Early weekend takes.

1. Another SAC Capital trader gets arrested (here) for insider trading in one of longest running investigations in a while.

2, Judge lets banks off the hook for some LIBOR cases. This is interesting, banks have paid fines and  acknowledged LIBOR manipulations, but some private lawsuits against them are dismissed (here). Perhaps they were frivolous.

3. El Arian (here) comes out saying the obvious (about POMO) and that it will continue.  Obvious or not, he says it well, I particularly liked one of his colleagues’ notion of “assisted” growth.

4. Today appears to be my day for catching up on legal things. I generally stay away from commenting on social issues, but this story on Justice Robert’s peculiar defense of the Defense of Marriage Act and this story of Justice Scalia misrepresenting sociologists in his critique of gay adoption caught my eye.

5. Felix Salmon, who I haven’t read for a while has at least two fascinating stories that caught my eye. The first is about the Federal Helium Reserve (here). We know about the oil reserve but helium! As he concludes perhaps not facetiously, this is another market the Federal Govt has to get out of, you know like the mortgage market.

6. And the second is a legal situation involving Argentinian sovereign debt with more legal eagles Ted Olson and David Boies (here)(here) and in other places.

Weekend potpourri.

1. ECRI insists that we are still in a mild recession (here, if not accesible then, here.) So it is not just me. I am glad I am not playing this market, I would have been losing money buying puts.

2. We talked about clearing swaps in class the other day. GARP reports on mandatory interest-rate swap clearing practices taking effect Monday (here). I did not realize it was this close.

Weekend of Feb 18-20, 2013

Indiosyncratic things that caught my eye.

1. All week long, the headlines have talked about 13-f filings becoming public, here is one place where you can view some. Forms 13-f are required quarterly filings of portfolio holdings by institutionally managed money above a certain size (used to be $100 million when I was writing papers using this data).  The Fall 2012 filings are being released this week. What efficient market reacts to such news, which happens more than 45 days after the activity in the filing took place?

2. Exhibit 1 for the above comment is Herbalife (HLF). Mr. Icahn’s filing reveals that he owned nearly 2.5 million shares and about 5 times as many options. This news triggers a huge opening pop in the stock that steadily sells off all day.  There is hope for some market sanity after all.

Surely you have been reading about these bad-mouthing billionaires (here). Even more curious is the 50% pop in IEP enterprises since last week , 97% of whose shares are owned by Mr. Carl Icahn himself.

3. Embattled hedge fund SAC capital sees $1 billion in withdrawals (here). The cause is a long-running insider trading investigation.  This one is far more hallowed than the Galleon Group, which several of you may recall my mentioning over the years.
4. A story about Facebook option expensing (here) reminds me of something I illustrate in class every time. Remind me to talk about this when we get to that topic. If you want more on “tax-dodgers” from the Citizens for Tax Justice, click (here).

5. Since I talked about rice and futures the other day, perhaps you may get curious enough to read about rice and organic farming in India (here).

Weekend of Jan 26, 2013

1. Let us celebrate. The NYT reports (here) that the SEC may start requiring parties settling with them to now also admit culpability! In the past, firms did not have to admit any wrongdoing, they just paid the fine, went away and did it again!

2. Congress may expand mark-to-market rules for derivatives (here). Ask me about it in class this week as we talk.

3. This post from the Big Picture reminds me of things I have said multiple times to multiple audiences regarding individuals investing/trading in financial markets. Obviously, these are not new notions or my notions. Some of you have seen them elsewhere,  some of you may have heard them from me for the first time, still others may not have read them at all. Regardless of which group you belong to, forget them at your own peril!

4. As Apple stock languishes, this story regarding SIRI’s past and possible future caught my eye this morning. And have you heard the one about Apple being responsible for this rally? The theory is that it is all the money coming out of Apple stock that is fueling the price of other stocks! Apparently it is the reverse of the long Apple/short everything else trade. Recall too this post from a couple of years ago on relative value index options that were designed to make just this kind of trade. Someone should go on Bloomberg to check out the volume in these options to see if there is any credibility to the assertion.

