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Archive for December 2011

Movies about Trading and Investing

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ImageBoth trading and investing to general public is boring enough subject to base a movie scenario on. Nevertherless, there are at least a few good ones. Even those few ones are more about sales side of finance than either investing or trading – probably a good reflection of real life as the most succesful products are the best mareted ones rather those with intrinsic value.

Two new releases this year are Marging Call and PyraMMMida. Change a few names and those can be reframed as documentaries. I found both of them highly interesting and entertaining.

Better known movies are Wall Street and Wall Street 2. The lastest had a budget of  $70m to make vs $3.4m for Marging Call. Nevertherless, I find Margin Call more interesting.

Startup.com is more about internet bubble and raising venture capital financing. Boiler Room is the favourite of almost every rogue marketer.

Trading Places is a 1983 comedy and touches onto the subject of what makes a good trader – talent or environment, stingyness of the rich and similar lines. Eddy Murphy at his best.

Other suggestions are Trillion Dollar Bet (about LTCM) and a documentary Broke: The New American Dream.

Written by A.S.

December 14, 2011 at 11:00 pm

Biogically Everyone´s Wired to Gamble When Facing Loss

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Jérôme Kerviel. The man behing €4.9b SocGen loss in Y2008.

Recently Financial Times run an articleWhat makes a rogue trader?. In a nutshell: when facing loss, traders are biologically wired to gamble.

¨Rogue traders’ behaviour is financially stupid – traders are trained not to double their losses but to set risk limits and to retreat from risky positions when they face danger. Biologically, however, doubling is sound. Starving animals should gamble in search of a food windfall, even though each has only a small chance of success. Most will fail, but some will survive and reproduce.¨

Implications for system trading are that there is an extra risk to invest with trader who´s down and the benefits of pre-set risk-to-reward proportion goes beyond the dry performance stats.

Written by A.S.

December 14, 2011 at 9:56 pm

Beyond PIMCO Analysis of What If? There is a Strike on Iran Nuclear Facilities

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This question pops up in my mind every day for the last few weeks. What impact this will have on foreign exchange rates, if there is a strike on Iran nuclear facilities. Will it be like every time before with USD and CHF stengthening on safe haven buying? Or will this time be different and USD will weaken? Or will USD strenghen in line with a historic pattern initially and then plummet? PIMCO has given their opinion about the impact of such strike on oil prices, but it says nothing about currencies.

The argument for weaker USD may be that any such strike is, effectively, imposible without US support. Meanwhile, once unbeatable technological supremacy of US (and other developed nations) is slowly fading away. There are countries with highly uncertain, by Western standards at least, way of thinking in disposition of nuclear weapons. India, Pakistan have some, probably Iran, North Corea has some (let’s hope Kim has enough submissive girls around him so he does not feel and urge to prove his manhood with nukes). It is highly likely that certain groups (aka terrorist groups) have them and, if not, certainly can obtain them in various ways with sufficient financial backing they have. And they have a way to take the material onshore US (if no other way, then the same way as large shipments of drugs are taken into US — remember Kevlar-covered submarines confiscated from Colombian drug cartels).

All this is bad for, first of all US. The risk is there more than anytime before and US is one of the first targets. Unfortunately, system trading can’t handle such black swan events,  like attack on Iran, well. System trading is the most succesful when there are repetitive patterns in the price action; it is the least useful when there is once in a lifetime event like a major attack of any kind.

However, my bet is that, if such attack takes place, the USD strength, if any, will be short-lived and safe haven buying will be directed mostly to Swiss frank, Norweginan kronor and probably AUD and NZD.

Written by A.S.

December 2, 2011 at 3:46 am