This is the first installment in a series of HFT War Stories, submitted anonymously by high frequency and algorithmic traders highlighting the perils of their profession. Today we look at a $2 Billion near miss that never made the news. The public only hears about these types of SNAFUs if they blow up a firm. Hundreds more go unnoticed by anyone but the traders who lived through them.
The topic of ‘currency war’ has been bantered about in financial circles since at least the term was first used by Brazilian Finance Minister Guido Mantega in September 2010. Recently, the currency war has escalated, and a ‘sanctions war’ against Russia has broken out. History suggests that financial assets are highly unlikely to preserve investors’ real purchasing power in this inhospitable international environment, due in part to the associated currency crises, which will catalyse at least a partial international remonetisation of gold. Vladimir Putin, under pressure from economic sanctions, may calculate that now is the time to play his ‘gold card’.
Global Slowdown Confirmed By PMIs Missing From Japan To China To Europe; USDJPY Nears 119 Then SlidesSubmitted by Tyler Durden on 11/20/2014 07:00 -0500
The continuation of the two major themes witnessed over the past month continued overnight: i) the USDJPY rout accelerated, with the Yen running to within 2 pips of 119 against the dollar as Albert Edwards' revised USDJPY target of 145 now appears just a matter of weeks not months (even though subsequent newsflow halted today's currency decimation and the Yen has since risen 100 pips , and ii) the global economic slowdown was once again validated by global PMIs missing expectations from Japan to China (as noted earlier) and as of this morning, to Europe, where the Manufacturing, Services and Composite PMI all missed across the board, driven by a particular weakness in France (Mfg PMI down from 48.5 to 47.6, below the 48.8 expected), but mostly Germany, after Europe's growth dynamo, which disappointed everyone after yesterday's rebound in the Zew sentiment print, printed a PMI of only 50.0, down from 51.4 a month ago, down from 52.7 a year ago, and below the 51.5 expected. And just as bad, Europe's composite PMI just tumbled to 51.4, the lowest print in 16 months!
From its very inception, the Leninist/Marxist ideology of the Soviet Union made it a central priority to dispel and subjugate religious and spiritual expression. The state was “god.” No other god could be allowed to flourish, for if the people were given license and freedom of belief in something beyond themselves and beyond the establishment, they would retain a sense of rebellion. The collectivist philosophy requires the utter destruction of all competitors; otherwise, it can never truly prevail. The New World Order, an ideal often touted by globalists and defined by their own rhetoric as a scientific dictatorship in which collectivism is valued and individualism is criminalized, seems to me to be — in its ultimate form and intention — a battle for the human soul.
With Japan planning a few trillion Yen stimulus plan of airdropping "gift cards" directly to the poor to spur spending (and the virtuous awesomeness of economic utopia), it appears Switzerland is about to go one step further. As Motherboard reports, Switzerland could soon be the world’s first national case study in basic income. Instead of providing a traditional social net - unemployment payments, food stamps, or housing credits - the government would pay every citizen a fixed stipend. The proposed plan would guarantee a monthly income of CHF 2,500, or about $2,600 as of November 2014; meaning every Swiss family can expect an unconditional yearly income of $62,400 without having to work, with no strings attached. What could go wrong?
Once again all eyes are on the carry-trade driving Yen, whose avalance into oblivion is picking up speed, and where the formerly unimaginable USDJPY level of 120 as presented here in September, is now looking like this week's business, with the only question how long until Albert Edwards' next target of 145 is hit leading to nuclear currency warfare between Japan, Korea, China and ultimately, the US and Europe. Unfortunately, for Japan, at this point the terminal currency collapse will do nothing to incrementally boost exports or its economy, and the former Japan finmin was on the tape warning again that the Japanese recession will persist as USDJPY over 115 is now hurting Japan, something which should by now have been clear to most.
If only the $3.2 billion Goldman Sachs Global Opportunities hedge fund had listened to the firm's equity strategists, life would have been great. However, as Bloomberg reports, the so-called 'best-ideas' fund dropped 5.6% in October leaving it down 2.6% for 2014 as interest-rate bets went pear-shaped amid the crash-and-dash that was October's market manipulation. "We believe monetary policy needs to catch up with growth, and that interest rates in the US and UK are likely to rise by a significant amount," the fund wrote. It seems Goldman 'muppeted' itself. Things aren't working out... and as a gentle reminder, the fund lost 35% in 2008.
The authorities in Hong Kong are once again threatening to clear the protest sites. They have a legal pretext, in the form of court orders issued in response to complaints from the owners of buildings, who are losing traffic. The powers that be are in no mood for compromise. “Police urge the illegal road occupiers to obey the court order, remove obstacles and personal belongings, and stop the illegal occupation soonest.”