5. The same argument can be made by replacing Apple with Bonds. This one is a bit more credible, if there are really economic good things happening, plus there is less unanimity at the Fed, then perhaps it is time to be out of bonds. A look at TLT tells you that this has indeed been happening.  And of course, let us not forget the perennial argument about short squeezes and fund manager catch-up that is made each time there is a seemingly inexplicable market rally.

6. Two leading mattress companies have opposite reactions to earnings, the reasons are interesting, see (here).

Weekend of May 5

My posts this week should illuminate the complexities of navigating the trading environment,  its relationship to the news flow and the efficient market hypothesis we have recently been discussing in class. To wit, on Monday, Goldman puts out a forecast that the jobs number was about 125K. They have  made good forecasts in the recent past, they have street cred and with hindsight they got it right. Still, market selling on this forecast really started 3 days later on Thursday afternoon. Prior to Thursday, market participants (who are trained to read the reaction to the news rather than the news itself) appeared to have decided that the news was priced into markets and the chatter about markets climbing a wall of worry and decoupling from Europe began. Into the mix is the behavior of gold– signalling no QE which also pointed to the number not being so  bad.  Selling happened only after the news hits and already feels a bit overdone. Despite knowing all of this, and positioning for it, my week was essentially flat. Of course there was risk management, my stops were probably too tight, whatever. My point is that even though market behavior this week does not speak in favor of efficiency it is still hard to make any money!

Think you cannot trade at the speed of light? Think again, HERE.

Sanity and Insanity.

1. Floridians may not need to study Computer Science says the University of Florida (according to Forbes HERE).

2. My trader friend pointed me to THIS tongue-in-cheek piece by Sheila Bair on how to fix income equality. Make the FED give $10 million loans to everyone.

3. And from what constitutes the American Left, William Greider belatedly recognizes that the Fed might actually understand the severity of the financial crisis, HERE.

3. Do you think  Captain Renault would be  “shocked” to hear that Walmart has been bribing Mexican officials and covering it up ?

4. Is the precious metal space setting up to be a buy after one last flush? Gold down $18 as a I write.  One technician I occasionally read talks about selling deceleration,  HERE.

5. Add Baker Hughes and Chesapeake to the list of potential value traps.  There must be some behavioral bias that makes me keep wanting to  buy stocks like these.

6.  Another morning when my two-sided play on the financials makes little coin. Honestly don’t know which side my fire-hydrant risk lies, but I will most likely close out FAZ.

7. Rumors that Amylin is now pursuing a sale after rejecting an offer from BMS has the stock up 10% pre-market. I guess Carl Icahn is forcing management to re-think their independence.

Weekend, March 18, 2012

1. A document written by two fixed-income asset managers titled  “Riding the Swaption Curve caught my eye the other day. HERE is the link.  BELOW is the abstract. I post it below to ask all my 427 students what portion of it, they understand, what portion they do not, and what portion they expect to understand, by the end of semester.

ABSTRACT: We propose a novel approach to economically test the presence of a term structure in the volatility risk premium of the swaption market. In general this maturity structure is downward sloping indicating that the volatility risk premium decreases in option maturity. Our test involves an investment strategy that comprises a long-short combination of two straddles where the adjacent maturity neutralizes the vega or gamma exposure of the shorter maturity straddle position. We document that this investment strategy captures the downward sloping term structure by yielding statistically significant though decreasing returns in option maturity. In addition, performance attribution indicates that the time-decay property of derivatives, theta, explains the term structure to a large extend. This explanation is new, but corroborates with the statistical test results from Low and Zhang (2005).

2. Greg Smith helps Goldman take back the title of Vampire Squid  (HERE). His op-ed follows a  letter echoing a similar sentiment (which went viral last week) from an ex JP Morgan fan (HERE).