Tag: finance

Today’s nonfarm payrolls release is expected to show a “spring” renaissance of labor market activity that was weighed on by “adverse weather” during the winter months (Exp. 200K, range low 150K – high 275K, Prev. 175K). Markets have been fairly lackluster overnight ahead of non-farm payrolls with volumes generally on the low side. The USD and USTs are fairly steady and there are some subdued moves the Nikkei (-0.1%) and HSCEI (+0.1%). S&P500 futures are up modestly, just over 0.1%, courtesy of the traditional overnight, low volume levitation. In China, the banking regulator is reported to have issued a guideline in March to commercial banks, requiring them to better manage outstanding non-performing loans this year. Peripheral EU bonds continued to benefit from dovish ECB threats at the expense of core EU paper, with Bunds under pressure since the open, while stocks in Europe advanced on prospect of more easing (Eurostoxx 50 +0.14%). And in a confirmation how broken centrally-planned markets are, Italian 2 Year bonds high a record low yield, while Spanish 5 Year bonds yield dropped below US for the first time since 2007… or the last time the credit risk was priced to perfection.

As to how one should trade today’s payroll number, if it is a miss one should buy, while a beat suggests one should really buy. After all that’s what the algos will be doing in the milliseconds just before the NFP print is leaked to HFT data subscribers. And the algos are never wrong.

The prospect of European QE has overshadowed today’s payrolls a touch. There are hopes that NFP will experience a strong bounce-back after the winter stresses. In the 12 readings before last December, NFP gains averaged +205k. In the past 3 it’s averaged +129k, a 3m average level last seen in the summer of 2012. So either the economy is truly underperforming or there is some real payback to come on the payroll numbers. Yesterday’s ISM was partially supportive of the payback theory (see above). Also supportive was Wednesday’s +191k ADP number (vs +139k in Feb and subsequently revised up to +178k). DB’s Joe LaVorgna is expecting a NFP reading of +275k today which would reflect roughly a +100k payback from the past months weather-related weakness. He expects the unemployment rate to drop to 6.5% from February’s 6.7% reading. Joe is out in front of market consensus, which is expecting a +200k NFP figure and a 6.6% unemployment rate.

The only thing of note on today’s calendar is the NFP, which as already pointed out better bounce by a lot or else two months of weather related justifications by climate apologists will go right out of the window into balmy spring weather.

 

Bulletin headline summary from Bloomberg and RanSquawk

• Treasuries steady, 5Y yields near highest YTD, 10Y highest since Jan., before report forecast to show U.S. economy added 200k jobs in March while unemployment rate held at 6.6%.
• Yields on Spanish 5Y notes fell below those of their U.S. equivalents today for the first time since 2007, the latest milestone in this year’s rally among the bonds of Europe’s most indebted nations
• As ECB officials try to stamp out the risk of deflation, Draghi yesterday gave his strongest signal so far that the ECB is prepared to embrace a policy that has become a byword for large-scale government bond purchases
• German factory orders rose 0.6% in Feb., above median 0.2% estimate in a Bloomberg survey; January orders were revised lower to 0.1% from 1.2%
• NATO accused Russia of spreading “propaganda” about its reach in Europe as Obama signed legislation imposing sanctions on Russians for the incursion in Crimea and economic aid for Ukraine
• China’s benchmark money-market rate posted the biggest weekly decline this year as demand for cash eased after banks met quarter-end capital requirements
• Sovereign yields mixed. Asian stocks mixed, Nikkei little changed, Shanghai +0.7%. European equity markets mostly higher, U.S. stocks futures rise. WTI crude, copper and gold gain

 

US Event Calendar

8:30am: Change in Nonfarm Payrolls, March, est. 200k (prior 175k)

• Change in Private Payrolls, March, est. 200k (prior 162k)
• Change in Manufacturing Payrolls, March., est. 7k (prior 6k)
• Unemployment Rate, March., est. 6.6% (prior 6.7%)
• Average Hourly Earnings m/m, March, est. 0.2% (prior 0.4%)
• Average Hourly Earnings y/y, March, est. 2.3% (prior 2.2%)
• Average Weekly Hours All Employees, March., est. 34.4 (prior 34.2)
• Change in Household Employment, March (prior 42)
• Underemployment Rate, March (prior 12.6%)
• Labor Force Participation Rate, March (prior 63%)

EU & UK Headlines

Core EU bonds underperformed today, with longer-dated German paper under particular selling pressure, while peripheral bond yield spreads (Spanish 5y yield below US 5y equivalent for the first time since 2007) continued to tighten as market participants speculated of more accommodative policies from the ECB following the press conference yesterday. Analysts’ take on the ECB:

– UBS see ECB QE targeting bank lending as opposed to bond purchases, noting the fact that SMP non-sterilization was discussed suggests the ECB are already comfortable with the process.

– Goldman Sachs this morning posted a trade recommendation, suggesting a short Bund position as ECB policy favours credit over government debt, now no longer expects ECB policy rate cuts adding that they do not expect any unconventional measures from the ECB.

The sentiment for riskier assets was also supported by the release of the latest Eurozone’s PMIs, with Italian, French and Eurozone better than previous but Germany’s lower than expected. In other news, eKathimerini reported that the Greek sovereign rating is expected to be upgraded at Moody’s after-market today. Greece are currently rated Caa3; Outlook stable at Moody’s.

US Headlines

USTs traded steady this morning ahead of the monthly jobs report release by the BLS, though the under performance by Bunds saw 10y US/GE spread widen to June 2006 levels. Of note, Fed’s Fisher (Voter, Hawk) said the current taper path will conclude QE in October this year, however stopped of specifying a time for the first rate hike after being critical of calendar-based guidance.

Equities

Stocks in Europe are seen broadly higher, benefiting from the growing expectation that the ECB will introduce QE type program following yesterday’s dovish press conference. The risk on sentiment meant that the more defensive sectors such as health-care underperformed, while oil & gas led the move higher, benefiting from higher energy prices.

Commodities

WTI crude futures traded in positive territory, breaking above USD 101 level in the process, as the latest developments in the Libyan situation, which had weighed on prices and resulted in Brent under performing, is seen by energy markets to offer no quick increase in supply. In other news, US Defence Secretary Hagel said the US may add brigade in Europe to counter Russia and added that a permanent 3rd brigade was among its options. Of note, the CME lowered WTI crude oil margins by 6.5% to USD 2,900 from USD 3,100 per contract.

* * *

The overnight recap concludes with the comments by DB’s Jim Reid

If A equals no QE and Z equals full on QE, the ECB moved to about M  yesterday. One of the main points that came out of the press conference was that European QE is very much on the table. We’ve always felt they would eventually have to do it but lately we’ve been getting a bit nervous of this. Whilst the ECB left itself a lot of room to manoeuvre on what conditions might  cause QE to be introduced and in what form it might take, the “theological taboo” (as our European Economists refer to it) of QE has seemingly been breached. The Governing Council is now, “unanimous in its commitment to using also unconventional instruments within its mandate to cope effectively with risks of a too prolonged period of low inflation”. Whilst no hard thresholds on when any QE programme might begin were given, our Economists interpretation of Draghi’s comments is that the decision to launch any programme would depend on a small number of indicators (inflation and exchange rate developments, a factor which has gained increasing prominence in ECB communications of late) and that a few months worth of data would be enough to pull the trigger. The big unknown remains what kind of instruments the ECB would use in any action. So it seems that after a damp start to 2014 the ECB appears to be stepping up its rhetoric and yesterday the chances of European QE in 2014 significantly improved.
 
