Rhody Trader

I wrote the other day about how I was suddening coming back in demand as a content contributor to other websites and such. Apparently I wasn’t fully grasping the extent to which I may be in demand. Over the weekend I received the following:

I am currently looking for an AVP Snr FX Support guy to work for one of my clients (famous I-Bank) based in Singapore. Given that you know FX and VBA, I was wondering if you have any interests. If so, I can go over details. Can you let me know your current situation when you have a moment?

This came from a head hunter who appears to be based in Hong Kong.

Obviously, since I’m a forex analyst for the IFR Markets group of Thomson Reuters I do know a little bit about the forex market. For those who don’t know, VBA means Visual Basic for Applications. That’s the macro language used by Microsoft for its Office applications. In my case that means Excel macros, which I have done my fair share of developing over the years. That said, I haven’t specifically been a developer in a professional sense since the middle 90s.

As for whether I’d go for the type of job outlined, it would be a hard sell. I like where I’m at right now and have never really thought much about moving someplace like Singapore. I’m always willing to listen, though.

Here’s one for all those who think Goldman Sachs rules the world.

Yesterday there was a BIG drop in the dollar out of thin air in the afternoon. You can see it on this Dollar Index 30 minute chart.

At the time no one knew what happened to cause that fall, which fed into higher commodity prices and a rise in the stock market to new day highs. EUR/USD shot up from 1.4280 to 1.4400 in that period.

According to one of my colleagues in London, the talk in the market has the move caused by a $3b sale of USD/CHF, with that sale being done by Goldman Sachs, potentially on behalf of Warren Buffett, who of course is a big owner of GS. The rumor is that Buffett is buying a big stake in Swiss banking giant UBS.

What’s interesting is that today the Swiss released some much better than expected economic data. The KoF Leading Indicator surged to -0.04 in August. The forecast was for -0.60. This comes along with an upwardly revised -0.85 previous reading (from -0.99) . It was the strongest rise on record.

Can’t help but wondering where USD/CHF (which fell to 1.0560 from 1.0660)  would have been after the data had we not had the big sale yesterday. If it was indeed Buffett buying CHF yesterday he might have saved himself a couple percent doing so ahead of this morning’s data.

I’m in demand as a contributor again.

This sort of thing seems to go in cycles. Around the time my book came out (2006) I was getting requests from all kind of places, like magazines and websites. As a result, my name was all over the place in trading media circles. The last couple of years have been a bit less intense in that regard, but now I’m getting queried on the subject again.

I was contacted by www.forexpros.com about contributing regular content there. I’ve also been corresponding with one of my former colleagues (old boss actually) about doing some writing for www.forexlive.com. I’m taking a look at things and sorted out what it means for my employer (www.ifrmarkets.com), but the odds do seem to favor my getting involved in the not too distant future.

Maybe I’ll write another article for Stocks & Commodities and/or SFO Magazine. Haven’t done that in a while.

I suppose I really should do some work to raise my profile again. I’ve got my trading faq book in the works, after all.

There are posts on the Big Picture and Zero Hedge blogs today on the subject of Bloomberg winning a court case against the Fed on Freedom of Information Act grounds in regards to the central bank release the terms of it lending to banks and other institutions. The the Fed has been fighting this sort of disclosure on the basis that it could create competitive disadvantage issues with the borrowers. This, of course, was always the reason why those banks tapping the Discount Window were never revealed.

Here’s my question, though. The Fed isn’t actually a government institution the way I understand it. How does FOIA apply?

Blogging is in the middle of a storm these days as certain high profile blogs such as Zero Hedge are in what seems to be a running battle with news outlets like CNBC. I actually think it’s probably a good thing. In particuar, the  subject of anonymity is one of the major points of conflict, though the press also holds up the lack of editorial standards as being another issue with the blogosphere. At risk of losing points with my blogging peers, I actually tend to fall in line with the news media’s stance on things.

Anonymity
The advantage and disadvantage of anonymity is that it allows someone to say and do things they would not otherwise. It can be good in terms of bringing things to light when might otherwise put the individual at risk. On the bad side, though, it can allow one to engage in destructive behavior without concern for negative consequences. The folks a Zero Hedge claim they use it to keep the focus on what’s being said, not who. I find that problematic, however.

