Opinion

Ben Walsh

from Counterparties:

Flash mob

Ben Walsh
Mar 31, 2014 22:08 UTC

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“The US stock market... is rigged.” That was Michael Lewis’ one sentence summation of his new book Flash Boys on last night’s 60 Minutes.


In an excerpt of the book in the NYT, Lewis writes that around 2007, one of the Royal Bank of Canada’s stock trading teams began seeing odd market behavior: quotes vanished as soon as orders were entered. Other big banks and hedge funds were having the same problem. In trader-talk, the market kept moving away from them, no matter what they bid or offered. High-frequency traders were milliseconds ahead, buying, selling, and, perhaps most importantly, canceling quotes faster than RBC. The market wasn’t fair, and speed was the reason why.]


“High-frequency trading is a tax on investors”, says Barry Ritholtz. Institutional investors pay a “skim” to HFT shops on every trade. Just how big the skim is is unclear – Lewis puts the daily gains from US HFT trading at $160 million, or about 0.07% of average daily volume of $225 billion – but its very existence is, to Ritholtz, “prima facie proof that something is amiss”.


Matthew O’Brien calls HFT “Wall Street at its most socially useless. HFT funds aren't allocating capital to where they think it'll be most productive. HFT funds are allocating capital to where they think other people will put it 50 milliseconds from now”.


Josh Brown isn’t too worked up. Summoning his inner Carl Schmitt, he points out that the intention of the founding of the US stock market in 1792 was to create an exclusionary clique that benefited members and disadvantaged outsiders: “once they’d seized control of all securities trading... they ran that shit like a powdered-wig mafia”.

from Counterparties:

Roasted Turkey

Ben Walsh
Mar 28, 2014 21:51 UTC

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For the last 10 years, Turkey has been a growth miracle. It increased exports by afactor of ten; GDP and per capita income rose threefold. But the cornerstone of that economic success – political stability – is now under threat.

Prime minister Recep Erdoğan isn’t on the ballot in Sunday’s local Turkish elections, but they’re all about him, says Oray Egin. Erdoğan blocked Twitter (the ban was laterreversed), succeeded in shutting down YouTube due to “national security concerns”, has been caught up in a bribery scandal, and was the target of massive protests.

Polls and currency markets are predicting that Erdoğan’s ruling AK Party will win a plurality. Aid of food, clothing, coal, and other necessities has kept support among working class voters strong.

from Counterparties:

Citi-wide failure

Ben Walsh
Mar 27, 2014 21:22 UTC

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Citigroup can now claim worst-in-class stress test performance. For the second timein three years, the Federal Reserve rejected the bank’s capital plan. Citi proposed raising its dividend from a penny to 5 cents and repurchasing up to $6.4 billion in stock. However, the Fed rejected the plan, saying it doubted the “overall reliability of Citigroup’s capital planning process”.

Embarrassingly for Citi management, Bloomberg’s Michael Moore and Elizabeth Dexheimer write that the Fed found issues in planning areas it had previously flagged. These include the bank’s “ability to project losses in ‘material parts of its global operations’ and to reflect all business exposures in its internal stress test”. In February, Citi announced it had uncovered $400 million in loan fraud in its Mexican subsidiary, forcing it to restate its 2013 earnings.

While Citi passed the Fed’s quantitative hurdles, it failed on qualitative grounds. Matt Levine explains:

from Counterparties:

Recovery-lite

Ben Walsh
Mar 26, 2014 21:55 UTC

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The Great Recession ended in June 2009. The average post-war recovery, Jared Bernstein notes, lasts just 58 months before there’s another recession -- and this recovery is now 57 months old. But even as the recovery enters its statistical autumn, most Americans haven’t noticed that it ever happened at all. A recent NBC/WSJ poll found 57% of respondents thought the US economy was still in a recession.

Josh Barro points to barely-there wage growth to explain the disconnect. Between 2009 and 2012, real incomes of the 99% grew at a meager 0.1% annually. The longer term trend, he points out, is clear:

from Counterparties:

Alibaba’s New York debut

Ben Walsh
Mar 19, 2014 21:57 UTC

Alibaba, the Amazon, eBay, and Paypal of a country with 618 million internet users, is going public. The company will raise around $20 billion at an approximately $150 billion valuation, with the roadshow scheduled to begin March 25; the underwriting banks are expected to make $400 million in fees on the deal.

That valuation is built in part on assumptions about the future growth of Chinese ecommerce. China already buys more by dollar value online than the US does, and KPMG estimates that by 2015, online transactions in China will hit $540 billion, up from $190 billion in 2012.

