Financial Markets

[Malaphax]

Some interesting debates have been happening on various television shows all revolving around a new book that was released. I'll attempt to offer a very basic summary but if you care at all I suggest you go to the links and if you have time to kill watch some of the videos.

 

Michael Lewis wrote a book about High Frequency Trading that was recently released called Flash Boys. The main character in the book is Brad Katsuyama who is a respected trader and ran the Royal Bank of Canada's electronic trading division. The book lays out the simple ways in which "the market is rigged."

 

So now every financial media outlet is having a bit of an argument discussion about: How can you say "the market is rigged" that's ridiculous!

 

The basic argument in the book is about how exchanges and various pricing information is given, and how it's sold and who's doing what with it. The short answer is that HFT firms will often "front run" legitimate orders so they can skim money off of them.

 

Brad Katsuyama ends up deciding to create his own exchange called IEX which tries to "slow down" HFT traders so that no market orders are "front run" by the algorithms with lightning fast connections. FULL DISCLOSURE: IEX is getting tons of publicity from this and is made to look like a hero. People are accusing the book of being a 300 page sales pitch. (it's not, but the publicity does help IEX).

 

EDIT: This is the best video explaining the current issue:

http://www.youtube.com/watch?v=8RFLIj4a2kw

 

Also remember I posted about this back last october:

 

 

http://qz.com/138388/how-the-navy-seals-of-trading-are-taking-on-wall-streets-predatory-robots/

 

The team at RBC Capital soon developed a solution—a new trading technology dubbed THOR. To prevent high-frequency firms from jumping ahead of their trades, they staggered the timing of their orders to different exchanges. An order sent to NYSE, the farthest exchange, would go out without a lag, but the same order to a nearer exchange like BATS would be timed to go out microseconds later, so that they would arrive at all the exchanges simultaneously.

 

This post and these videos do a pretty simple explanation of the issue:

http://www.zerohedge.com/news/2014-04-02/jon-stewart-hft-its-not-american-its-not-even-capitalism-its-cheating

 

http://www.businessinsider.com/ceos-fight-over-high-frequency-trading-2014-4

 

http://www.zerohedge.com/news/2014-04-02/lewis-explains-casino-why-are-you-even-arguing-not-rigged

 

My personal favorite was a quote from an HFT firm representative arguing against the market being rigged and saying things like:

"speed matters less in today's market than it has ever mattered." to which katsuyama replies: "Then why are you selling microwave towers?!?"

 

It's pretty laughable, but honestly it's also rather sad that no real legislation has come out about this.

The short and simple idea would be to have certain times on which trades and quotes occur, say once every second, and all time up until that point allows people to gain accurate quotes and monitor price movements or put in orders. This would then put HFT out of business and probably cut quite a bit of financial sector profits as well.

[Malaphax]

Youtube is going to buy Twitch for $1Bn.

http://variety.com/2014/digital/news/youtube-to-acquire-videogame-streaming-service-twitch-for-1-billion-sources-1201185204/

 

This still needs to be approved by regulators however. Personally I would prefer to see twitch as a separate entity, however I'm sure there would be some cool stuff with tighter youtube integration. Between this and the other major deals currently underway:

 

Comcast buying Time Warner

http://money.cnn.com/2014/02/13/technology/comcast-time-warner-cable-deal/

 

AT&T buying Directv

http://dealbook.nytimes.com/2014/05/18/att-to-buy-directv-for-48-5-billion/?_php=true&_type=blogs&_r=0

 

Some other really interesting information regarding Mergers and Aquisitions:

in particular, right now we're especially focused on opportunities, number one mergers, a return of merger mania, the first four months of this year have called for -- we've seen ten deals over $10 billion. that's more than we've seen in the first four months since 2007.

Source: http://video.cnbc.com/gallery/?video=3000275566

 

The video has a nice graph displaying the volume of M&A of the current year compared to previous years.

