The Economy, stupid

[NorthSideSox72]

Is GE paying out $20 billion in taxpayer subsidized and guaranteed profits to its employees? If they are then they're annoying me too. GS is at the top of the list because they're raking in the dough, giving it out to themselves...and all the people who are making decisions for the government happen to be ex Goldman employees or GS stockholders.

GS = MSFT

 

If you had a gov't agency that was tasked with dealing in computer software, would you really be surprised if you have a bunch of MSFT execs in there? Sort of has to be that way.

 

[southsider2k5]

I never did post my award winning post about this. Something about getting fired from my job and getting all wrapped up in that.

 

The "banks" argued that FASB (the accounting standards board for US) was forcing them to write down assets to an arbitrarily low value. That's the short answer. So now that the value can be set to "market value (whatever that means, hence the problem)" again, they are seeing "gains" from their balance sheets.

 

That's a waaaaay simplistic answer, there's obviously much more to it.

 

The big problem is that market value and actual worth can be two completely different things, especially in a super specialized niche market. There could literally be no one who wants to buy the packaged assets, but it does not mean they are worthless, because they are made up of a large pool of assets that still have a worth individually, meaning that by very definition they could never be worthless. M2M fails in these situations.

[Balta1701]

GS = MSFT

 

If you had a gov't agency that was tasked with dealing in computer software, would you really be surprised if you have a bunch of MSFT execs in there? Sort of has to be that way.

You know, that's a great metaphor. GS = MSFT. Making use of monopolies and other should-be-illegal tactics to rake in enormous profits while at the same time filling the market with horrible, horrible junk that no one can really live without. All we're missing is a genuine effort by Microsoft to destroy the world, like what we had from GS.

[NorthSideSox72]

The big problem is that market value and actual worth can be two completely different things, especially in a super specialized niche market. There could literally be no one who wants to buy the packaged assets, but it does not mean they are worthless, because they are made up of a large pool of assets that still have a worth individually, meaning that by very definition they could never be worthless. M2M fails in these situations.

I think I said that a few posts up.

 

[NorthSideSox72]

You know, that's a great metaphor. GS = MSFT. Making use of monopolies and other should-be-illegal tactics to rake in enormous profits while at the same time filling the market with horrible, horrible junk that no one can really live without. All we're missing is a genuine effort by Microsoft to destroy the world, like what we had from GS.

Ignoring for a moment the ridiculous last line, the general post is correct. But its also correct to say that GS and MSFT are what they are because they are really damn good at what they do, and their presence in their markets has been a huge benefit to everyone.

 

[StrangeSox]

Plenty of people b**** and moan about MS software, and maybe rightly so, but could you imagine what a disaster (or ridiculously more expensive) software would be if it had to be ported to 20 different proprietary versions of Unix along with all of the hardware/ networking/ communications hurdles with non-standardized operating platforms?

[southsideirish71]

Plenty of people b**** and moan about MS software, and maybe rightly so, but could you imagine what a disaster (or ridiculously more expensive) software would be if it had to be ported to 20 different proprietary versions of Unix along with all of the hardware/ networking/ communications hurdles with non-standardized operating platforms?

 

I can agree that the demonization of MS is a bit too much. But your take on the disasters and expense of using Unix or Nix like systems is a bit shall we say overstated. There are no networking or communications hurdles with using Unix. Hell TCP/IP has been running on Unix for a hell of a lot longer than Windows has been around.

[mr_genius]

Ignoring for a moment the ridiculous last line, the general post is correct. But its also correct to say that GS and MSFT are what they are because they are really damn good at what they do, and their presence in their markets has been a huge benefit to everyone.

 

Well, microsoft isn't really all that good at what they do anymore. They are on a downslope. The new versions of Windows have become a joke and their software is bloated, slow, and overpriced. They are ready for some new contenders to take market share. Their main advantage is that they are so completely imbedded into business IT infrastructure and they are the standard people are used to for an OS. They were at one time pretty good at what they do, they are coasting now.

Edited July 18, 2009 by mr_genius

[mr_genius]

your take on the disasters and expense of using Unix or Nix like systems is a bit shall we say overstated. There are no networking or communications hurdles with using Unix. Hell TCP/IP has been running on Unix for a hell of a lot longer than Windows has been around.

 

^^^

[mr_genius]

If you had a gov't agency that was tasked with dealing in computer software, would you really be surprised if you have a bunch of MSFT execs in there? Sort of has to be that way.

 

thats actually a major problem, not a benefit.

[lostfan]

So, in other words, its nothing but vapor.

 

Why was the M2M the cause of all this again? Because banks couldn't make up arbitrary values for their holdings?

 

 

I never did post my award winning post about this. Something about getting fired from my job and getting all wrapped up in that.