The market isn’t without competition. Alibaba is currently in the midst of fighting for payments and messaging users with Tencent, a gaming and social media company. Forrester Research's Bryan Wang calls it “one of the most expensive competitions in online history”.

from Counterparties:

McCarthyisms

Ben Walsh
Mar 18, 2014 21:37 UTC

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Ryan McCarthy has decided to leave the world’s most prestigious Canadian-British news agency to join the local paper of a small, disenfranchised mid-Atlantic district.

Before he goes, we wanted to remind you all what we’re losing. For starters, the person who wrote headlines like “950 shades of grey”, “MOOC ado about nothing”, “Aging bull”, “Madvillainy”, “Beef Rogoff”,  “Where synergies go to die”, and “Our sweet creamy center cannot hold”.

from Counterparties:

Take that, copper!

Ben Walsh
Mar 13, 2014 22:26 UTC

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In the last week, the price of copper on the London Metal Exchange has dropped 9%, to its lowest level since 2009. The start of the decline coincided with China’s first corporate bond default. BofA analysts called the default China’s “Bear Stearns moment” -- the first major event of a what could be a severe financial crisis. With China consuming 40% of the world’s copper, a Chinese crisis would be trouble for global copper prices (among other things).

The FT’s Jamil Aderlini called BofA’s characterization a “bold, attention-seeking call that is also patently ridiculous”. Aderlini points out that the default was by a small Chinese company in the always-on-the-verge-of-crisis industry of solar panel manufacturing. It’s rare for a single analyst note to cause an extended sell-off, and Joe Weisenthal points to two more plausible reasons for the decline: “Copper has a reputation for being a good global economic bellwether... Copper also plays a role in the Chinese financial system (as collateral)”.

from Data Dive:

America’s job market: still not good enough

Ben Walsh
Mar 11, 2014 21:23 UTC

On Tuesday morning, the most recent Bureau of Labor Statistics Job Openings and Labor Turnover (JOLTs) data showed that the rate of hiring, turnover, and the number of open jobs was basically flat.

A little explanation: The hiring rate is the number of peopled hired as a percent of total employment. The JOLTs report also tracks the quits rate, which is the number of people who have voluntarily quit as a percent of total employment. Taken together, the quit rate and the hire rate represent a good proxy for the level of choice workers, particularly the already employed, have in the job market.

This chart shows that the level of choice in the job market within the workforce plummeted during the Great Recession. It has gradually improved over the last four years, but is still at right around 2008 levels. And this is likely still not fully representative of the job market: because it tracks quits, and there is a bias to hire the already employed, this chart more accurately reflects job choice among the employed than the unemployed.

from Counterparties:

The London Eye

Ben Walsh
Mar 10, 2014 22:06 UTC

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“In their capital city, the English are no longer calling the shots. They are hirelings”. That’s Ben Judah’s description of present day-London, in a NYT op-ed which went viral over the weekend. To Judah, London is a place filled almost exclusively with Russian oligarchs, Qatari princes, tottering post-colonial diplomats, Eastern European laborers, skyscrapers, and slums. Its mission is to placate Russians and their money, most recently in the form of Ukraine policy. Judah sees the Shard -- which is Europe’s tallest building and will be filled with offices, Michelin-starred restaurants, and mega-residences -- as an emblem of London’s decline. As it seems he intended, Judah elicited strong feelings by lacing his piece with hyperbole and caricature.

The Telegraph’s Sean Thomas skewers Judah’s Shard-as-symbol thesis:

What did you do over the sunny weekend? If you are a Londoner, you probably drank a crate of champagne with your best friend Ivan and several nude escorts, in your flat on top of the Shard. Or so the New York Times would have us believe, according to a rhapsodically stupid article published on Friday.

from Counterparties:

Finding Nakamoto

Ben Walsh
Mar 6, 2014 22:48 UTC

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Satoshi Nakamoto invented bitcoin in 2008.

Who is he? In the past few years, there have been no shortage of theories:

Tatsuaki Okamoto, a researcher at NTT, the Japanese telecom company.

Micheal Clear, a 23-year old graduate student at Trinity College, Dublin.

Vili Lehdonvirta, a Finnish programmer.

Shinichi Mochizuki, a math professor at Kyoto University.

Neal King, Vladimir Oksman, and/or Charles Bry, whose names were on a 2008 patent application for “updating and distributing encryption keys”.

Jed McCaleb, the co-founder of now defunct bitcoin exchange Mt Gox.

Dustin Trammell, a security researcher.

Or, Satoshi Nakamoto, a 64-year old, LA-area, Prius-driving model-train enthusiast, who Newsweek’s Leah McGrath Goodman tracked down with the help of forensic researchers.

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