Archive for the ‘thoughts’ Category

First of all, congratulations. You’re being picked as one of the best in this breed of S&Ters slowly being killed by Dodd/Frank, Volcker Rules and other kinds of tax-revenue debilitating suicidal plans that governments have been putting out over the last few years. But that’s OK. I pay taxes to the Kingdom of Sweden.
So what is fixed income? Feel free to email me if you’d like the whole picture, but here are just a few tips to stay above everyone else and hopefully receive an offer.


==========Before the internship

1. Balance your competition – don’t forget that this is still a competition. Even you’ve beat out 99% of the applicants already by getting an internship, you have the last 1% to go. Be covert and maintain a good balance between what you display and what you keep in. Be friends with everyone and definitely help them to every extent, but also be aware of your actions.

2. Learn VBA – simple as that. Know how to code charts, calculations, automatic data downloading and that kind of fun stuff. Researchers and traders love one-button excel sheets. Before you start, here’s a reference you can use with regards to bloomberg VBA calls (which are slow but more stable than formulas). Change the .doc to .zip.

Bloomberg Examples

(also, try not to use bloomberg formulas for everything)

3. Stay on top of the news – sounds easy, right? Well, there are still a few of your competition that don’t even know what LTRO, OMOs, SMPs and those kinds of things mean. Know what they are, and most importantly (know why because everyone will grill you on this) their effects on your covered asset.

4. Don’t lie to yourself – you’re not being graded anymore. Do you know the effects of SMPs and how best to trade them? If you’re on FX research/cash trading, there’s only a few assets you can choose. If you’re going to be on derivs… errr good luck and find explanations to back up your reasoning.


========== On the job

1. Never say “I don’t know” – you are effectively taking yourself out of the running that way. If you don’t know, say the truth that you’re going to go back and check. Or, my favorite which is the quite innocuous phrase of  “Yes, err…” and then google as fast as you can.

2. Network and talk to people – though daunting with the upper management, at least talk with the rest of the intern class. And when you ask upper management, think of good questions. That’s something I didn’t do so well… and for the second rotation I was completely isolated from the trading floor. Don’t worry if you don’t talk as much as one of the guys in the intern class. You have technical work to do that adds continuous future return.

3. Know your limits – if you say yes, you better do it well. You can either be more efficient or spend more time. Choose the first option (trust me) and be happier (and also get better at automating everything).

4. Debug, rethink and make sure it’s right – accuracy always trumps speed. And even after you send the code over, run it multiple times with different parameters to make sure it can take inputs outside of what you coded (like different dates, etc etc).

5. Adapt and learn as fast as you can – do it or get cut. I learned VBA in 3 days. Bloody hell those first three days were… yeah… but at least the model worked.

6. Do it anyways – especially if you get placed on a desk you don’t like. Don’t complain and don’t show that you don’t want to do it. Just do it 100% instead of the 150% on a desk you like and keep your head low.


FIRST, LEARN VBA, C++ OR ANOTHER CODING LANGUAGE. (you’re not going up against engineers, dude)
There are others, but those are all relatively obvious like working hard, being humble and respectful. You won’t believe how easy it is to forget these simple rules once you start. Write them down on a post it and tape it to your screen.

Learn from my mistakes. Feel free to ask any questions. I’m never above you because you have an advantage in either 1. time (if you’re younger) or 2. experience (if you’re older).

Books? There are the select few, but I personally recommend reading Dostoevsky’s “The Gambler” first.

To the best of good buys.

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Athens Burning

Right clicked from Z-Hedge and Aris. Just wow…

“He who controls the money supply of a nation controls the nation” – except no one really knows where the money is right now… still have PSIs and swaps to get through before the March 20th deadline. And even if it passes, the can will still be kicked down the road.

Be safe, everyone. No longer can this be written off as  κάτι τρέχει στα γύφτικα.

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American government cronies are once again doing what they do best: not doing what they are supposed to do and going on about something they have no clue about, like barrel shrouds.

The new bill that has just left the senate to be debated upon over the next week will, at least most actively, impose unilateral (like all of them) excises on Chinese goods in order to protect the US economy/manufacturing/industry/services and all those fun things that come with. China warns no, but that doesn’t matter as much as far as trading is concerned.

TLDR version: Buy USD against AUD, JPY (smaller contracts) and TIPS medium term (if possible)

What could happen in the next few months, if not weeks, will be the most interesting, and which could impact this round of dollar recover in the mid-run.

Of course, this is ultra-speculative, to the degree of a conspiracy theory. Although the probability of this and whatever further retaliation actually happening is quite low, it’s err… quite interesting to speculate, and luckily be on the right side when this happens to pay for tuition or buy a ticket to Switzerland and a Swiss passport.

1. US inflation

2. China sells US debt

3. Chinese economy slows due to cut demand

4. Vietnam, Indonesia, Malaysia, not India.


1. US consumers will keep buying Chinese goods – because there is simply very few alternatives. Even if Chinese goods become more expensive than their US counterparts, there will need to be a small period of transition for supply chains, etc etc, swaps, which will allow enough time for (this is non-core!) inflation to sneak in.

