Tuesday, January 4, 2011
Sunday, October 3, 2010
Whoa Flash Crash May 6
From the NY Times:
"Startlingly, as the computers of the high-frequency traders traded contracts back and forth, a "hot potato" effect was created, the report said, as contracts changed hands 27,000 times in 14 seconds, but with eventually only 200 actually being bought or sold."
Reaction:
Ok, so Waddell & Reed entered into a trade in the market, selling 75,000 E-Mini S&P futures contracts, using computer sell algorithms provided by Barclays Capital. However, it was up to Waddell & Reed to decide how to sell those contracts. These futures contracts normally would gradually be sold off in the market over a span of 5 hours. In this case, it took 20 minutes.
With that amount of volume in such a time frame, traders faced a wave of selling pressure. That is, the price of the futures dropped, allowing for traders to arbitrage the opportunity to buy such cheap forward contracts and, in return, sell "cash shares" (to quote from the Times) back on the real-time NYSE. This explains the huge drop and the subsequent rise in trading on the Dow Jones.
Consequentially, the result of this error will expand the monitoring desired by the SEC and the establishment of "circuit breakers" on a growing number of stocks. Mary Schapiro is the chairman of the SEC and Gary Gensler is the chairman of the CFTD.
"Startlingly, as the computers of the high-frequency traders traded contracts back and forth, a "hot potato" effect was created, the report said, as contracts changed hands 27,000 times in 14 seconds, but with eventually only 200 actually being bought or sold."
Reaction:
Ok, so Waddell & Reed entered into a trade in the market, selling 75,000 E-Mini S&P futures contracts, using computer sell algorithms provided by Barclays Capital. However, it was up to Waddell & Reed to decide how to sell those contracts. These futures contracts normally would gradually be sold off in the market over a span of 5 hours. In this case, it took 20 minutes.
With that amount of volume in such a time frame, traders faced a wave of selling pressure. That is, the price of the futures dropped, allowing for traders to arbitrage the opportunity to buy such cheap forward contracts and, in return, sell "cash shares" (to quote from the Times) back on the real-time NYSE. This explains the huge drop and the subsequent rise in trading on the Dow Jones.
Consequentially, the result of this error will expand the monitoring desired by the SEC and the establishment of "circuit breakers" on a growing number of stocks. Mary Schapiro is the chairman of the SEC and Gary Gensler is the chairman of the CFTD.
Thursday, June 10, 2010
The Euro and Invoicing
If Brown Brothers Harriman calls for an interview and asks where I heard of them, say you read a post by Marc Chandler, global head of currency strategy, on Seeking Alpha.
He touches upon the cyclical nature of banks to buy and sell currencies when they are priced appropriately in the market, creating a cyclical wave of buy and sell for banks around the world. The Euro has obviously been heading downward from around $1.19 this past week. Chandler says that banks are actually more prone to act counter-cyclical when diversifying reserves over the course of the next few years. This refers to buying the Euro when it is weak and selling the stronger currencies, such as the Australian and Canadian dollars which posted the strongest first third of the year (3% and 3.5% respectively).
He touches upon the cyclical nature of banks to buy and sell currencies when they are priced appropriately in the market, creating a cyclical wave of buy and sell for banks around the world. The Euro has obviously been heading downward from around $1.19 this past week. Chandler says that banks are actually more prone to act counter-cyclical when diversifying reserves over the course of the next few years. This refers to buying the Euro when it is weak and selling the stronger currencies, such as the Australian and Canadian dollars which posted the strongest first third of the year (3% and 3.5% respectively).
Monday, March 1, 2010
Rent/Ownership Ratio
CNN's Shawn Tully says that a good measure of housing derives from the ratio between what people pay in rent and what owners spend on the same property. Historically, people do not spend too much more to own a property over paying in rent. During a housing boom, renting becomes cheaper. The Deutsche Bank REIT research team first came up with a "normal" ratio of rents to ownership costs, or ATMP, after-tax mortgage payment for 53 US cities. In 1999, renters paid about 87% the cost of ownership on properties, indicating a small premium for ownership. Mid-2006 brought sub-60% levels.
In Las Vegas, Phoenix and Miami, homeowners were paying twice as much as renters, and in San Francisco and Orange Country, owners' monthly payments were triple those of their neighbors with leases instead of mortgages.
Overall, CNN predicts a 5% decline in housing prices nationwide. The drop could come in steeper if rents continue to decline.
In another 14 cities, a list encompassing Boston, San Jose, and Chicago, the cost of owning exceeds that of renting by 6% or less. In the remaining 24 markets, housing is still moderately to extremely overpriced. The biggest problem areas are Baltimore, Long Island, and Seattle, where the ratio is still between 24% and 32% above the 1999 benchmark.
In Las Vegas, Phoenix and Miami, homeowners were paying twice as much as renters, and in San Francisco and Orange Country, owners' monthly payments were triple those of their neighbors with leases instead of mortgages.
Overall, CNN predicts a 5% decline in housing prices nationwide. The drop could come in steeper if rents continue to decline.
In another 14 cities, a list encompassing Boston, San Jose, and Chicago, the cost of owning exceeds that of renting by 6% or less. In the remaining 24 markets, housing is still moderately to extremely overpriced. The biggest problem areas are Baltimore, Long Island, and Seattle, where the ratio is still between 24% and 32% above the 1999 benchmark.
Tuesday, February 9, 2010
Deficit facts
Douglas Elmendorf of the Congressional Budget Office,
…. accumulating deficits will push federal debt held by the public to significantly higher levels. At the end of 2009, debt held by the public was $7.5 trillion, or 53 percent of GDP; by the end of 2020, debt is projected to climb to $15 trillion, or 67 percent of GDP.