On a slightly lighter note when Draghi was asked about IMF Christine Lagarde’s earlier comments on the ECB’s needing to take further action (which we wrote about yesterday) he responded with a rather humorous, “The IMF has been of recent extremely generous in its suggestions on what we should do or not do, and we are really thankful for that. But the viewpoints of the Governing Council are in a sense different … And frankly, I would like the IMF to be as generous as they have been towards us also with other monetary policy jurisdictions, like for example issuing statements just the day before an FOMC meeting would take place.” So a little tension here.
 
The market reaction to Draghi’s comments saw credit and equities strengthen while core and periphery bond yields fell. Euro-dollar traded down 0.34%, but the reaction was relatively muted, and it only managed to trade with a 1.36 handle for a matter of seconds (1.3698 marked the lows yesterday). From the lows, the Stoxx600 rallied 0.72% as Draghi spoke, after a bit of initial disappointment following the release of the ECB statement. Peripheral Europe, especially Spain and Italy, led gains in European bond markets. Italian and Spanish bond yields are both now firmly at multi-year lows. In credit, the European Crossover and Main index rallied 7bp and 2.5bp from the wides respectively. The UST treasury curve closed firmer for the first time in three days, with some spill over buying from Europe.

Markets have been fairly lacklustre overnight ahead of non-farm payrolls with volumes generally on the low side. The USD and USTs are fairly steady and there are some subdued moves the Nikkei (-0.1%) and HSCEI (+0.1%). S&P500 futures are up 0.11%. In China, the banking regulator is reported to have issued a guideline in March to commercial banks, requiring them to better manage outstanding non-performing loans this year (Shanghai Securities News).

The S&P 500 (-0.11%) hit intra-day records shortly after the open but sentiment waned as the day wore on as markets went into wait-and-see mode prior to payrolls, before closing with a small loss. Yesterday’s trading had a somewhat defensive tone to it with lower-beta utilities (+0.3%) and telcos (+0.68%) outperforming. The US ISM non-manufacturing revealed a similar theme to the ISM manufacturing and the ADP earlier in the week – coming short of analyst expectations but showing improvement on February’s numbers. The headline ISM non-manufacturing for March rose +1.5 points to 53.1 (slight below the 53.5  expected) but both new orders (53.4 vs. 51.3) and employment (53.6 vs. 47.5) components of the index rebounded. In other details of the survey, the retail trade sector said that “Business was a little slower than expected due to harsh weather conditions across much of the country, but we expect a rebound as spring approaches”. This was echoed by the recreation sector which said that “Cold weather played more havoc on revenue, causing steep declines for nearly a week, and then picked up well beyond expectations. Overall, per capita spending increases, but frequency of visits are down; net neutral to slightly positive”. US Initial jobless claims for the week of March 29 rose +16k (exp +8k) after the prior week was revised down -1k to 310k. The US trade balance for February widened slightly to -$42.3bn from -$39.3bn in January, driven primarily by services (-$0.7bn), non-petroleum goods (-$0.7bn) and petroleum products (-$0.6bn). Overall, exports slipped -1.1% in the month. In light of the ongoing string of weaker economic figures in Q1, which DB’s US economists attribute mainly to inclement weather, DB are lowering their Q1 GDP forecast from 3.1% to 2.0%.

The prospect of European QE has overshadowed today’s payrolls a touch. There are hopes that NFP will experience a strong bounce-back after the winter stresses. In the 12 readings before last December, NFP gains averaged +205k. In the past 3 it’s averaged +129k, a 3m average level last seen in the summer of 2012. So either the economy is truly underperforming or there is some real payback to come on the payroll numbers. Yesterday’s ISM was partially supportive of the payback theory (see above). Also supportive was Wednesday’s +191k ADP number (vs +139k in Feb and subsequently revised up to +178k). DB’s Joe LaVorgna is expecting a NFP reading of +275k today which would reflect roughly a +100k payback from the past months weather-related weakness. He expects the unemployment rate to drop to 6.5% from February’s 6.7% reading. Joe is out in front of market consensus, which is expecting a +200k NFP figure and a 6.6% unemployment rate.

Outside of the ECB its been fairly quiet 24 hours in terms of news. The Fed announced yesterday that board member Jeremy Stein will resign effective 28th May 2014, in order to return to his teaching position at Harvard’s department of economics. As a policymaker, Stein was considered moderate to hawkish, so his departure does leave the Fed slightly more dovish. He was most well known recently for his views on financial stability risks during periods of prolonged low rates, including his speech in February 2013 where he warned of over-heating in credit markets.

Turning to the day ahead, today will be almost all about payrolls. Ahead of that we have the latest German factory orders (consensus +6.8% YoY) and we also get the Markit Euroarea retail PMIs. However today will be largely dictated by NFP, due at 1:30pm London.

via Zero Hedge http://ift.tt/1i6W3zi Tyler Durden

Submitted by Michael Krieger via Liberty Blitzkrieg blog,

It appears the U.S. government is doing its best to ensure that nobody anywhere in any corner of planet earth will ever trust American technology again (or U.S. aid for that matter). This process of distrust first really got going with the Edward Snowden revelations, which demonstrated that essentially all major U.S. tech firms are mere wards of the state with little to no privacy protections, and absolutely zero backbone.

This story of the U.S. government covertly creating a “Cuban Twitter” called ZunZuneo in order to overthrow the regime there has enormous long-term ramifications on many, many levels, which I will address throughout this post.

From the AP via The Washington Post:

WASHINGTON — In July 2010, Joe McSpedon, a U.S. government official, flew to Barcelona to put the final touches on a secret plan to build a social media project aimed at undermining Cuba’s communist government.

 

McSpedon and his team of high-tech contractors had come in from Costa Rica and Nicaragua, Washington and Denver. Their mission: to launch a messaging network that could reach hundreds of thousands of Cubans. To hide the network from the Cuban government, they would set up a byzantine system of front companies using a Cayman Islands bank account, and recruit unsuspecting executives who would not be told of the company’s ties to the U.S. government.

 

McSpedon didn’t work for the CIA. This was a program paid for and run by the U.S. Agency for International Development, best known for overseeing billions of dollars in U.S. humanitarian aid.

Now we can pretty much guarantee that foreign nations will forever be skeptical of any U.S. “aid”. Great work morons.

