Tuesday, April 22, 2014

Recovery?

Fed Chairmen (paternal or motherly)
Have made a depressing discovery:
If demand isn't great,
You can lower the rate
But you can't cut your way to recovery.

Thursday, April 3, 2014

ABCs of HFTs

Of late we have heard much verbosity
Expressing the Street's animosity
Toward traders who trade
With programs they made
To profit by rapid velocity. 

Indignant stock-pickers confront one
With evidence (and it's a blunt one)
That HFTs aim
To rig the whole game
By trading so fast they can front-run. 

HFTs claim, in defense,
Their volume may lower expense 
And help to enrich
The others from which
They're skimming off fractions of cents. 

My view may be non-analytical
But in this matter tends toward the critical,
For it's hard to ascribe
A positive vibe
To a practice at heart parasitical. 

*************************************************
High-frequency trading represents a sort of "rise of the machines" over Wall Street, in which powerful computer algorithms are dedicated to exploiting market information almost literally at the speed of light. The practice has long been controversial among market professionals, where opinions differ as to whether such machines personify R2D2 or the Terminator. 

Michael Lewis, author of Moneyball and Liar's Poker, has written a new book called Flash Boys, which comes down on the side of "hasta la vista, baby."  In an interview on 60 Minutes, Mr. Lewis brought this Wall Street issue on a perp-walk down Main Street. 

"The stock market is rigged," declares Mr. Lewis, by a combination of HFTs, big banks and the exchanges themselves. The HFTs are allowed to see everyone else's trades a split second before the general market does, giving their lightning-fast algorithms time to get out in front of market-moving order flows. This amounts to small-scale theft, repeated so often and so quickly that it becomes large-scale. 

However, some knowledgeable insiders disagree, and say that HFTs have been good for the small investor. Their big volume of small trades has lowered the bid-ask spread, reducing everyone's cost of execution. Much of the complaining, says Cliff Asness of AQR Capital Management, comes from money managers who can no longer place large orders without moving the market. "Well, sorry," counters Mr. Asness, "but prices responding quickly—and traders not being able to buy or sell a ton without the market moving—is what is supposed to happen in a well-functioning market."

A compelling counterpoint to be sure, but the fact remains that some firms trade with high frequency while losing with rarity, or not at all.  "How is it possible that one of the largest high-frequency trading firms executes millions and millions of orders for four years without ever having a down day?" asks Barry Ritholtz.  "The short answer is what they do is not trading -- it is skimming. I call it legalized theft. High-frequency trading is a tax on investors, encouraged by the exchanges, allowed by the SEC."

Are we ready to prosecute the Terminator for algorithmic inside trading?

Friday, March 21, 2014

March Productivity Madness

Economists show the proclivity
NCAA March Madness Bracket Dr. GooseToward lamenting the lost productivity
When Americans cling,
From the first day of Spring,
To basketball bracket activity. 

At work we may go to extremes
Of collegiate basketball dreams,
And glance in our laps 
At websites and apps
With brackets and video streams. 

Consultants engaged by the boss
To reckon the March Madness cost
Deduce from the gauges
Of hours and wages
That 1.2 billion are lost.

But a national payroll statistic
As a measure is much too simplistic,
As workers are apt
In March to adapt
In a manner that's deft and holistic.

Despite how the experts may warn
That brackets are worthy of scorn,
It's easy to see
For office esprit,
They're better than downloading porn. 

Monday, March 17, 2014

Guinness Taps Out

Guinness could not find a way
Of sponsoring St. Patrick's Day,
Having failed to have swayed
Those who run the parade
To authorize floats that are gay. 

It's a green of a diff'rent complexion
That causes the brewer's objection,
As the times, they have changed
And hence rearranged
The sponsorship fiscal projection. 

It's not that they don't see the profit
In St. Paddy's, and what they make off it;
It's how they appraise
The changing mores
Of the many straight drinkers who quaff it. 

Happy St. Patrick's Day to those who wear the green, as well as all the other colors of the rainbow. 

Wednesday, March 5, 2014

Financial Fraud Trilogy

There once was a fellow named Chubley
Who mortgaged collateral doubly.
"It's a trick," he confessed,
"I effectuate best
When markets are frothy and bubbly."
_____________

It's fruitless to place one's reliance
On oneself in defrauding one's clients;
Much better to work
With the back-office clerk
And ideally, the head of compliance. 
_______________________

A credit swap trader named Moore
Keeps tickets of trades in his drawer.
Though transactions all post
By an e-trading host,
It's a throwback to dealing room lore. 