 

[Malaphax]

http://www.hsh.com/finance/mortgage/san-francisco-137129.55.html
 
Annual Salary needed to buy a home in large metro areas:

 

Cities	30-Year Fixed Mortgage Rate	% Change from 4Q13	Median Home Price	% Change from 4Q13	Monthly Payment (PITI)	Salary Needed
Cleveland	4.50%	0.06	$102,100	-9.49	$695.07	$29,788.67
Pittsburgh	4.36%	0.04	$120,000	-6.69	$704.15	$30,177.78
St. Louis	4.40%	-0.01	$120,500	-7.52	$729.76	$31,275.49
Cincinnati	4.53%	0.08	$121,700	-5.44	$743.17	$31,850.18
Detroit	4.59%	0.10	$110,750	-9.72	$752.51	$32,250.30
Atlanta	4.44%	-0.03	$141,900	-0.35	$797.61	$34,183.44
Tampa	4.54%	0.04	$145,000	1.83	$850.21	$36,437.56
Phoenix	4.48%	0.07	$194,300	0.83	$963.87	$41,308.74
Orlando	4.47%	-0.01	$178,000	7.36	$1,009.03	$43,243.95
San Antonio	4.62%	0.13	$169,300	-1.40	$1,038.47	$44,506.00
Minneapolis	4.52%	0.02	$188,200	-4.52	$1,067.09	$45,732.39
Dallas	4.48%	0.02	$174,800	0.52	$1,113.20	$47,708.77
Houston	4.49%	0.02	$184,600	1.26	$1,144.19	$49,036.60
Philadelphia	4.52%	0.09	$201,800	-5.83	$1,179.41	$50,546.25
Chicago	4.52%	0.02	$176,900	-5.45	$1,233.56	$52,866.88
Baltimore	4.44%	0.07	$224,500	-7.12	$1,238.50	$53,078.51
Sacramento	4.55%	0.02	$255.800	2.17	$1,355.99	$58,113.87
Miami	4.53%	0.06	$259,000	1.61	$1,393.80	$59,734.23
Denver	4.53%	0.04	$288,400	3.26	$1,397.49	$59,892.46
Portland	4.57%	0.06	$271,900	1.64	$1,407.18	$60,307.71
Seattle	4.59%	0.07	$339,900	-1.31	$1,723.19	$73,851.06
Washington D.C.	4.45%	0.07	$358,900	-2.47	$1,831.75	$78,503.56
Boston	4.47%	0.06	$363,200	-2.18	$1,862.47	$79,820.01
Los Angeles	4.52%	0.06	$406,200	-3.99	$2,005.85	$85,964.88
New York City	4.53%	0.05	$388,900	0.67	$2,095.07	$89,788.69
San Diego	4.56%	0.03	$483,000	1.30	$2,299.13	$98,534.22
San Francisco	4.39%	0.00	$679,800	-0.38	$3,199.69	$137,129.55

 

[Malaphax]

Kuhla and I spoke the other day about predatory lending practices. Here's some recent news about that:

 

http://www.bloomberg.com/news/2014-05-22/wall-street-finds-new-subprime-with-125-business-loans.html

 

From an office near New York’s Times Square, people trained by a veteran of Jordan Belfort’s boiler room call truckers, contractors and florists across the country pitching loans with annual interest rates as high as 125 percent, according to more than two dozen former employees and clients. When borrowers can’t pay, Naidus’s World Business Lenders LLC seizes their vehicles and assets, sometimes sending them into bankruptcy.

[Jedi2155]

From Punchbowl:

 

http://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?_r=0

[Tech]

If you can rent a similar
home for less than ...

$1,015,954

PER
MONTH

... then renting is better.

I'll stick to renting.

[Malaphax]

http://thedailyshow.cc.com/extended-interviews/z9b8f1/timothy-geithner-extended-interview

 

That's a very long interview with Timothy Geithner. Jon Stewart is not an economist, nor a financial expert, but he does try to use basic logic and understanding to press Geithner into admitting that he did a shitty job with the bailout. He manages to get a half confession about how the government didn't have the power to do much better (Who has more power than the US government?), and what they did was far better than doing nothing at all (Way to present a false dichotomy Tim).

 

I'm not going to go into the huge problems present with the bailout, but here's a nice article with a brief summary of some of the major screw ups, and some much more reasonable alternatives that could have taken place. Short answer is Bankruptcy and FDIC.

http://www.bloombergview.com/articles/2014-05-23/geithner-s-stress-test-failure

[Jedi2155]

 

If you can rent a similar

home for less than ...