Documents show the U.S. government planned to build a subscriber base through “non-controversial content”: news messages on soccer, music, and hurricane updates. Later when the network reached a critical mass of subscribers, perhaps hundreds of thousands, operators would introduce political content aimed at inspiring Cubans to organize “smart mobs” — mass gatherings called at a moment’s notice that might trigger a Cuban Spring, or, as one USAID document put it, “renegotiate the balance of power between the state and society.”

 

At its peak, the project drew in more than 40,000 Cubans to share news and exchange opinions. But its subscribers were never aware it was created by the U.S. government, or that American contractors were gathering their private data in the hope that it might be used for political purposes.

 

“There will be absolutely no mention of United States government involvement,” according to a 2010 memo from Mobile Accord, one of the project’s contractors. “This is absolutely crucial for the long-term success of the service and to ensure the success of the Mission.”

 

The program’s legality is unclear: U.S. law requires that any covert action by a federal agency must have a presidential authorization. Officials at USAID would not say who had approved the program or whether the White House was aware of it. McSpedon, the most senior official named in the documents obtained by the AP, is a mid-level manager who declined to comment.

“The program’s legality is unclear”, as if that matters!

But the ZunZuneo program muddies those claims, a sensitive issue for its mission to promote democracy and deliver aid to the world’s poor and vulnerable — which requires the trust of foreign governments.

 

The Associated Press obtained more than 1,000 pages of documents about the project’s development. The AP independently verified the project’s scope and details in the documents — such as federal contract numbers and names of job candidates — through publicly available databases, government sources and interviews with those directly involved in ZunZuneo.

 

“We should gradually increase the risk,” USAID proposed in a document. It advocated using “smart mobs” only in “critical/opportunistic situations and not at the detriment of our core platform-based network.”

 

USAID’s team of contractors and subcontractors built a companion Web site to its text service so Cubans could subscribe, give feedback and send their own text messages for free. They talked about how to make the Web site look like a real business. “Mock ad banners will give it the appearance of a commercial enterprise,” a proposal suggested.

 

McSpedon worked for USAID’s Office of Transition Initiatives (OTI), a division that was created after the fall of the Soviet Union to promote U.S. interests in quickly changing political environments — without the usual red tape.

We have an “Office of Transition Initiatives“? Who knew…

In 2009, a report by congressional researchers warned that OTI’s work “often lends itself to political entanglements that may have diplomatic implications.” Staffers on oversight committees complained that USAID was running secret programs and would not provide details.

 

“We were told we couldn’t even be told in broad terms what was happening because ‘people will die,’” said Fulton Armstrong, who worked for the Senate Foreign Relations committee. Before that, he was the US intelligence community’s most senior analyst on Latin America, advising the Clinton White House.

How’s that for Congressional oversight. This phony “people will die” rationale seems to be the reason for all shady secret programs these days.

The money that Creative Associates spent on ZunZuneo was publicly earmarked for an unspecified project in Pakistan, government data show. But there is no indication of where the funds were actually spent.

 

Paula Cambronero, a researcher for Mobile Accord, began building a vast database about the Cuban subscribers, including gender, age, “receptiveness” and “political tendencies.” USAID believed the demographics on dissent could help it target its other Cuba programs and “maximize our possibilities to extend our reach.”

Of course, the NSA would never compile such data domestically, right?

Carlos Sanchez Almeida, a lawyer specializing in European data protection law, said it appeared that the U.S. program violated Spanish privacy laws because the ZunZuneo team had illegally gathered personal data from the phone list and sent unsolicited emails using a Spanish platform. “The illegal release of information is a crime, and using information to create a list of people by political affiliation is totally prohibited by Spanish law,” Almeida said. It would violate a U.S-European data protection agreement, he said.

 

“If it is discovered that the platform is, or ever was, backed by the United States government, not only do we risk the channel being shut down by Cubacel, but we risk the credibility of the platform as a source of reliable information, education, and empowerment in the eyes of the Cuban people,” Mobile Accord noted in a memo.

 

To cover their tracks, they decided to have a company based in the United Kingdom set up a corporation in Spain to run ZunZuneo. A separate company called MovilChat was created in the Cayman Islands, a well-known offshore tax haven, with an account at the island’s Bank of N.T. Butterfield & Son Ltd. to pay the bills.

 

A memo of the meeting in Barcelona says that the front companies would distance ZunZuneo from any U.S. ownership so that the “money trail will not trace back to America.”

 

Officials at USAID realized however, that they could not conceal their involvement forever — unless they left the stage. The predicament was summarized bluntly when Eberhard was in Washington for a strategy session in early February 2011, where his company noted the “inherent contradiction” of giving Cubans a platform for communications uninfluenced by their government that was in fact financed by the U.S. government and influenced by its agenda.

 

They turned to Jack Dorsey, a co-founder of Twitter, to seek funding for the project. Documents show Dorsey met with Suzanne Hall, a State Department officer who worked on social media projects, and others. Dorsey declined to comment.

This is not going to be good for Twitter’s reputation internationally, or Facebook for that matter…

By early 2011, Creative Associates grew exasperated with Mobile Accord’s failure to make ZunZuneo self-sustaining and independent of the U.S. government. The operation had run into an unsolvable problem. USAID was paying tens of thousands of dollars in text messaging fees to Cuba’s communist telecommunications monopoly routed through a secret bank account and front companies. It was not a situation that it could either afford or justify — and if exposed it would be embarrassing, or worse.

If you did this it’d probably be called money laundering and you’d be locked up in a cage forever. Such as what happened to Charlie Shrem.

Toward the middle of 2012, Cuban users began to complain that the service worked only sporadically. Then not at all.

 

ZunZuneo vanished as mysteriously as it appeared.

Call me crazy, but it might be better idea to end the embargo if we want to foster a “market economy” in Cuba. No, that would be way too enlightened and rational. Better to covertly attempt to spark a revolution that could spiral in impossible to know directions…

Meanwhile, we are encouraging people out in the streets in other countries, while brutally cracking down on domestic protests by labeling Occupy Wall Street demonstrators as “terrorists”.

At the end of the day, would it be so horrible if the U.S. government wanted to foster greater social media communication for Cubans? No, not at all. Unfortunately, that is not what it was doing. Rather, we attempted to covertly foster dissent with the expressed purpose of regime change. This will only encourage an arms race of this sort of activity from all governments against one another all over the world.

This revelation will serve to sow further distrust across the globe, both for American humanitarian intentions and American technology generally. Besides, don’t we have enough problems internally to focus on. Why do we seem to be allocating so many taxpayer resources abroad rather than here at home? As an American, that’s the most disturbing part in all of this to me.

Full article here.

via Zero Hedge http://ift.tt/1fDjaVh Tyler Durden

The most common pushback from any China bull, industrial commodity bull, US equity market bull, or in fact any risk market in general "bull" is "won't the authorities just pull the trigger? Won't they just stimulate?" As UBS Commodities group notes, The debate is most advanced for China and for industrial commodities, where the weakness in the economy, and the sharp commodity price falls of recent weeks, has consensus looking for a stimulus driven bounce. UBS does not think so – the authorities in China and the US have become increasingly focused on structural issues – which, simply put, means they are less willing to act than before.