 

The "banks" argued that FASB (the accounting standards board for US) was forcing them to write down assets to an arbitrarily low value. That's the short answer. So now that the value can be set to "market value (whatever that means, hence the problem)" again, they are seeing "gains" from their balance sheets.

 

That's a waaaaay simplistic answer, there's obviously much more to it.

I was totally about to call you out again kap.

Edited July 17, 2009 by lostfan

[StrangeSox]

I can agree that the demonization of MS is a bit too much. But your take on the disasters and expense of using Unix or Nix like systems is a bit shall we say overstated. There are no networking or communications hurdles with using Unix. Hell TCP/IP has been running on Unix for a hell of a lot longer than Windows has been around.

 

Fair enough. I'll freely admit that I don't really know what I'm talking about.

[mr_genius]

Bank bailouts hit 4.7 trillion

 

http://www.businessweek.com/ap/financialnews/D99IEBK81.htm

 

The federal government has devoted $4.7 trillion to help the financial sector through its crisis, a level of assistance equal to about one-third of the overall U.S. economy, a watchdog report said Monday.

 

Under the worst of circumstances, the report said, the government's maximum exposure could total nearly $24 trillion, or $80,000 for every American.

 

that's so messed up. oh well, at least a bunch of douche bag bankers made off with tens of millions each in bonus money that came directly from the tax payers.

Edited July 20, 2009 by mr_genius

[StrangeSox]

Lousy socialism, taking money from the poor and giving to the rich!

 

Oh, wait, I think they got that one backwards...

[mr_genius]

Lousy socialism, taking money from the poor and giving to the rich!

 

Oh, wait, I think they got that one backwards...

 

[Balta1701]

The WSJ yesterday had a piece on how executive pay still seems to be going up, and is at the point where it is crowding out everything else.

That graph does not include stock options execs grant to themselves either.

[Balta1701]

The NYT had an interesting piece that came out of the case of a programmer who left Goldman Sachs (and is being accused of Fraud by the company). It revolves around "High frequency trading operations". Basically, it seems like Goldman has put itself in the remarkable position of being able to see the future and profit from it. They simply have bigger servers, faster servers, and servers closer to the destination than a lot of the other traders out there. Thus, they basically allow a company to see the future; if they know the price one partner is willing to pay for a purchase, and they can find another partner willing to sell the same shares for a lower price, they can jump in and take the difference between the two prices as profit for themselves.

It was July 15, and Intel, the computer chip giant, had reporting robust earnings the night before. Some investors, smelling opportunity, set out to buy shares in the semiconductor company Broadcom. (Their activities were described by an investor at a major Wall Street firm who spoke on the condition of anonymity to protect his job.) The slower traders faced a quandary: If they sought to buy a large number of shares at once, they would tip their hand and risk driving up Broadcom’s price. So, as is often the case on Wall Street, they divided their orders into dozens of small batches, hoping to cover their tracks. One second after the market opened, shares of Broadcom started changing hands at $26.20.

 

The slower traders began issuing buy orders. But rather than being shown to all potential sellers at the same time, some of those orders were most likely routed to a collection of high-frequency traders for just 30 milliseconds — 0.03 seconds — in what are known as flash orders. While markets are supposed to ensure transparency by showing orders to everyone simultaneously, a loophole in regulations allows marketplaces like Nasdaq to show traders some orders ahead of everyone else in exchange for a fee.

 

In less than half a second, high-frequency traders gained a valuable insight: the hunger for Broadcom was growing. Their computers began buying up Broadcom shares and then reselling them to the slower investors at higher prices. The overall price of Broadcom began to rise.

 

Soon, thousands of orders began flooding the markets as high-frequency software went into high gear. Automatic programs began issuing and canceling tiny orders within milliseconds to determine how much the slower traders were willing to pay. The high-frequency computers quickly determined that some investors’ upper limit was $26.40. The price shot to $26.39, and high-frequency programs began offering to sell hundreds of thousands of shares.

 

The result is that the slower-moving investors paid $1.4 million for about 56,000 shares, or $7,800 more than if they had been able to move as quickly as the high-frequency traders.

 

Multiply such trades across thousands of stocks a day, and the profits are substantial. High-frequency traders generated about $21 billion in profits last year, the Tabb Group, a research firm, estimates.

 

“You want to encourage innovation, and you want to reward companies that have invested in technology and ideas that make the markets more efficient,” said Andrew M. Brooks, head of United States equity trading at T. Rowe Price, a mutual fund and investment company that often competes with and uses high-frequency techniques. “But we’re moving toward a two-tiered marketplace of the high-frequency arbitrage guys, and everyone else. People want to know they have a legitimate shot at getting a fair deal. Otherwise, the markets lose their integrity.”

Really, that shouldn't be legal.

