Friday, September 16, 2011

What TMM have learnt this week

Having spumed out all their funding ire yesterday, Team Macro Man are resting back exhausted. It is time for reflection. So what have we learnt this week?

- Funding disasteristas have had their guns spiked by CB actions, or rather - offer of actions (you know TMM's thoughts on the funding story from yesterday's post).

- TMM are surprised that so many people who should know better don't (on many issues).

- SNB have survived the first week of eur/chf 1.2000 defence despite a crucifiction of everything Euro earlier in the week and a market adamant that it will fail. Looks solid.

- UBS didn't and doesn't. There is a really good reason why you don't promote people from back or middle office to front office: they know the systems well enough to cover their tracks. Better the norm where very few front office people have a clue what happens to a trade once they press "done". Leeson, Kerviel and Adoboli all had this in common. Note to management - if you want to hire a back or middle office guy to do a front office job, hire them from a different bank.

- When traders are in the office past 10pm, something is a foot. Risk managers should have an alert for when traders fail to "beep" out of the office.

- Judging by TMM's inbox Nigerian scammer jokes are easily transposed to Ghanaian scammer jokes.

- TMM are still scratching their heads as to how he managed $2bio, or is this the biggest kitchen sinking ever?

- All European politicians should be fired.

- Timmy G is running european policy.

- Lagarde has bigger balls than the tow hitch on a redneck's pick up.

- Be sceptical when punters declare Asia/NOK/SEK the "new safe haven".

- MXN may be cheap, but some folks seem determined, to TMM chagrin, to make it cheaper.

- Materials inventories are piling up in China and Chinese cement co's are trading really poorly (which makes TMM happy).

- In non-political land Global IP was actually not too bad in August.

- Ringfencing bad european debt would have to involve seas and oceans.

- Banks are to become village post offices.

- Village post offices are to be closed.

- Old fashioned Merchant Banking will respawn with TMM looking forward to names and addresses such as "Wimble, Womble and Phlewwin, Old Dribble Lane, The City" returning to fashion.

- leverage is for pivots.

TMM are now settling back to watch the second half of Greece vs Germany...


WellRed said...

Has the thought been considered that yesterday's coordinated CB announcement was pump priming in preparation for a Greek default?

WellRed said...

Also, links to any discussion of pirmary material stockpiling in China would be appreciated (or names of who I should be tracking down).


Polemic said...

Wellred 2.27.. yes was one of the most popular "well it must be because...." theories flying around yesterday. Some of which had us reaching for our foil beenies.

As for china papers. i ll leave that to nemo.

Oh and to all... haven t forgotten the tmmisms.. give us the weekend to decide.

karen said...

Loved this post! and while i looked askance at those pump priming greek default rumours yesterday.. i'm sure we haven't heard the last of them. There are reputations and egos at stake here. But personally, I'm so over foil beenies.

Anonymous said...

Complete Rubbish about promoting from the back and middle offices

having worked in middle office before, (albeit in credit) there is NO WAY you can rack up 2yards of losses without MULTIPLE flags being raised to Market Risk, Finance, Collateral, Treasury, Credit Risk, Settlements, Middle Office, Confirmations and the rest of the bank. Even if you knew the entire back office, middle office like the back of your hand it would be impossible. There are different access privileges across multiple systems. you will never have access to all the risk, settlement systems used. If you can get round the internal controls, then there is a serious problem with technical and strategic architecture of the bank, How was this not picked up in the annual external audit? they should whack the head of risk, ops, audit and and the entire risk management committee,
Either their entire bank was incompetent or this was a case of kitchen sinking losses. after all, UBS like everyone else were long and very wrong

Polemic said...

Anon 3.40 .. totally agree with your points, but he/something DID by pass all the checks you mention. Our point is that front office staff trying to do the same would be like sending your granny thru one of those raiders of the lost ark final challenges.. no chance. At least m.o. and b.o. know where the traps are.

Anonymous said...


How about he was running about $20M of FX at 100 x leverage, and he was long CHF:EUR at the top, so he was in the hole and then decided to "double down" just before the SNB peg. He goes to the khazi, comes back and said instrument is down 8%. But this only gets us to $200M or so, unless he was playing with far more of the bank's money...? I suppose it must have been a trade long volatility, which effectively vanished..?

karen said...

Greek default rumors running main stream now, with a "poll" no less:

theta said...

@anon 5:23
It could have been a put ratio say 1.20/1.05 strikes, where he was long the 1.20 strike, short twice the 1.05, initially delta neutral and gamma/vega neutral (or rather gamma slightly long, vega slightly short). Then spot drifts lower in low vol as it crosses his long strike, and then accelerates on the way down with vol exploding. He loses a ton of money delta-hedging his now short gamma position (buying high, selling low), and the final nail in his coffin is the SNB peg which leaves him long gamma, vega etc. just when vol dies.

Leftback said...

Take a look at the pink sheets for Soc Gen, BNP and Cred Ag, and Unicredit. All crashing. This may simply be profit taking from those who rode the squeeze.

Or..? One way to look at this week's CB bazooka unveiling is that a Greek default is imminent and they will attempt to react to market carnage by squirting liquidity from said weaponry?

Or how about the Greek banks to be taken down, Swedish style? I am still long here, just trying to examine the remainder of the potential event space and thinking about the level of equity exposure into the w/e.

Anonymous said...

If what ever he was up to was being done with an eye to enrich himself then fine throw him to the wolves, but I suspect he was a young guy who dug a hole and panicked. It's not big and it's not clever but if we are all honest with ourselves most of us who have been doing this for a long while have, to some extent, screwed up and panicked (even if we did put our hand up quickly).
The real point here is that the banks managers are responsible for putting him in a position where he can take enough risk to loose $2bio (I am struggling to find a reasonable way he could have done that - even trying that is going some), they are responsible for managing the safety net (for him and the banks shareholders) and they are responsible for the legions of risk managers they employ to stop this happening.
The kid will be terrified and slaughtered by all and sundry but for me the mass of over paid management in large critical mass type businesses like this must take a huge part of the blame. These banks are managed by the same idiots running the same over staffed and over paid silo'd businesses so that they can get paid the old style renumeration.
This model is dead and the quicker the banks boards and shareholders let go of the myth that the model will re create the 'glory' days the better. Drives me nuts.

Anonymous said...

Agreed. They are Too Big To Manage.

The trading floors at IBs resemble those hog farms where the pigs can barely move and are highly stressed. The major product of these operations appears to be closely related, and sewage control has been overwhelming for years. It is one thing for the smaller boutique and mid-size HFs to figure out VaR, but the big IBs have no idea on a daily basis.