 

Via UBS Commodities & Mining,

Many investors are relying on what UBS calls  "Bazooka theory" to protect them from any potential downside…

Over the past decade, China investors have used a couple of rules of thumb to trade domestic and commodity markets. When total social financing slips to 15% y/y, and when the Shanghai A Share Index falls towards 2000, expect a stimulus. We appear to be in that zone.

 

And as UBS notes, investors are right to be expectant as the macro data is not strong…

we don’t rely on the GDP data, where a client pointed out to us that, in 2013, no region in China reported lower GDP growth than the national average.

 

Instead, we rely on the three indicators highlighted by Li Keqiang a decade ago, when he was party secretary for Liaoning; electricity production, volume of rail freight and loan disbursements. We use our macro team’s total social financing series (Fig 3.) as a proxy for loan disbursements.

Clearly rail freight is weak. Electricity production is more robust, although it has lost a little momentum.

 

And we watch steel consumption and pricing. Carsten Riek, European steel analyst, pointed out in 'China's steel mills to limit global steel recovery', 25 March 2014, that China steel consumption is down 1.3% y/y. Carsten uses the worldsteel production data that UBS has used consistently in its global steel modelling (worldsteel rationalises sometimes conflicting data from CISA and the China steel council). We believe the fall reflects two key developments;

• An end of restocking
• Weak underlying demand.

 

So will the China authorities stimulate?

It is a key question. Stimulus may allow a solid, consensus like demand performance for the commodities across 2014. But without aggressive stimulus, commodity demand will likely fall well short of consensus – leading to larger surpluses and lower prices than consensus anticipates.

 

We always saw stimulus in the past when the Shanghai A Share Index fell towards 2000 and when renminbi loan growth decelerated below 15%.

 

The standard view on China is that the Party’s main aim is the continuation of power, and so it won’t tolerate a slowdown in growth below 7% (otherwise popular support for the party will fail). We agree that the main ambition of the party is to extend its rule. But we disagree that this means that GDP growth won’t be allowed to fall below 7%. We understand that Xi Jinping and Li Keqiang see structural reform as a more important target than short-term growth. Commentary following the China development forum earlier in March also indicated a consensus that there was considerable flexibility around growth targets.

 

We understand that this stems from the politbureau’s deep study of previous regimes; whether Russia from the 50’s to the 80s, or Japan and the Asian Tigers in the 80s and 90s. In each case, the lack of decisive reform after a period of deteriorating returns on capital led to malaise and, in Russia’s case, collapse. We suspect that the reinjection of liquidity into the system from July 2013, was in part to buy time to allow Li Keqiang and Xi Jinping push forward the deep and wide-ranging reform agenda that they delivered during the third plenum in November 2013.

 

Prior to the third plenum, Li Keqiang stated; ‘Pursuing reform in the face of vested interests is akin to stirring the soul’. Now something of the meaning may have been lost as it went through ‘Google Translate’, but in commodity strategy we see this as a clear shot across the boughs of the vested interests in state-owned enterprises (SoEs).

 

China’s political process is highly factional. The anti-reform factions have in the past pointed to slowing growth as a signal that reforms had gone too far, and used it to undermine the reformists’ political standing.

 

But we believe that Li Keqiang and Xi Jinping have orchestrated the reform process to quietly but fundamentally weaken the powerbase of these vested interests. The crackdown on corruption is the most clearcut reform. Some China watchers see it as a political masterstroke from Xi Jinping. The corruption probes have clipped the wings of key anti-reform politicians. And they act as a latent threat against anyone who might seek to stand in the way of reform in the future.

 

Beyond that, the tightening of net interest margins at the banks, electricity and coal price reform, and the controls on corporate and private property speculation all put pressure on vested interests. All enhance Xi Jinping’s and Li Keqiang’s power base.

Further evidence from the reform process to date indicates a persistent intention to push forward.

Xi Jinping’s decision to chair the shadow banking reform committee, normally chaired by the premier or a more junior official, seems a clear signal that Beijing intends to get shadow bank lending under control. The decision to allow the rmb to weaken from the start of the year, and to widen the rmb trading band is also suggests that the authorities intend to disincentivise China dollar borrowing, and hot money speculative inflows. The fact that the move came when underlying growth was lacklustre is testament to the current political will.

Li Keqiang’s speech in March, which indicated a willingness to allow corporate defaults (albeit not to allow the spread of contagion), is also a strong message on reform.

But of all the measures to date, Beijing’s decision to allow bond yields to rise over the past six months without significant policy interference is the policy action that shows greatest intent.

As UBS goes to note, China’s policy of financial repression has created substantial distortions. As the chart below shows the process has been virtuous for years but has major risks of reversing in a vicious manner…

China has paid negative real rates on savings for much of the last decade.

In China, this induced consumers to raise savings (left hand arrows in Figure 8). That’s because consumers had to build a nest-egg for their retirement, in the absence of sufficient grandchildren to look after them in old age (because of the one child policy) or a decent social safety net. But lower real rates reduce the size of that nest egg, compared to their target. That induced consumers to save more, and as a result, consumer spending fell from an emerging market average rate of 45% of GDP in 1995, to an all-time/all country low of 40% in 2002. It currently stands at 35%.

 

We suspect that corruption and easy money may have induced asset reflation, in as much as it has skewed China’s income inequality to one of the highest in the world, and also had a significant effect of raising savings rates (all things equal, societies with more skewed income distributions save more – see ‘23 things they don't tell you about capitalism’ by Cambridge professor Ha-Joon Chang).

 

At the same time the second and third set of arrows in Figure 8 showed the distortions this creates; inducing excessive property speculation and excessive fixed capital formation. This in turn causes diminishing returns on capital, and the potential for bad loans to develop.

 

For much of the last thirty years, the massive productivity boost from migration (500m people saw their productivity up 13x as they moved from working the land to working in factories), as well as the demographic benefit of a growing workforce, more than outweighed the negatives from the misallocation of capital. But all this changed with the extraordinary lending and capex boom from 2009-11. It was a period that saw lending and fixed capital formation double – an event unprecedented in emerging market history.

 

Raising bond yields threatens to reverse this process. It helps the consumer, who can save less. But it hurts property speculation and it hurts fixed capital formation. The fact the authorities have allowed this to take place without intervention is a profoundly important move; as the higher real rates will dampen property activity and fixed capital formation. That in turn depresses activity, and undermines pricing power in China’s heavy industry.

We have seen this in the weak China data highlighted earlier, and the combination of rising wages and falling prices suffered by the coal, steel, cement and other heavy industries. The danger here is that the process pressures profits, and reveals bad loans.

 

The authorities’ willingness to engineer and then tolerate these developments appears to be a strong signal that Li Keqiang and Xi Jinping are serious about reform.