Inflation = dollar bullish

If this sideshow does raise prices, the Federal Reserve will be in quite a tight spot – once again experiencing stagflation. The timing, with the plan expected to go into force in the next year or so, will be, to say the least, unlucky as it will pressure the price stability competent of the mandate to kick in. At that point, the US economy will most likely slow down again, causing risk aversion, etc etc etc, S&P500 750 hats… which will be a good reason to buy USDCAD and holding it until it gets to 1.2000 or something like that.


2. China is being pressured to being Japan in the 1990s, except it vehemently doesn’t. And the PBoC is definitely not going to hike the peg, unless of course it wants to buy the Parthenon. As a way to get back at the Congress of Baboons, the Finance Ministry will start selling US debt (the term structure holdings I will have to get back on), long term or short term to cash out of a depreciating asset (if somehow the RMB strengthens) or simply cash out (lower trade = lower RMB demand, which boosts the dollar, although most US-CN deals are written in USD, so that reason is questionable as well).

Ministry of Finance dumps US debt = Bond price falls, yield rises — > USD suck to China = USD appreciates

Especially against the yen, as per this chart.

Of course, the MoF is not that stupid or rash. But, that’s the “popular media” view and what will definitely provoke the next step in the currency war. Buy some USDJPY. Wonderful way of unwinding the fed’s Operation Twist (if it actually happens), eh?


3. As trade with its largest (not really partner, more like debt writer) falls, the Chinese economy will most likely falter as well, as the export industry still accounts for 30%? (somewhere near 45% discounting government) of GDP. yadda yadda, Chinese economy slows, the golden boy of the world economic recovery drag falls, risk appetite falls… same story.

Chinese production slows = Less demand for raw/hard materials = AUDUSD falls

Note that this is for “hard” materials, not “soft” like lumber, milk and dairy which is still experiencing quite a decent demand surge in the domestic market as Chinese people become more prosperous. This differentiation is only for the type of currency tied to this – the AUD versus the NZD. I remember a time when AUDUSD was 0.62000… that was when I finished collecting the entire polymer and paper series.

The outlook as well, as RBA’s Glenn Stevens agrees, will be not as strong as previously expected. Sounds dovish… and with the admission that commodity prices (which has accounting for the largest component rise in Aussie inflation) have tapered and fallen the last month, may mean “more accommodating rates” – ie, a possible cut like what the markets are continue to price in.


4. And without the cheap goods, the capital will flow somewhere else, which are of course, the next Asian workshops including Vietnam, Cambodia/Laos and Thailand. Unfortunately, those currencies can’t be traded on a liquid swap/leveraged basis. And Vietnam’s inflation is not going away either.

Shift of capital towards smaller Asia = higher USD demand

Because more factories have to be built, signs printed, workers trained. And in the target nations save for perhaps Thailand, most transactions are done in US dollars as the domestic currencies are too unstable to have medium term contracts in. Dollar repatriation from China, and then overseas, anyone? Heck, with this swiftness of congress (how rare), they might be making VN/KH/LA the next China and have to deal with this problem all over again in 20 years.


So the story here continues… whether it will be for the good or bad is now in the hands of the US senators with actually enforcing it. Many-a-times they have been paper tigers, but with elections coming up, the democrats may actually be insane to swap a short term gain for longer term economic turmoil.

Plus, all they want is a stronger dollar, right? They should be following the markets right now, and actually listening to what Kerchlakota/Uncle Ben is saying. Just because the USD is overvalued against the RMB doesn’t mean it’s overvalued against everything (AUD PPP is 42% over at last check). Fun stuff, this new development will be.

And because I don’t have enough data for a USDRMB chart, here’s a note that I’ve been looking to buy since around 2008 when it was near $500 in AU+. Now it’s worth half my car. China, People’s Republic 1953 P868

Be safe, and to the best of speculation.

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Quote of the Day

“I’ve never been more ashamed to be a Republican”

I bet he has more than a few long-dollar trades open. As do I. As do I.

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Keep that in mind… FRA/OIS + JPY analysis in the tubes.

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“When will Moody’s downgrade S&P?”


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“Rather a calamitous end than an endless calamity”

As the Greek situation reaches fever point, there is a very odd, and even  more devastating path that could be taken. Instead of worrying about bleeding money continuously to the Hellenics, Germany could just leave the union. In this case, France and the Netherlands would probably join as well, as they have more or less followed the Germans economically and financially. In that case, Großdeutschland’s political dream would be destroyed, and that would leave the Euro the party of shoddy countries.

And looking at the ECB policies ever since its creation and takeover of responsibilities of member banks, the bulk of the decision is made according to German data because after all, it is the powerhouse. And everyone knows that.

However, Germany leaving the Eurozone 17 would be beneficial. The Euro right now is more or less the Deutsche Mark, but with the problems of the peripheral countries. Although there is some benefit from French industries, a pickup of trade unfettered by currency exchange, it does not outweigh the possible risks Berlin can be exposed to (like now).

More or less, if Germany leaves, then the Euro would collapse because capital will flow out of the single currency back into the mark. Even if there is a high demand for the mark that pushes it upwards, the Bundesbank could simply adjust their currency to match the demand, etc etc.

Plus, the Euro was a political creation, not a financial one. The last one (LMU), which was based on specie currency failed, so why would a fiat one even work?

A very unlikely idea, but one that provokes thoughts.

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