"My premise hasn’t really changed since I published my paper explaining why I had become more constructive towards risk assets this time last year. That is to say, the structural deficiency of global demand continues to radicalise the central banking community. I believe they are terrified: the system is so leveraged and vulnerable to potentially systemic price reversals that the monetary authorities find themselves beholden to long only investors and obliged to support asset prices. However, I clearly confused everyone with my choice of language. What I should have said is that investors are perhaps misconstruing rising equity prices as a traditional bull market spurred on by revenue and earnings growth, and becoming fearful of a reversal, when instead the persistent upwards drift in stock markets is more a reflection of the steady erosion of the soundness of the global monetary system and therefore the rise in stock prices is something that is likely to prevail for some time."
- Japan Prime Minister Shinzo Abe Calls Snap Election (WSJ) - as repeatedly priced in...
- Flash Boys Raising Volatility in Wild New Treasury Market (BBG)
- Not Greece again: Greek Bailout Review Stalls as Troika Demands Final Steps (BBG)
- Iran uses China bank to transfer funds to Quds-linked companies (Reuters)
- Porn Mags With Free Madrid Theater Tickets in Tax Protest (BBG)
- Hong Kong, China stocks ease on profit-taking after stock connect launch (Reuters) - Hang Seng down 500 points in past 2 days
- Halliburton Mega-Deal Sealed by CEOs Over Coke and Coffee (BBG)
- Wall Street to Reap $316 Million From Day of Mega Deals (BBG)
- Mass murderer Charles Manson gets marriage license, state says (Reuters)
After weeks of relentless flashing red headline barrage whose only purpose was to force snap algo buying of the USDJPY pair time after time after time, Japan is once again out of FX algo danging carrots after moments ago Abe confirmed what everyone had known already: he called a snap election to seek a mandate for his decision to delay by 18 months a further sales-tax increase that had been planned for next year; he also said he would dissolve the lower house of parliament on Nov. 21 in preparation for an election in December, without specifying a date. Cited by the WSJ, Abe said "To ensure the success of Abenomics, I’ve concluded that it shouldn’t be carried out next October and instead be postponed by 18 months,” the prime minister told a nationally televised news conference, stressing that the additional tax burden would risk putting the economy back into deflation. “I will seek the people’s judgment over our economic policy."
- Scuttled deals worth $580 billion put hedge funds on back foot (Reuters)
- Mounting Pressure on OPEC Spurs More Wagers on Oil Rally (BBG)
- It's not just US real estate: Chinese Students at U.S. Universities Jump 75% in Three Years (BBG)
- Frankfurt Open for Yuan Clearing as Liquidity Rises (BBG)
- Obama defends healthcare law after adviser criticism (Reuters)
- Michael Hasenstab Bets Big in Controversial Places (WSJ)
- Facebook seeks foothold in your office (FT)
- Russia Seen as Greatest Threat in Poll as Oil Erodes Putin Power (BBG)
- Falling Oil Prices Test OPEC Unity (WSJ)
While it was already leaked in the past week that oil service giant Halliburton would seek to purchase Baker Hughes, or, if the smaller oilservice company did not accept the proposed terms, make a hostile run at its board of directors, it was unclear how the Houston company would respond. As the Houston Chronicle summarized, BHI had "to make a tough choice: surrender control on a rival's terms or face months of sunken oil prices and cost pressures alone....Halliburton's demands come as crude prices have fallen dramatically and as the U.S. oil industry looks to an uncertain future. Much is unclear: how much oil producers will rein in equipment and service spending, whether oil prices will sink or swim, and how much Baker Hughes would be worth in six months after what would likely be a bruising battle for control of its board." Moments ago we got the answer and Baker Hughes shareholders decided they have had enough of the volatile oil price and are happy to cash out at this point, in a $34.6 billion deal that values BHI shares at $78.62/share.
Perhaps the biggest shock following last night's completely expected and very predictable (previewed here over a month ago) Japanese slide into triple- (actually make that quadruple) dip recession, is that it took the BTFTripleDip recession algos as long as they did to recover most of the overnight futures losses. Because after surging to 107 on a confused short squeeze kneejerk reaction, the USDJPY subsequently tumbled 150 pips to 105.50 as rationality briefly emerged, and the market wondered for a few brief hours if rewaring the destruction of one's economy is actually a prudent thing. Then, however, when European traders started walking into work, the now default USDJPY levitation on no volume came right back, and with that the correlation algo buying of E-mini futures, no doubt helped by the Bank of Japan itself taking advantage of the CME's ES liquidity rebate program. Because without confidence as expressed by the lowest and only common denominator left - global equities - there is nothing else.
The term “anarcho-capitalism” has, we might say, rather an arresting quality. But while the term itself may jolt the newcomer, the ideas it embodies are compelling and attractive: (1) each human being, to use John Locke’s formulation, “has a property in his own person”; (2) there ought to be a single moral code binding all people, whether they are employed by the State or not; and (3) society can run itself without central direction.