Organic Finance


TMM really don't have that much to say about markets. The NFPs nailed the lid down on US QE and enough has been written on that to sink a battleship, but to TMM the most interesting sign was the lift of equities while bonds were falling. The positives of growth are outshining the negatives of rates moves.

The "Short GBP, long FTSE" trade was given a boost today by the UK data kicking the crutch from the mighty Pound as we emerged from an Asian market already pretty buoyed. Even the hobbled AUD is looking perkier than it has for a while and the ASX is doing OK. As much a case of positioning rather than long term macro, as we can also see with gold's rally. So far so good with core positions all moving in the right direction. Even our "Central banker's brass balls" short 1650 SPX straddles are looking good again. But despite the rallies, today appears to be losing some steam and we may be near a short term top before we leg higher again. TMM's mystical mid July turn date is nearly upon us again. Having said that EM is looking like a buy again. But let's talk about something else -

Robert Peston's hysterical program about algo trading last night on BBC Radio 4 (listen here) has convinced TMM that -

a) The introduction to the program should be used as the case study at a master class on propaganda as it employed every emotional manipulator and anchoring devise it could to portray algos as, well, evil. 

b) In popularist opinion algo trading is to markets what GM is to food.

It's new, it's machines, its a Frankenstein, we don't understand it so it must be the Devil's work. So working on that premise perhaps there is room in the market for the equivalent of "Organic Food". A bespoke market set up and certified "algorithm free". As we know Organic has always commanded a premium over other foods (despite the savings on pesticides and fertilisers) so it would be interesting to test the boundary between ethics and price in the real world pitting the two against each other. TMM would imagine that it would not be long before, as has happened in the food world, austerity sees a gentle swing back to the cheapest product and to heck which type of financial horsemeat it's made of. In the meantime though, the establishment of no algo zones may just be what many banks need and could be their last "Himalayan Pink Salt" on the road to disintermediation.

Prices made by humans, for humans and yes, we will be able to detect the automated tones.

Broker  "Hello,  Sweetpea Organic Brokers"

Caller "Hello, I would like a price in EDU3 1000 lots please"

Broker  "Are you a human?

Caller  "Yes"

Broker "Sure?"

Caller "Yes"

Broker  "110101010111010110111"

Caller  "10100111010110111010101...  oh bugger"

Broker -  "Goodbye"

With the current mood of populace so anti-banks the regulators and politicians could easily be swung behind the introduction of Organic trading with the enforcement of strict standards. We are already seeing product health warnings on financial products stretching to 3 pages (have you ever read the disclaimers on the research you get?) so how about a more simple labelling system for the financially illiterate.

"Every 100k of this product contains 9k of unleveraged direction, 50k of risk and 38k of margin.  A total 1200% of your daily allowance".

But we wonder if under this new organic purity, precious unadulterated products should be sold in stores that may be tainted with by their own reputations. Libor being set by the NYSE Euronext is like vegan certified lentil bakes being sold in McDonalds. Handing the setting of a sacrosanct London based fix to a US based organisation that has a history of selliing early release of data to the highest bidder (NYSE) or cannot settle anything properly (our own experience of LIFFE) smacks of a commercialism that undermines the purity of the product. What's wrong with the BoE doing it? They are, by comparison, the equivalent of the Harrod's food hall.

If you want it to remain Organic then don't sell it in a chemical plant. Come to TMM's Sweetpea Organic Brokerage instead.

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Anonymous
admin
July 9, 2013 at 4:30 PM ×

If playing the lottery is a defacto tax on the "poor" then organic food is a defacto tax on the "rich". Que sera sera.

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abee crombie
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July 9, 2013 at 5:38 PM ×

S&P up in 9 of the last 11 sessions. Quite a remarkable snap back if you ask me, espcially since we didnt do any of the backfill I would have thought.

Its odd to think what is the narrative that is driving stocks higher. Pre May, it was "US RE is back" but now those stocks are in teh gutter. 2011 was all about global growth but now you'd be shocked to hear a PM talk about it.

While the internals crank and grind all the time, I still think you need a believable narrative to propell equities higher. Not sure what that is yet? Research has shown that when P/Es expand (as they did in the 1st half of 2013) earnings usually follow. But I'm not so sure this time

As for banks and MBS. From my understanding, If you decide to hold a loan until maturity no MTM. Held for trading/available for sale is market at current prices. Quick look at 10q of WFC, 225 of 800 in loans were market-to-market.

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Leftback
admin
July 9, 2013 at 5:52 PM ×

Silly Season is the narrative. Lots of enthusiasm about the upcoming earnings season, but we won't see any meaningful results until next week so this week is all about picking off those unwise enough to be short. Not much in the way of resistance for SPX, so it's a mugs game getting in front of the steamroller.