To my mind, one of the most important things we need to know in life is where the biases are with those who seek to offer us information and/or advice, as well as the credentials they bring to offer it up to us. We need to know if it’s reasonable to believe and accept what we are being told. Is it coming from a legitimately knowledgable source? Is the information or recommendation is being shaded by the deliverer, intentionally or otherwise, because of their own underlying motivation? This is important for our own decision-making process in terms of whether we can rely on what we’re being told, and relates to friends and family just as much as with media or online sources.

The NY Post ran a story today that one of the Zero Hedge contributors was given the boot from the securities industry last year by FINRA because of insider trading. That sort of thing naturally sets off all kinds of alarm bells about the credibility of the blog’s content. I tend to want to give people the benefit of the doubt, but can’t help wonder what kind of grudge this guy might have. That sort of thing could flavor his writing and bias his commentary. Oh, and then there’s the whole history of dishonesty suggested by the insider trading charge.

Editorial Standards
Bloggers get things wrong, a lot. I don’t mean all the time, but I see plenty of errors in my travels of the blogosphere and related sites. It’s like the healthcare debate where things are being misinterpretted and blown out of proportion all over the place. It’s one thing to offer an opinion. It’s a whole other thing to present facts. If you’re doing the latter you have a responsibility to your readers to get it right. And it’s a good idea for your own credibility as well because if you share erroneous info and it gets spread you end up looking like an ass.

Obviously, we all make mistakes. We’re not going to get it 100% right all the time. No one expects that. They do, however, expect us to make the effort, to accept the responsibility, and to fix the errors when we do make them. Why? Because people actually believe what the read, it is kind of scary at times.

Conclusion
All the above is why I do not blog anonymously, nor do I post anonymously on trading forum sites like Trade2Win. While I may not agree with Charlie Gasparino on many things, I do agree with him on this. I don’t hide behind a screen name to take shots at people. I let folks know who I am and what my background is so they can make an educated decision whether to take what I say seriously or not. And because of that I take responsibility for the quality of the content I produce. After all, everyone is going to know who wrote it.

I have been lax in my posting of late, but I have good reason. It’s been a bit of a revolving door in the office of late. We’ve got one member of the team out long-term with a broken leg and a few other injuries from a tree falling on him. Last week a second member of the team was out on holiday. This week and next we’ve got another medical absentee. I’m the only not taking any time out – at least so far – and the ins and outs has kept my duties bouncing hither and thither.

I have been trying to keep up with things in the blogosphere, and came across a couple of interesting things. One is a post by Ulli at Wall Street Bully which I found rather funny, in a kind of ironic way. And if you want a free MIT education, you can go here.

Speaking to the Rhody part of my monicker, word has it Sarah Palin is making a move from the biggest state in the union to the littlest. If that were to come to pass, Palin would surely not be a viable candidate for anything anymore. Rhode Island is a classic New England Democrat dominated state.

In terms of being productive outside work, I’ve gotten myself back into gear with my trading faq project. I have a list of about 40 of the new trader questions I see asked most often with answers to them all. That list will probably expand now that I’m recruiting additional answer contributors. The goal is to end up with a really useful reference for those coming into the markets.

Just a quick update on the Eurodollar Convergence Trade. 

The current 3mo LIBOR rate is now about 0.44%. If that were to hold the December Eurodollars would settle with a value of 99.56. Recall that they were trading at about 98.735 when I wrote up the trade idea, so that would be a gain  of over $2000. The EDZ9 is currently at 99.405, so there is a little bit of room yet for convergence.

The Dec 98.75 call was the at-the-money option at the time of the intial post. It had a price then of 32.0. According to the CME web site the latest price was 69, meaning the options are up  about 115%.

And of course the 98.75/99.00 call spread is at maximum profit right now.

The If the US is Japan, Buy Long Bonds hasn’t really done anything much so far. Bond prices are about level with where they were when that was written up, having given back some earlier gains.

I love it when the relationships in the markets change. Partly it’s my twisted sense of humor leading me to laugh at those who got locked into the old ones. Mostly, it’s becaues they provide us with new information.

Today we’re seeing a change. Any time before now a better than expected jobs report would have crushed the dollar as stocks rallied and bonds were sold off – the classic risk acceptance trade (so to speak). Today, though, the greenback is shooting higher against the Euro and Yen especially (the Pound is holding up better, no doubt thanks in part to the beating it took yesterday)

The above Dollar Index chart shows how at first we got the expected downside reaction as per the old pattern, then we got the shift to the new pattern. I’m sure there were quite a few trader caught out by that turn around. This sort of thing, by the way, is why I don’t new trade.