This discussion leads UBS to believe there two conclusions that last night's mini-railway-focused stimulus seems to confirm…

1. The China authorities intend to hold to the reform agenda.
2. Any stimulus will be moderate and directed.

Tao Wang, UBS China economist believes that it is too early to roll out stimulus, but that the authorities may push a directed ‘mini-stimulus’ if conditions remain weak into 2Q14 (see China Focus: '2014 GDP Growth Forecast Cut to 7.5% on a Weaker Start', 13 March 2014). Any stimulus would be small and directed into key areas;

• Building the social safety net.
• Environmental projects.
• Social housing, hospitals, schools, water treatment, urban public transport.

 

The monetary authorities will intervene to prevent a banking crisis through providing liquidity to large and small banks to smooth over solvency concerns. Tao highlights possible reserve requirement or loan/deposit ratio cuts in the face of a default-driven credit squeeze. But neither she nor we anticipate an aggressive credit expansion aimed at boosting private property speculation, heavy industry expansion or non-directed local government infrastructure spending.

 

Finance minister Zhou Guangyou’s comments on 23rd March that there will not be any ‘Big Stimulus’ from Beijing in 2014, and that the focus on quality of growth means no ‘shotgun stimulus program’ appear to be consistent with this view.

 

This in turn means that the base case is that growth will likely moderate over the next three years, and that commodity intensity will fall. It is entirely likely that we will see years where China commodity demand growth is zero or negative.

There are lessons here from Japan…

That suggests barely any growth in offtake for iron ore and copper in 2014. This is a much more conservative outcome than the 6-7% copper growth and 4% iron ore demand growth that consensus or our bottom-up team are looking for. We would also highlight that the Chinese authorities’ decision to reform does not rule out the potential for a harder landing. In commodity strategy we maintain the view that the probability of this type is even greater than consensus believes. Credit growth is now much less effective in driving GDP growth than in the 2000s. This was the same red flag that warned of an impending deterioration in Japan in the ‘90s.

This analysis makes us more cautious than our economists and our bottom-up commodity analysts. UBS China economist Tao Wang is looking for a moderate acceleration in activity in 2Q14. Our bottom-up commodity team also anticipates a seasonal bounce, before conditions deteriorate later this year

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Goldman Sachs forecasts a 200k increase in non-farm payrolls for March – in line with consensus – and believe last month’s 175k print supports the ongoing positive trend (in light of the weather effect). Key employment indicators looked mixed-to-better in March, and despite the continued cold temperatures, less extreme weather conditions overall should give an additional boost to job gains this month. Citi suggests the weather could have knocked 172k off payrolls overall from Dec to Jan and are more hopeful, expecting a 240k print. Their biggest fear, a greater than 275k print (which is the high bar that Joe Lavorgna has set) could see asset markets reacting badly (on the basis of quicker Fed tightening).

 

 

As Citi’s Stephen Englander notes,

How much weather in NFP? — 172k

Conveniently the BLS has published February State employment data so we can estimate ‘weather corrected’ national data based on how employment is less affected  parts of country evolved. We estimate a variety of models to project national NFP from six states – California, Texas, Washington, Oregon, New Mexico and Arizona. We average their projections for December to February to get a composite estimate of national NFP.

 

Our estimate of the cumulative weather effect based on the average of these models is 172k  over the three affected  months (Dec.-Feb)., with the biggest impact by far in December. Figure 1 shows the average estimate of our eight models. The models differ in estimation period, lags, whether explanatory variables are each state or the sum of all the states, among other dimensions. We don’t have enough experience with these models to be comfortable picking a ‘best’ model but there is enough consistency in their estimates to suggest that they are capturing something.

 

 

Across the eight models, the minimum weather effect was 70k, the maximum 251k. None were negative and only one of the eight showed a cumulative weather effect of less than 100k. If anything we would think these estimates may be downward biased since some of these states themselves had episodes of bad weather.  So the risk in our view lies very much on the strong side of estimates.

 

Our economists estimate 240k, which relative to a baseline of 190k would represent a recovery of about 30% of the weather-related losses. It still looks to us as if investors are lowballing NFP tomorrow, and that the risk is to the topside (acknowledging that the tail of forecasts is a bit more skewed to the upside than to the downside.)

 

We keep uncovering evidence that  FX crosses are becoming more sensitive to rates moves, particularly in the 2-5 years range so we see upside USD risk, especially versus EUR and JPY,  if our weather-effect estimates are correct. We still see a 200k or lower outcome as risk positive, a 240k or higher as risk negative and 200-240k as the grey area. It may take investors a few days to decide whether a weather bounce is good, bad or indifferent for asset markets. Where we see asset markets reacting badly is if we get a really strong print – say 275k+ – which would suggest a strong snapback. Investors would likely view this as an indication of a US economy that cannot wait to  burst out of the box. We think this would be risk-negative for asset markets since it would point to a quicker Fed tightening of liquidity. This is clearly a minority view with equities at all-time highs.

Goldman Sachs’ David Mericle is less positive (right at consensus 200k)…

We forecast a 200,000 increase in nonfarm payrolls in March, in line with consensus expectations. We view the reasonably solid February gain of 175,000 despite extremely adverse weather conditions as providing some confirmation that the underlying trend growth rate of payrolls remains solid. Key employment indicators looked mixed-to-better in March, and despite the continued cold temperatures, less extreme weather conditions overall should give an additional boost to job gains this month.

 

We expect that the unemployment rate declined to 6.6% in March (vs. consensus 6.6%). We also expect that hours worked, which tend to show a larger impact from severe weather conditions, will rebound from their February decline. As the flip side of this rebound in hours, we expect a softer +0.1% gain in average hourly earnings (vs. consensus +0.2%) as last month’s unusually large gain–likely driven by weather distortions–partially reverses.

 

We forecast a 200,000 increase in nonfarm payrolls in March, in line with the consensus estimate of 200,000. We expect private payrolls increased 195,000 (vs. consensus 200,000). While the average payroll gain seen over the last three months now stands at a disappointing 129,000, adverse weather conditions have weighed heavily on the economic data in recent months, and we would instead view the six-month average of 177,000 or the 12-month average of 180,000 as better approximations of the trend rate of payroll growth. We expect March payrolls gains to come in a bit higher than that, reflecting both the improvement in weather conditions and the month’s mixed-to-better employment indicators summarized below.

Arguing for a stronger report

As we noted earlier this week, despite cold temperatures in March as a whole, weather conditions showed a considerable improvement from February in two senses. First, our rule-of-thumb for the effect of temperatures on payrolls–which places 50% weight on the reference week itself and 25% on each of the two prior weeks–points to a moderate improvement from February to March. Second, there were no major snowstorms in March, while there was a major storm from Tuesday-Friday during the reference week in February and another major storm two weeks before the reference week. We expect weather to provide a roughly 25k boost in March, with some risk of a softer contribution in recognition of the seemingly more-modest-than-expected weather impact on the February report. While weather should provide a boost in March, the month’s colder-than-usual temperatures leave room for additional bounce-back in April, if temperatures normalize.

 

The four-week moving average of initial claims for unemployment benefits fell 7k to 330k from the February to the March reference week. During the reference week itself, claims dropped to 323k.

