growth through lower borrowing costs and higher stock prices…”...
Five of the eight indexes on my world market watch list posted weekly gains, with Germany's DAX as the top performer, up 3.18%. Japan's Nikkei and France's CAC 40 were in a near dead heat for second place with China's Shanghai Composite not far behind after emerging from its long Lunar New Year break. Hong Kong's Hang Send and India's SENSEX finished the week a hair below flat. The US's S&P 500 was the weakling of the bunch with its 0.27% loss.
Here is an overlay of the eight for a sense of their comparative performance so far in 2015.
Here is a table of the 2015 data performance, sorted from high to low, along with the interim highs for the eight indexes. All eight indexes are in the green, with the two Eurozone indexes up nearly 16 percent.
Chris Kimble's chart for KOL shows a recently beaten down ETF struggling to pull itself up from the ashes. As the chart shows, KOL has recently drifted down to levels not seen since the financial crisis of 2008-9.
Bouncing or recovering with energy in general, coal prices appear to have stabilized in the short-term. Reflecting coal prices, KOL has traded between $13.45 and $19.75 during the past year. Bouncing from lows, KOL traded around 2% higher yesterday from $14.26 to $14.48 on high volume. It traded another 3.6% higher in after hours to $15, possibly related to ...
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Stocks are hitting new highs across the board, even though earnings reports have been somewhat disappointing. Actually, to be more precise, Q4 results have been pretty good, but it is forward guidance that has been cautious and/or cloudy as sales into overseas markets are expected to suffer due to strength in the US dollar. Healthcare and Telecom have put in the best results overall, while of course Energy has been the weakling. Still, overall year-over-year earnings growth for the S&P 500 during 2015 is expected to be about +8%.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 cha...
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PSW Members - well, what a year for biotechs! The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down! The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months. What could go wrong?
Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.
Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies. A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...
Stocks got off to a rocky start on the first trading day in December, with the S&P 500 Index slipping just below 2050 on Monday. Based on one large bullish SPX options trade executed on Wednesday, however, such price action is not likely to break the trend of strong gains observed in the benchmark index since mid-October. It looks like one options market participant purchased 25,000 of the 31Dec’14 2105/2115 call spreads at a net premium of $2.70 each. The trade cost $6.75mm to put on, and represents the maximum potential loss on the position should the 2105 calls expire worthless at the end of December. The call spread could reap profits of as much as $7.30 per spread, or $18.25mm, in the event that the SPX ends the year above 2115. The index would need to rally 2.0% over the current level...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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