________________________________

Today's idle limerick musings, unlike most of the verses in this space, do not describe any particular incident or people.  However, I was prompted to reflect on financial fraud by events at the Citigroup subsidiary Banamex, which has just suffered a $400 million loss from nefarious goings-on at one of its customers. The Mexican oil field services company Oceanografía, a supplier to the national oil company Pemex, had been selling their Pemex receivables to Banamex to raise funds - a routine trade finance transaction - and apparently were so pleased at their funding success that they decided to sell another $400 million of receivables that they didn't have. 

It's another reminder that financial fraud may be detectable and even, in our too-big-to-jail era, punishable; in the hands of a determined practitioner, however, it is rarely preventable. 

Here is a link to the latest background on this case from the Wall Street Journal:

Saturday, March 1, 2014

Ukraine & Putin's Reign, Explained

Said Putin, regarding Crimea:
"Don't get the mistaken idea.
I may not contain
The western Ukraine,
But the east is a part of my spheah."


Wednesday, February 26, 2014

On the Rocks of Mt. Gox

A guy takes it into his head
To eschew dollar bills and the Fed,
And throws in his lot
With a currency wrought 
By anonymous hackers instead. 

Though treasured by crooks and by cranks,
It constantly surges & tanks,
While hackers purloin
The internet coin
That's issued without central banks.

While enjoying the untraceability
And capital gain volatility
Our guy never saw
A programming flaw
Referred to as "malleability."

It's a ruse by the hackers that blocks
The appearance of trades on Mt. Gox,
So it's not noticed when
They "spend" it again,
Invisibly fleecing the flocks. 

So our bitcoin investor's been lacquered
By a shadowy internet blackguard. 
With no restitution,
The only solution's
A sad, little protesting placard. 

*****************************
The world of virtual currency was dealt a blow this week, when it came out that the Tokyo-based bitcoin exchange known as Mt. Gox had a technical flaw that had enabled hackers to steal bitcoins for months without anyone realizing it. Missing were 750,000 virtual coins worth about $400 million at the time of the revelation. 

My. Gox then shut down in both the physical and online worlds, with no apparent recourse for those who held bitcoins through the exchange. If that was you, you're out of luck. 

However, as Heidi Moore opines in the Guardian, this scandal may be a blessing in disguise, by shaking the amateurish players out of the nascent virtual currency business. The link to her column is below. 


Wednesday, February 12, 2014

#FedValentine

Dear Janet, this valentine's for you,
We economists simply adore you;
If to growth you respond 
By tap'ring our bond,
Please measure your steps, we implore you. 

There are blogs which the Hawks are condemnin' in,
As sour as a mouth with a lemon in,
'Cause they've had enough of
The Sign of the Dove
From the Head of the Fed, who is feminine. 

But we hope that the Fed's intervenin'
May get more employers to lean in,
So the new Madam Chair,
(The  dovish one there)
May proceed with the stimulus weanin'. 

Until the economy's hot,
You're bound to hear Yellen a lot,
As it falls to the Fed
To goose it instead,
As the GOP Congress is not. 

We hope in your heart there is room
To let the economy bloom,
And kindly deplete 
The Fed's balance sheet
To let normal markets resume. 

Thursday, February 6, 2014

Nothing to Tweet About

The outlook for Twitter is blah;
Is it having its final hurrah?
They're losing morale
With a growth rationale
That is premised on je ne sais quoi.

The secret to growing more revenue
Is something the company never knew,
But it's more of a feat
Getting newbies to tweet
Than skeptical analysts ever knew. 
*******************
Twitter (NASDAQ: $TWTR) held its first earnings call as a public company, and investor reaction showed just how high the expectations are for this company. Although quarterly revenues of $243 million exceeded the $218 million consensus forecast, participants in the call were spooked at how few new users had signed up to send their first tweets. The 241 million users in December were only 4% more than those in the previous quarter. Apparently, the new-user experience is not as friendly as it ought to be. 

This perhaps explains the lackluster growth in the number of followers for @DrGooseEcon?


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