 

Announced layoffs were down 30.2% year-over-year in March after falling 24.4% in February, according to Challenger, Gray, and Christmas. The heaviest job cuts in March were seen in the health care and telecommunications sectors. Challenger noted that the heath care job cuts reflected both lower Medicare reimbursements and layoffs of temporary workers at the end of the sign-up period for health insurance under the Affordable Care Act.

 

Private job gains reported by ADP rose strongly to 191k in March from an initially-reported February gain of 139k. In addition, the ADP report tends to show less weather impact than the official payrolls report. At their current level, ADP job gains are close to the roughly 200k trend seen in the second half of 2013. That said, we attach only limited weight to the ADP report because its initial print has yet to prove itself as a reliable indicator of payroll job growth as measured by the Labor Department.

Arguing for a weaker report

The labor differential?the difference in the percentage of respondents in the Conference Board’s consumer confidence survey describing jobs as plentiful vs. hard to get?worsened slightly by 0.9pt to -19.9 in March, following four months of consistent improvement. The index has shown a fairly steady recovery since late 2011.

Neutral indicators

The employment component of the ISM nonmanufacturing index–the single best survey measure of employment growth–recovered most of its sharp February drop, rising 6.1pt in March to 53.6, a level indicating a moderate rate of expansion. However, the employment components of the Richmond Fed and New York Fed service sector surveys showed declines in March. In addition, the employment components of the major manufacturing surveys were also weaker this month, with the ISM manufacturing, Chicago PMI, Philly Fed, and Empire all showing declines but remaining in neutral-to-expansionary territory.

Both new and total online job ads fell substantially in March, to roughly the level seen prior to a spike in February. However, this series tends to be quite volatile and is a forward-looking rather than coincident indicator, meaning that the February jump is likely to have some positive impact on the March data that roughly offsets this month’s decline.

Overall, we view the softer job gains seen this winter as a temporary deviation from a still-strong trend. While weather conditions remained far from normal in March, the improvement from last month should provide at least some boost. As growth accelerates later in 2014, we expect the trend rate of payrolls growth to rise to about 225,000 per month.

We expect that the unemployment rate ticked down to 6.6% (vs. consensus 6.6%) in March from an unrounded 6.72% in February. We also expect average weekly hours to reverse last month’s decline, which was probably weather-related. As the flip side of the rebound in hours, we expect average hourly earnings to post a softer +0.1% gain (vs. consensus +0.2%) in March after a stronger-than-usual +0.4% jump in February. While this strong print led some commentators to suspect that wage growth might be picking up, we suspect that it was largely a statistical artifact caused by the severe weather conditions in February, which probably shifted the composition of the workforce toward salaried and away from hourly workers.

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Japanese stocks have been bouncing back higher in the last few days as considerably worse data than expected combined with the looming consumption tax hike (which the government has to do to show the market that is, at a minimum, somewhat fiscally responsible) are driving both stocks and JPY to discount a near future dominated by an even bigger stimulus by the BoJ. However, casting a big shadow over all this is what happened the last time Japan raised its consumption tax...

 

So are we going to get the bounce of euphoria followed by the 40% plunge of reality?

What happened in 1997?
That was the last time Japan raised the consumption tax and it wasn't long afterwards that the economy slipped into recession.

Of course, the asset-managers are quick to deny any and every possible analog…

"I don't think 1997 is a good analogue for what is happening in Japan now. There are three key reasons for that," said Alexander Treves, head of equities for Japan at Fidelity Worldwide Investment.

 

"The first is that back in 1997, the financial system was in significantly worse shape.
The second is that in 1997 the consumption tax hike took place against a backdrop of the Asian financial crisis and…
the third thing is that the stock market was much more expensive back then,"

So, let's get this straight… he thinks Japanese banks are in a better financial position currently (totally overbloated with JGBs?), there is no backdrop of an asian financial crisis (umm, look east my friend, China is dead-center on this), and the stock market is cheaper now? (on a fwd P/E maybe but we all know how fast those 'expectations' collapse).
 

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High Frequency Trading (HFT) covers such a broad swathe of 'trading' and financial markets that Marc Cuban (yes, that Marc Cuban), who has been among the leading anti-HFT graft voices in the public realm, decided to put finger-to-keyboard to create an "idiots guide to HFT" as a starting point for broad discussion. With screens full of desperate "stocks aren't rigged" HFT defenders seemingly most confused about what HFT is and does, perhaps instead of 'idiots' a better term would be "practitioners."

 

Via Blog Maverick,

First, let me say what you read here is going to be wrong in several ways.  HFT covers such a wide path of trading that different parties participate or are impacted in different ways. I wanted to put this out there as a starting point . Hopefully the comments will help further educate us all

1.  Electronic trading is part of HFT, but not all electronic trading is high frequency trading.

Trading equities and other financial instruments has been around for a long time.  it is Electronic Trading that has lead to far smaller spreads and lower actual trading costs from your broker.  Very often HFT companies take credit for reducing spreads. They did not. Electronic trading did.

We all trade electronically now. It’s no big deal

2. Speed is not a problem

People like to look at the speed of trading as the problem. It is not. We have had a need for speed since the first stock quotes were communicated cross country via telegraph. The search for speed has been never ending. While i dont think co location and sub second trading adds value to the market, it does NOT create problems for the market

3. There has always been a delta in speed of trading.

From the days of the aforementioned telegraph to sub milisecond trading not everyone has traded at the same speed.  You may trade stocks on a 100mbs broadband connection that is faster than your neighbors dial up connection. That delta in speed gives you faster information to news, information, research, getting quotes and getting your trades to your broker faster.

The same applies to brokers, banks and HFT. THey compete to get the fastest possible speed. Again the speed is not a problem.

4. So what has changed ? What is the problem

What has changed is this. In the past people used their speed advantages to trade their own portfolios. They knew they had an advantage with faster information or placing of trades and they used it to buy and own stocks. If only for hours. That is acceptable. The market is very darwinian. If you were able to figure out how to leverage the speed to buy and sell stocks that you took ownership of , more power to you. If you day traded  in 1999 because you could see movement in stocks faster than the guy on dial up, and you made money. More power to you.

What changed is that the exchanges both delivered information faster to those who paid for the right AND ALSO gave them the ability via order types where the faster traders were guaranteed the right to jump in front of all those who were slower (Traders feel free to challenge me on this) . Not only that , they were able to use algorithms to see activity and/or directly see quotes from all those who were even milliseconds slower.

With these changes the fastest players were now able to make money simply because they were the fastest traders.  They didn’t care what they traded. They realized they could make money on what is called Latency Arbitrage.  You make money by being the fastest and taking advantage of slower traders.

It didn’t matter what exchanges the trades were on, or if they were across exchanges. If they were faster and were able to see or anticipate the slower trades they could profit from it.

This is where the problems start.

If you have the fastest access to information and the exchanges have given you incentives to jump in front of those users and make trades by paying you for any volume you create (maker/taker), then you can use that combination to make trades that you are pretty much GUARANTEED TO MAKE A PROFIT on.