[NorthSideSox72]

The NYT had an interesting piece that came out of the case of a programmer who left Goldman Sachs (and is being accused of Fraud by the company). It revolves around "High frequency trading operations". Basically, it seems like Goldman has put itself in the remarkable position of being able to see the future and profit from it. They simply have bigger servers, faster servers, and servers closer to the destination than a lot of the other traders out there. Thus, they basically allow a company to see the future; if they know the price one partner is willing to pay for a purchase, and they can find another partner willing to sell the same shares for a lower price, they can jump in and take the difference between the two prices as profit for themselves.

Really, that shouldn't be legal.

It is, and should be. The markets get healthier and more efficient, as the responses and price reactions go faster. The people scalping edge in between market-leading and broader market reaction are actually similar to chemical accelerants for the market, which will in time react and become better. Without them, the market never becomes more efficient, and that actually costs you, and anyone else who invests anything, money.

 

I understand that you see this is as somehow evil, because someone is taking advantage of the situation. But taking advantage of a situation to better yourself financially isn't evil. In this case, it isn't even illegal. You should get more details from someone who works in these areas before assuming its a bad thing.

 

 

[southsider2k5]

The NYT had an interesting piece that came out of the case of a programmer who left Goldman Sachs (and is being accused of Fraud by the company). It revolves around "High frequency trading operations". Basically, it seems like Goldman has put itself in the remarkable position of being able to see the future and profit from it. They simply have bigger servers, faster servers, and servers closer to the destination than a lot of the other traders out there. Thus, they basically allow a company to see the future; if they know the price one partner is willing to pay for a purchase, and they can find another partner willing to sell the same shares for a lower price, they can jump in and take the difference between the two prices as profit for themselves.

Really, that shouldn't be legal.

 

To be perfectly blunt, you don't understand the trading industry at all. The term for this is marketmaking, and it is done everywhere that there is a specialist based system. This actually saves the customers money in the long run because it narrows up the margins, and it makes for more efficient marketplaces. Pretty much every company out there internalizes order flow. The other part you left out is that the company is taking on risk in these trades and the spread is their rewards for assuming risk. Its not some horrible evil plot, it is the way that this stuff has been traded for hundreds of years now.

[NorthSideSox72]

To be perfectly blunt, you don't understand the trading industry at all. The term for this is marketmaking, and it is done everywhere that there is a specialist based system. This actually saves the customers money in the long run because it narrows up the margins, and it makes for more efficient marketplaces. Pretty much every company out there internalizes order flow. The other part you left out is that the company is taking on risk in these trades and the spread is their rewards for assuming risk. Its not some horrible evil plot, it is the way that this stuff has been traded for hundreds of years now.

Its complicated in its details, but simple in its role in the markets. Trading leads to inefficiency, inefficiency leads to arbitrage, arbitrage leads to technology, technology becomes widespread, the market is more efficient and can move onto the next inefficiency.

 

[kapkomet]

To be perfectly blunt, you don't understand the trading industry at all. The term for this is marketmaking, and it is done everywhere that there is a specialist based system. This actually saves the customers money in the long run because it narrows up the margins, and it makes for more efficient marketplaces. Pretty much every company out there internalizes order flow. The other part you left out is that the company is taking on risk in these trades and the spread is their rewards for assuming risk. Its not some horrible evil plot, it is the way that this stuff has been traded for hundreds of years now.

To be even more blunt, the referenced post source wants him to believe all "opportunities" for making money are "bad" - as I've said before, it just depends on what sources you want to believe and what ones you don't.

 

 

[Balta1701]

To be perfectly blunt, you don't understand the trading industry at all. The term for this is marketmaking, and it is done everywhere that there is a specialist based system. This actually saves the customers money in the long run because it narrows up the margins, and it makes for more efficient marketplaces. Pretty much every company out there internalizes order flow. The other part you left out is that the company is taking on risk in these trades and the spread is their rewards for assuming risk. Its not some horrible evil plot, it is the way that this stuff has been traded for hundreds of years now.

How exactly is that any different from "Frontrunning"?

[NorthSideSox72]

How exactly is that any different from "Frontrunning"?

There are some subtleties here, which I couldn't possibly answer in the space here. Plus, I sort of work in this space, so I am limited in what I can say. I really wish we could just sit down over a beer so I could explain it.

 

[southsider2k5]

How exactly is that any different from "Frontrunning"?

 

There is a big difference between a market maker and broker.

[NorthSideSox72]

There is a big difference between a market maker and broker.

I was thinking about also trying to explain the difference between venues - exchanges, light pools, dark pools, offer nets, etc. - but I just don't have the time to type all that out. Venue is key to understanding when an order is fair-viewed or not, and when it has to be or not, and to what audience, before execution.