So if the dollar is going to rise on positive news, what’s the implication. Well, it suggests the Fed won’t be eager to further pump up liquidity because of the improving conditions. Some folks are even looking for a rate hike by year-end. I’m not personally in that boat right now – but then my rate move calls have never been that great, so don’t put much stock it it. I certainly don’t.

On top of that, the markets have long viewed the US as likely being the first of the major global economies to come out of the recession. Improving data helps support that view. This is a positive for the dollar as long as the other economies are seen to be lagging, and Europe in particular seems to have a long way to go by their own comments.

I’ve been taking in some of the reaction to the announcement from Rupert Murdoch that soon there will be a charge for use of News Corp websites. There are definitely those out there slamming the idea, like the Australian site Crikey. They basically take the view that if Murdoch does this he will basically hand over market share to his competitors who don’t (also referring to his miserable track record when it comes to online things – like My Space). Daily Kos suggests this move could actually hasten the death of the old print and broadcast media model, upon which News Corp was founded, of course. Responders to an LA Times blog entry on the subject were strongly vocal from several different angles.

I personally am not sure how it’s going to fall out. This could actually work quite well, but only if other media companies follow along. If News Corp is just hanging out there by itself while others are able to carry on with a free model then it could get absolutely buried by the competition. There is inevitably going to be a consumer backlash when the charges start to hit. If they have a choice they’ll go elsewhere, but if not it will just be a lot of sound and fury with no meaningful impact.

I’m not one of those who thinks everything on the internet should be free. It takes time and effort to create the content. It’s only fair folks get compensated for that work.

The problem is most people don’t think in terms of value. I see it in new traders. They are always looking to get something for free. They fail, however, to account for the time it takes them to aquire the free stuff which could be had more quickly and easily for a nominal price. They also fail to take into account the fact that free can also come with a lower quality of product (see When Free Isn’t and Paying Makes Much More Sense). More experienced traders (and business people in general) will understand the value/cost trade-off and make decisions in that way.

The head of my business unit expressed the view that this move by News Corp could help to tier content, especially in an area like ours dealing with markets and analysis. He  specifically offered up as example of the free level a trader who has a thousand people reading his stuff, but has no professional background and no real understanding of the markets. Naturally, not every trading blogger falls into that category, but his point is fair enough.

I see two potential influencing factors here. One is the fact that there’s only so much advertising money and there’s a rapidly increasing number of places it can get spent online. Economists would probably say that some kind of equilibrium will be found where the competition for advertising dollars will make it a challenge to really get ahead with that as a primary income source – at least at certain levels.

The other factor is that there are many other non-direct-profit motives for providing free content online. That means there is an on-going conflict between those who want to charge and those willing to give it away. The ability of those looking to charge to create value (at least the perception of it, anyway) beyond what can be had for free is what will decide the outcome.

The Treasury just came out with the sizes for the quarterly refunding auctions that will be happening next week. A record total of $75bn in Notes and Bonds will be on offer ($37bn 3yrs, $23bn 10yrs, $15bn 30yrs), of which only $14.1bn will be new cash raised. That means the other $60.9bn will go to refinance existing debt. This doesn’t sound like a great ratio, but without knowing how things are on the overall debt calendar it’s hard for me to make any kind of judgement.

What I think would be interesting to see is the comparisson of federal deficit spending to the amount of new debt being issued by the Treasury. The reason I say that is because it has a direct implication on money supply.

When the government spends it increases reserves – the monetary base, also known as M1. That is the base from which so-called “bank money” is created by the lending/borrowing process. When the government taxes (and other income) or borrows it is draining reserves from the system, reducing the monetary base. Thus, the Treasury can have a serious impact on money supply simply through its spending and taxing/borrowing policies – a much bigger one than the Fed could ever have – if it does not match its inflows against its outflows.

Basically, if the federal government wants to adjust money supply in the economy, it doesn’t need to rely on the Fed to do it. All it has to do is adjust its debt issuance relative to the deficit and/or refinancing needs.

Oh, and the Treasury can also influence the slope of the yield curve by altering the amount of issuance it does at the different maturities. Think about that when you ponder how negatively sloped yield curves tend to be recession precursors and steeply positive curves are indications of growth.