So basically, the fastest players, who have spent billions of dollars in aggregate to get the fastest possible access are using that speed to jump to the front of the trading line. They get to see , either directly or algorithmically the trades that are coming in to the market.

When I say algorithmically, it means that firms are using their speed and their brainpower to take as many data points as they can use to predict what trades will happen next.  This isn’t easy to do.  It is very hard. It takes very smart people. If you create winning algorithms that can anticipate/predict what will happen in the next milliseconds in markets/equities, you will make millions of dollars a year. (Note:not all algorithms are bad.  Algorithms are just functions. What matters is what their intent is and how they are used)

 

These algorithms take any number of data points to direct where and what to buy and sell and they do it as quickly as they can. Speed of processing is also an issue. To the point that there are specialty CPUs being used to process instruction sets.  In simple terms, as fast as we possibly can, if we think this is going to happen, then do that.

The output of the algorithms , the This Then That creates the trade (again this is a simplification, im open to better examples) which creates a profit of  some relatively  small amount. When you do this millions of times a day, that totals up to real money . IMHO, this is the definition of High Frequency Trading.  Taking advantage of an advantage in speed and algorithmic processing to jump in front of trades from slower market participants  to create small guaranteed wins millions of times a day.  A High Frequency of Trades is required to make money.

There in lies the problem. This is where the game is rigged.

If you know that by getting to the front of the line  you are able to see or anticipate some material number of  the trades that are about to happen, you are GUARANTEED to make a profit.  What is the definition of a rigged market ? When you are guaranteed to make a profit.  In casino terms, the trader who owns the front of the line is the house. The house always wins.

So when Michael Lewis and others talk about the stock market being rigged, this is what they are talking about.  You can’t say the ENTIRE stock market is rigged, but you can say that for those equities/indexs where HFT plays, the game is rigged so that the fastest,smart players are guaranteed to make money.

 

6. Is this bad for individual investors ?

If you buy and sell stocks, why should you care if someone takes advantage of their investment in speed to make a few pennies from you  ?  You decide, but here is what you need to know:

a. Billions of dollars has been spent to get to the front of the line.  All of those traders who invested in speed and expensive algorithm writers need to get a return on their investment.  They do so by jumping in front of your trade and scalping just a little bit.  What would happen if they weren’t there ? There is a good chance that whatever profit they made by jumping in front of your trade would go to you or your broker/banker.

b. If you trade in small stocks, this doesn’t impact small stock trades.  HFT doesn’t deal with low volume stocks. By definition they need to do a High Frequency of Trades. If the stocks you buy or sell don’t have volume (i dont know what the minimum amount of volume is), then they aren’t messing with your stocks

c. Is this a problem of ethics to you and other investors ? If you believe that investors will turn away from the market because they feel that it is ethically wrong for any part of the market to offer a select few participants a guaranteed way to make money, then it could create significant out flows of investors cash which could impact your net worth. IMHO, this is why Schwab and other brokers that deal with retail investors are concerned. They could use customers.

7.  Are There Systemic Risks That Result From All of This.

The simple answer is that I personally believe that without question the answer is YES. Why ?

If you know that a game is rigged AND that it is LEGAL to participate in this rigged game, would you do everything possible to participate if you could ?

Of course you would.  But this isn’t a new phenomena.  The battle to capture all of this guaranteed money has been going on for several years now. And what has happened is very darwinian.  The smarter players have risen to the top. They are capturing much of the loot.  It truly is an arms race.  More speed gives you more slots at the front of the lines. So more money is being spent on speed.

Money is also being spent on algorithms.  You need the best and brightest in order to write algorithms that make you money.  You also need to know how to influence markets in order to give your algorithms the best chance to succeed.  There is a problem in the markets known as quote stuffing. This is where HFT create quotes that are supposed to trick other algorithms , traders, investors into believing their is a true order available to be hit. In reality those are not real orders. They are decoys. Rather than letting anyone hit the order, because they are faster than everyone else, they can see your intent to hit the order or your reaction either directly or algorithmically to the quote and take action. And not only that, it creates such a huge volume of information flow that it makes it more expensive for everyone else to process that information, which in turn slows them down and puts them further at a disadvantage.

IMHO, this isn’t fair.  It isn’t a real intent. At it’s heart it is a FRAUD ON THE MARKET.  There was never an intent to execute a trade. It is there merely to deceive.

But Order Stuffing is not the only problem.

Everyone in the HFT business wants to get to the front of the line. THey want that guaranteed money. In order to get there HFT not only uses speed, but they use algorithms and other tools (feel free to provide more info here HFT folks) to try to influence other algorithms.  It takes a certain amount of arrogance to be good at HFT. If you think you can out think other HFT firms you are going to try to trick them into taking actions that cause their algorithms to not trade or to make bad trades. It’s analogous to great poker players vs the rest of us.

What we don’t know is just how far afield HFT firms and their algorithms will go to get to the front of the line.  There is a  moral hazard involved.  Will they take risks knowing that if they fail they may lose their money but the results could also have systemic implications ?.  We saw what happened with the Flash Crash.  Is there any way we can prevent the same thing from happening again ? I don’t think so. Is it possible that something far worse could happen ? I have no idea.  And neither does anyone else

It is this lack of ability to quantify risks that creates a huge cost for all of us.  Warren Buffet called derivatives weapons of mass destruction because he had and has no idea what the potential negative impact of a bad actor could be. The same problem applies with HFT. How do we pay for that risk ? And when ?

When you have HFT algorithms fighting to get to the front of the line to get that guaranteed money , who knows to what extent they will take risks and what they impact will be not only on our US Equities Markets, but also currencies, foreign markets and ? ? ?

What about what HFT players are doing right now outside of US markets ? All markets are correlated at some level.  Problems outside the US could create huge problems for us here.

IMHO, there are real systemic issues at play.

8. So Why are some of the Big Banks and  Funds not screaming bloody murder ? 

To use a black jack analogy , its because they know how to count cards.  They have the resources to figure out how to match the fastest HFT firms in their trading speeds.  They can afford to buy the speed or they can partner with those that can.  They also have the brainpower to figure out generically how the algorithms work and where they are scalping their profits. By knowing this they can avoid it.  And because they have the brain power to figure this out, they can actually use HFT to their advantage from time to time.  Where they can see HFT at work, they can feed them trades which provides some real liquidity as opposed to volume.

The next point of course is that if the big guys can do it , and the little guys can let the big guys manage their money , shouldn’t we all just shut up and work with them ? Of course not.  We shouldn’t have to invest with only the biggest firms to avoid some of the risks of HFT.  We should be able to make our decisions as investors to work with those that give us the best support in making investments. Not those who have the best solution to outsmarting HFT.

But more importantly, even the biggest and smartest of traders , those who can see and anticipate the HFT firms actions can’t account for the actions of bad actors. They can’t keep up with the arms race to get to the front of the line. Its not their core competency.  It is a problem for them, but they also know that by being able to deal with it better than their peers, it gives them a selling advantage. “We can deal with HFT no problem”.  So they aren’t screaming bloody murder.

