"The American financial establishment has an incredible ability to
celebrate the inconsequential while ignoring the vital. Last week, while
the Wall Street Journal pondered
how the Fed may set interest rates three to four years in the future (an
exercise that David Stockman rightly compared to debating how many angels could
dance on the head of a pin), the media almost completely ignored one of the
most chilling pieces of financial news that I have ever seen. According to a
small story in the Financial Times,
some Fed officials would like to require retail owners of bond mutual funds to
pay an "exit fee" to liquidate their positions. Come again? That such
a policy would even be considered tells us much about the current fragility of
our bond market and the collective insanity of layers of unnecessary
regulation."
Is It Time for the Fed to Contract Its Balance Sheet?
"The
Federal Reserve can keep their balance sheet at the current size (and keep the
risk asset party going) or it can position itself to be able to hike
rates — but it cannot do both."
"It’s
often mentioned that the Fed buys bonds in asset swaps. This is true. Where
many people get confused is that it is not an asset swap for the banks. When
the Fed buys bonds, they typically buy them from non-banks. The bonds are
removed from circulation and put on the Fed’s balance sheet, while the Fed pays
for these bonds with newly created reserves. Now these reserves must be
deposited at a bank, so they will show up at a bank as new deposits."
Zabobony na parkiecie - liczby Fibonacciego
"Inwestorzy
korzystający z narzędzi opartych na liczbach Fibonacciego i złotej proporcji
posługują się w istocie magią. Narzędzia te dają graczom jedynie fałszywe
poczucie zrozumienia procesów zachodzących na wykresie cenowym."
"Zwolenników krytykowanych powyżej
metod podzieliłbym na Wierzących i Pragmatyków. Wierzący przekonani są, że
posługują się narzędziem objawionym przez samą naturę i wszechświat. Pragmatycy
zaś utrzymują, że nie wiedzą, czemu to działa, ale jednak działa i umożliwia
zarabianie pieniędzy. Wierzących zapewne przekonać się nie uda, jednak odważnym
Pragmatykom polecam eksperyment. Polega on na zmianie wartości w aplikacji
służącej do rysowania zniesień na wybrane losowo liczby. Zapewniam, że nowe
poziomy będą równie skuteczne jak poprzednie."
Jak bardzo powszechny jest insider trading?
"Patrick Augustin, Menachem Brenner, Marti
Subrahmanyam (ABS) stworzyli
bazę 1859 transakcji (fuzji i przejęć) z lat 1996-2012, dla których posiadali
dane o notowaniach akcji i opcji na akcje. Następnie sprawdzili w jak wielu
przypadkach zachowanie rynku opcji na 30 dni przed ogłoszeniem transakcji
odpowiada zachowaniu będącemu wynikiem działań inwestorów posiadających
informacje o przyszłych transakcjach M&A."
"Badacze
stwierdzili, że nawet 1/4 transakcji M&A z ich bazy poprzedzona jest
pozytywnym nadzwyczajnym obrotem na opcjach na akcje przejmowanej spółki. Co więcej, wspomniany nadzwyczajny obrót jest
najmocniej widoczny na opcjach kupna poza pieniędzmi (OTM call) – z więc na
instrumentach najbardziej atrakcyjnych z punktu widzenia inwestora
posiadającego poufne informacje o transakcji M&A (przeciętna 1-dniowa premia
za przejęcie to 31% w bazie ABS)."
Sacred cows and the demand for loans
"By "loan demand", we usually mean the demand
from households and corporations for the credit provided by banks. But actually
this makes no sense. What households and corporations actually want is not
loans. It is money.
Households that have
money generally do not borrow. They buy their houses, cars, yachts, holidays to Bermuda with money they
already have. It is households that DON'T have money that borrow. They do so in
order to buy the houses, cars, holidays to Ibiza (perhaps not yachts so much)
that they don't have the money to afford. They would really like to buy these
things from money they already have, but there isn't enough of it right now,
and in the case of houses there won't be for at least 25 years even if they
save assiduously. They do not "want" loans. They want money."
"Loan assets are claims on the future income of households, corporations
and governments. Lending is always a bit of a gamble: future income is by
definition uncertain. Default happens when income in reality does not match the
expectations against which the loan was advanced. The interest payments on a
loan are both compensation for the opportunity cost to the lender of not using
the money (although in the case of banks which create money when they lend, the
existence of this opportunity cost is debateable) and, more importantly, a
consideration or surety against possible future default. The higher the
likelihood of future default, the higher the interest payments."
Why Negative Rates Won't Work In The Eurozone
"It seems unlikely that the ECB is unaware of the effect of
negative rates on Danish lending volumes. So despite
extensive comments in the media about negative rates encouraging banks to lend,
I doubt if that is the real purpose. Indeed, as M3 lending
figures for the Eurozone actually improved slightly in April, it is hard to see why the ECB
would act now when it did not earlier this year.
So I don’t
think this is about bank lending at all. I think it is about German disinflation and the exchange value of the
Euro."
How To Fix High-Frequency Trading
"The recent public
outcry over high frequency trading is pointless. Solutions exist. Virtually every
comparable market in the world uses them already.
But, some electronic exchanges may not willingly adopt them.
Doing so may disrupt their current business model. The incentives are
misaligned, and competitors or regulators may need to force the issue to see
change. Luckily, the issue to be forced is far simpler than most think.
It’s time to add quality to the matching process. Over
thousands of years, every naturally evolved market has headed this direction –
from the ancient Greeks to Alibaba.com. It’s time for Wall Street to realize
what they lost along the way, and how it can fix far more than just HFT."
The Myth of the Omnipotent Central Bank
"“Inflation”, said Milton Friedman, “is always and everywhere a monetary
phenomenon”. Upon this statement has been built three decades of faith in the
omnipotence of central banks. It does not matter what government does: it does
not matter what markets do: it does not matter what shocks there are to the
economy. As long as central banks get the money supply right, there will be no
inflation. Or deflation. Growth will simply proceed smoothly along a
pre-determined path.
Leaving
aside the question of whether central banks really control the money supply at
all in an endogenous fiat money system, it is clear to me that the control of
inflation – in all its forms – is by no means so simple. Despite Friedman’s
statement, the forces that create inflation and deflation are in reality poorly
understood."
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