USA: 53%
UK: ~100%
Japan: approaching 180%
…. accumulating deficits will push federal debt held by the public to significantly higher levels. At the end of 2009, debt held by the public was $7.5 trillion, or 53 percent of GDP; by the end of 2020, debt is projected to climb to $15 trillion, or 67 percent of GDP.
USA: 53%
UK: ~100%
Japan: approaching 180%
Saturday, February 6, 2010
Confidence in America
Still, by next year things could be worse: Japan’s public debt is expected to hit $9.4 trillion, or 181 percent of its gross domestic product. By that measure, Washington still looks good, if only by comparison.
One thing about public debt, it requires public confidence. Japan's AA rating on public debt was downgraded to "negative" from "stable" by Standard & Poor's last week. The 10-year JGB climbed to 1.380% on Thursday, its highest level since Nov. 12. This concerns the government because if the confidence isn't there, speculation may turn into reality. Japan currently has the highest debt of any industrialized nation and, unlike the confidence that keeps US interest rates fairly grounded, would raise the cost of servicing the debt to the Japanese government. In these situations the government needs to step in. Quantitative easing perhaps but this tactic has provided very little support in combating deflation.
This picture provides a warning to the US. Without growth in two key areas, consumer confidence and exports, the deflation will remain a burden to Japan's economy. Exports provide a keystone for fabricating the turnaround and much of this will ultimately depend on the US, the biggest consumers in the world. If this were a level playing ground, the US would be in the same boat. The US faced mild deflation the past year and a half and yet everyone I've talked to has been forecasting inflation in the near future. Why? Because the economy is in a recession and the wave of job growth, innovation, technological leadership, and consumer confidence will allow for interest rates to rise. This may be seen as speculative but it is the only the reason the dollar hasn't officially collapsed yet. Why would anyone be holding onto US dollars if they knew a recovery was unlikely? Perhaps the psychological acceptance of the US dollar still holds stronger than the speculative dismay of the US economy.
One thing about public debt, it requires public confidence. Japan's AA rating on public debt was downgraded to "negative" from "stable" by Standard & Poor's last week. The 10-year JGB climbed to 1.380% on Thursday, its highest level since Nov. 12. This concerns the government because if the confidence isn't there, speculation may turn into reality. Japan currently has the highest debt of any industrialized nation and, unlike the confidence that keeps US interest rates fairly grounded, would raise the cost of servicing the debt to the Japanese government. In these situations the government needs to step in. Quantitative easing perhaps but this tactic has provided very little support in combating deflation.
This picture provides a warning to the US. Without growth in two key areas, consumer confidence and exports, the deflation will remain a burden to Japan's economy. Exports provide a keystone for fabricating the turnaround and much of this will ultimately depend on the US, the biggest consumers in the world. If this were a level playing ground, the US would be in the same boat. The US faced mild deflation the past year and a half and yet everyone I've talked to has been forecasting inflation in the near future. Why? Because the economy is in a recession and the wave of job growth, innovation, technological leadership, and consumer confidence will allow for interest rates to rise. This may be seen as speculative but it is the only the reason the dollar hasn't officially collapsed yet. Why would anyone be holding onto US dollars if they knew a recovery was unlikely? Perhaps the psychological acceptance of the US dollar still holds stronger than the speculative dismay of the US economy.
Tuesday, February 2, 2010
For the record
The central bank last year purchased $300 billion in U.S. government debt and is on track to buy $1.25 trillion in mortgage-backed securities plus $175 billion in debt from government-backed mortgage companies by the end of March.
American International Group (AIG) has received $43.2 billion from the Treasury's TARP program. The Obama administration's budget proposal, released Monday, announced that AIG will receive an additional $69.8 billion from TARP through 2010.
$27 billion was allocated to foreclosure prevention and an additional $48.8 billion may be on its way.
One of Obama's proposals is to cut companies' abilities to place their earning in overseas bank accounts, which enjoy tax-free havens.
Large business taxes would raise $468 billion over the next ten years, according to the fiscal 2011 budget plan. One pattern is that taxes concentrate around demand. Rental property, on a whole, has experienced increased demand naturally as unemployment has forced many families to migrate out of their newly foreclosed homes and into more affordable, temporary solutions.
Others who would face tax increases if the budget plan is passed by Congress:
US oil, gas, and coal producers
Producers of cellulosic ethanol made from paper byproducts
Employers who pay unemployment taxes
Owners of rental property
Companies that rely on independent contractors
Overview of Business Tax Highlights
The Bush tax cuts for lower and middle income American expire this year. It is still unclear whether the Obama administration will extend or terminate them.
American International Group (AIG) has received $43.2 billion from the Treasury's TARP program. The Obama administration's budget proposal, released Monday, announced that AIG will receive an additional $69.8 billion from TARP through 2010.
$27 billion was allocated to foreclosure prevention and an additional $48.8 billion may be on its way.
One of Obama's proposals is to cut companies' abilities to place their earning in overseas bank accounts, which enjoy tax-free havens.
Large business taxes would raise $468 billion over the next ten years, according to the fiscal 2011 budget plan. One pattern is that taxes concentrate around demand. Rental property, on a whole, has experienced increased demand naturally as unemployment has forced many families to migrate out of their newly foreclosed homes and into more affordable, temporary solutions.
Others who would face tax increases if the budget plan is passed by Congress:
US oil, gas, and coal producers
Producers of cellulosic ethanol made from paper byproducts
Employers who pay unemployment taxes
Owners of rental property
Companies that rely on independent contractors
Overview of Business Tax Highlights
The Bush tax cuts for lower and middle income American expire this year. It is still unclear whether the Obama administration will extend or terminate them.
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