9. So My Conclusion ? 

IMHO, it’s not worth the risk.   I know why there is HFT. I just don’t see why we let it continue. It adds no value. But if it does continue, then we should require that all ALGORITHMIC players to register their Algorithms.  While I’m not a fan of the SEC, they do have smart players at their market structure group.  (the value of going to SEC Speaks 🙂.  While having copies of the algorithms locked up at the SEC wont prevent a market collapse/meltdown, at least we can reverse engineer it if it happens.

I know this sounds stupid on its face. Reverse engineer a collapse ? But that may be a better solution than expecting the SEC to figure out how to regulate and pre empt a market crash

10…FINAL FINAL THOUGHTS

I wrote this in about 2 hours. Not because i thought it would be definitive or correct. I expect to get ABSOLUTELY CRUSHED on many points here. But there is so little knowledge and understanding of what is going on with HFT, that I believed that someone needed to start the conversation

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By: Chris Tell at http://ift.tt/146186R

Nearly 4 years ago I penned an article entitled Open source world. In it I described a variety of changes taking place globally and how the status quo was being broken by open sourcing, led predominantly by technological innovation freeing up information.

I discussed the legal industry and how increasingly lawyers have to provide real value to business people, and not rely solely on information which today is easy and free to obtain. In other words, they can’t just push boiler plate solutions.

I spoke about the music industry which has been turned upside down by file sharing.

I discussed how traditional education is increasingly coming under threat from open source education. Its was just a trickle a few years ago and today its a stream. Khan Academy, UnCollege and others are making us re-think how we teach our children.

Today though I wanted to take a look at the financial analysis industry. I was recently on the phone with Justin Zhen, founder of Thinknum a start-up which is open-sourcing data previously held as “proprietary” information at Wall Street banks. Justin reached out to Mark and I because he liked what we were doing and thought there were ways we could work together. We were and are both sufficiently intrigued. Justin is a sharp young man.

The below is a direct quote from Justin, as I asked him to put pen to paper and give us a concise summary:

“My co-founder Greg and I initially started Thinknum after witnessing analysts at major Wall Street firms emailing spreadsheets back and forth and updating data by hand. We thought that these processes were highly cumbersome, inspiring us to build Thinknum, an open platform that brings their current workflows to the web. Instead of thinking about how to value an asset and doing that work from scratch, an investor can see how someone else has solved the exact same problem. He can change his assumptions or even build off his analysis.

“A major advantage of an open platform is providing these tools to all types of investors, not just professional analysts. We’ll collect a deeper pool of insights, allowing the best ideas to bubble to the top. Going global plays a big role in accomplishing this goal: Thinknum is a channel for a local domain expert to share her expertise with potential investors. Our vision is to index all the financial information in the world.”

Thinknum has just been accepted into Dave Mclure’s 500 start-ups, so he’s likely going to learn a lot and take some abuse. We wish him luck and will be in regular contact and keeping an eye on the Company ourselves for future investment opportunities.

When I think of what Github did for developers I can easily see the scalability of this business. Done correctly, and we’ll do what we can to help Justin, this has the potential to transform Wall street in a good way, and level the playing field just that little bit more for the “rest” of us.

Personally, when I think of the ability to provide data to the market and quantitative analysis without the need for a Bloomberg terminal or Thomson Reuters feeds I immediately understand the potential.

Michael B might want to look over his shoulder to make sure he’s not being followed… oh, too late.

– Chris

“Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it.” – Peter Lynch

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This infographic, part two in our 2014 Gold Series (part 1 here), covers the full supply picture behind the yellow metal. Within the planet’s crust, there is only 1 gram of gold for every 250 tonnes (550,000 lbs) of earth. Gold’s rarity means that finding economic deposits is extremely difficult. To understand how gold mining and supply work, we must first unearth how gold deposits form…

 

 

Full Visual Capitalist Infographic here

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It is now quite clear why BATS CEO Bill O’Brien was so agitated during the Tuesday’s screamfest on CNBC. As The Wall Street Journal’s Scott Patterson reports, under pressure from the NYAG, BATS has hurriedly issued a statement correcting the CEO’s false comments during the exchange with IEX’s Brad Katsuyama. After Katsuyama said “you wanna do this, let’s do this” clearly giving him an out, O’Brien stated that BATS priced its trades off ‘high-speed’ data feeds when in fact they price their trades off a much slower feed (and therefore ‘enable’ the exact HFT-front-running that is in question).

Here is the clip in particular where O’Brien lies following Katsuyama’s question… that BATS uses the high-speed feed to price its trades…

The exchange in question…

“What do you use to price trades in your matching engine on Direct Edge?” Mr. Katsuyama asked Mr. O’Brien.

 

“We use the direct feeds,” Mr. O’Brien said.

 

Mr. Katsuyama, whose IEX dark pool markets itself as a haven for investors against high-speed traders, later brought up the issue again. “You use the SIP to price trades on Direct Edge,” he said.

 

“That is not true,” Mr. O’Brien said.

 

 

But as The Wall Street Journal reports, it was true

BATS Global Markets Inc., under pressure from the New York Attorney General’s office, corrected statements made by a senior executive during a televised interview this week about how its exchanges work.

 

BATS President William O’Brien, during a CNBC interview Tuesday, said BATS’s Direct Edge exchanges use high-speed data feeds to price stock trades. Thursday, the exchange operator said two of its exchanges, EDGA and EGX, use a slower feed, known as the Securities Information Processor, to price trades.

 

The distinction matters because high-speed traders can use powerful computers and superfast links between markets to outpace traders and trading venues that rely on slower market data, such as the SIP.

 

Full BATS Statement below:

Clarification Regarding Market Data Usage

 

April 03, 2014

 

BATS Global Markets wishes to clarify the market data usage of its exchanges. With respect to routing, EDGA & EDGX use direct depth-of-book data feeds for all major exchanges, and data from the relevant securities information processor (SIP) for certain smaller exchanges. With respect to the matching engine, EDGA & EDGX currently use the SIP, but will be transitioning to direct feeds from all major exchanges in January 2015. BATS BZX and BYX exchanges currently use direct feeds for both routing and its matching engine from all major exchanges, and SIP data from certain smaller exchanges.

Apparently the NYAG decided to make a public spectacle and to force O’Brien to shame himself (in a very low frequency fashion) publicly on Twitter:

For the matching engine, EDGA & EDGX currently use the SIP, and will transition to direct feeds for all major exchanges in January 2015.

— William O’Brien (@obrienedge) April 3, 2014

This leaves us with two possibilities, either:

1) The CEO of BATS has no idea what his firm actually does and is merely happy to earn an impressive amount of money skimming off the rest of the population of market traders no questions asked, or

 

2) The CEO of BATS is a liar and is merely happy to earn an impressive amount of money skimming off
the rest of the population of market traders no questions asked.

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