Summer Solstice Rally, call it what you will. Even the homebuilders are surging today by +2.5%, no doubt due to the presence of Cold Steel behind Mr Shorty. The 50dma for XHB lies not far above this level, at 30.50, and that looks likely to present firm resistance.

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Anonymous
admin
July 9, 2013 at 7:14 PM ×

Good thing volume doesn't matter, innit? #meltup

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Leftback
admin
July 9, 2013 at 8:19 PM ×

This situation is not very complicated:

SPX Resistance Levels

I have learned to avoid shorting these. A fool's errand for the time being.

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Leftback
admin
July 9, 2013 at 8:54 PM ×

TSLA really is one of the more impressive Ponzi schemes I have witnessed. This rocket ship is fueled by a 50:50 mixture of QE and hot air.

TSLA Heading Into Space

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Leftback
admin
July 9, 2013 at 9:31 PM ×

Doubleline funds to offer a presentation, entitled The End of QE as We Know It:

http://www.zerohedge.com/news/2013-07-09/doubleline-webcast-end-qe-we-know-it-bond-rout-update

Perhaps their take-home message is actually QEINE, a variant on LB's TWINE (The World Is Not Ending).

Do you ever wonder what things would be like without QE? DX about 100, I reckon. EURUSD parity. Don't rule that out though, as world oil demand remains slack and the US produces most of its own supply.

Remember what Japan looked like at USDJPY 75? That corresponded to the lowest level of buying interest in Japanese equities of all time. So, given that precedent, you really might be happier if the QE were to continue, after all? I am sure it will
trickle down.......

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Anonymous
admin
July 10, 2013 at 3:44 AM ×

Pine River (TWO) just longed about 4.3 million shares of MTGE. They, ahem, have a decent track record with this sort of stuff...

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abee crombie
admin
July 10, 2013 at 2:08 PM ×

Looks like Reuters is taking the "Organic" route and not selling Michigan Consumer Sentiment to the algos early. What benevolence they have!

Anyways, Algos or floor trading scalpers, its all the same thing. You play in the markets, expect that there is someone trying to screw you.

Besides, where would all these physicists and computer scientists work if not on wall street doing algo trading? In silicon valley changing the world predicting which ads are best viewed on facebook or google. So much more productive!

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Anonymous
admin
July 10, 2013 at 3:12 PM ×

C Says
Abee
There is a kind of broad unspoken presumption out there post bust that only certain types of activity is "real" ,or of "value".
Yes ,we know this is mindless crap, but nonetheless there is certainly some momentum in public belief for example that if you are not "making" something with your hands then it's not "real" in the sense it can't have productive value.

For example, we see the virtues of being an Engineer now being lauded .Whereas if you study say History, or Philosophy you must be a wastrel paying for an education that offers no "real" value. Engineering is shall we say "Tangible" therefore attractive whereas the ability to reason and communicate are not.

Another example at Macro level might be how worthy an example is say Germany with it's manufacturing ethos as opposed to the UK with it's Finance core.

It is pitiful to have to watch these arguments both in the media and indeed in political arguments formulating policy.

In terms of finding some form of equilibrium for how we constitute our economy we might all wish to see some adjustments from the cycles that are now behind us. Unfortunately, like so many issues it's hard to get adjustments that do not suffer from overkill based upon whatever bug most recently jumped up and bit them on the arse. Which of course brings us back to Algos and how lacking in "value" that activity must be.

LOL...it's simplistic nonsense that completely fails to grasp the nuances behind what happens when economies become more and more socially developed.

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Leftback
admin
July 10, 2013 at 3:46 PM ×

MORT now offering a yield of >10% for those who have Kevlar available and don't want to risk individual REIT equities. The usual suspects are getting a minor flogging this morning in advance of the afternoon's events.

Big day ahead for the Treasury market (and therefore by extension, the MBS market, REITs etc.). The 10y auction at 1pm, FOMC minutes at 2, and then The Beard speaks after the close.

England's decision to bat on a cloudy day looking dubious. Never underestimate a wounded Aussie.

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Leftback
admin
July 10, 2013 at 4:04 PM ×

11. You are a punter who fancies some US fixed income, MBS and REITs. Do you:

a) Hide under the table to avoid the inevitable stampede of feral hogs?
b) Buy short-dated OTM calls in TLT while wearing Kevlar gloves?
c) Don a whole body Kevlar suit and start buying common shares of REITs?
d) Don a whole body Kevlar suit and begin making love to the female money manager of your dreams in the manner of Leslie Neilsen?

Naked Gun

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