$1,015,954

PER

MONTH

... then renting is better.

I'll stick to renting.

 

 

I can't even get the numbers that high o.o. How did you do it?

 

This is the highest I could set it at with the worse case in all sliders.

 

If you can rent a similar

home for less than ...

$193,107

PER

MONTH

... then renting is better.

Costs after 40 years

Buy

Rent

Initial costs

$300,000

$0

Recurring costs

$177,828,691

$40,389,706

Opportunity costs

$5,444,163,411

$5,581,555,413

Net proceeds

-$346,983

-$0

Total

[ren]

yeah im pretty sure there's a decimal missing somewhere

[Malaphax]

While this article is predominantly clickbait, I still laughed when I started reading about prostitutes making more money as currency traders...

And this is another good lesson about why you should never try to ban official currency trading, because not only is it futile but it also further exacerbates problems.

 

http://www.bloomberg.com/news/2014-06-09/venezuela-prostitutes-earn-more-selling-dollars-than-sex.html

[Malaphax]

So everyone is mentioning the wonderful new jobs report that was released today, the highlight is:

Nonfarm payrolls increased by 288,000 jobs last month and the unemployment rate fell to 6.1 percent, its lowest level since September 2008, the Labor Department said on Thursday.

Source: http://www.reuters.com/article/2014/07/03/us-usa-economy-idUSKBN0F80AW20140703

 

So of course I sat there wondering why people still look at the unemployment rate rather than the labor participation rate. ZeroHedge has my back on this one:

 

Source: http://www.zerohedge.com/news/2014-07-03/people-not-labor-force-rise-new-record-participation-rate-remains-35-year-lows

 

Yea... the unemployment rate continues to decline because less people are receiving unemployment, and the percentage of the labor force that is actually employed is also very low.

 

There's a part of me that wonder if the Bureau of Labor Statistics is trying to manipulate the economy by presenting a positive spin on it's news. There's another more cynical part of me that wonders if the BLS is doing their best to make the current administration look good. Then there's the pessimistic part of me that wonders if the BLS is just really shit at their jobs, and that we need to start using better data metrics to present a more accurate picture of the economy.

 

Something about never attribute to malice what can be attributed to stupidity.

[Malaphax]

 

Interesting Idea, I wonder if it could ever be pushed through in America.

 

Source: http://theworldweekly.com/#!/reader/i/2058

[Jedi2155]

Interesting, but I don't know enough about it to really make a comment.

 

In other news Newegg is now offering a crazy 20% off when you use Bitcoin (previously it was less I think), make some darn good deals on items normally not on sale. Seems like they're banking on Bitcoin going back up.

 

http://www.techbargains.com/news_displayItem.cfm/418152

[Malaphax]

I sincerely doubt that Newegg would be holding, or even receiving bitcoin payments directly. Remember this story about a man buying a Lamborghini with bitcoin? Yea, the dealership didn't actually accept the bitcon payment themselves, nor did they ever actually hold the bitcoin. They used an intermediary Bitpay:

After some investigation, the dealership decided to use an independent, Atlanta-based service called BitPay, which advertises itself online as a "bitcoin payment processor," to make the sales possible.

Davy can't quite explain how it works, but the business verified the bitcoins and converted them into dollars, which were then wired to the dealership.

And after some quick research Newegg uses the same intermediary, Bitpay.
http://www.businesswire.com/news/home/20140701005451/en/Newegg-Partners-BitPay-Add-Bitcoin-Payment-Option#.U_TLX6OyWRq

https://bitpay.com/

 

I really doubt any of the businesses that accept bitcoins actually touch the bitcoins, let alone hold them for any significant period of time. Also the reason why they're trying to accommodate the new payment structure is because they feel there might be untapped market share. It's the equivalent of Ebay accepting paypal when that was new.

 

I have no idea how Bitpay handles it's forex strategy, but it looks like they charge merchants a fee for processing.

[Jedi2155]

Untap marketshare seems like a legit reason. All those people who hate touching credit cards might have bitcoin for some reason O.o

[Malaphax]

Zip Codes where you cannot rent or buy (in red) with household income of $80,000 @ 30% of income + $90,000 down payment.

 

 

Here's the calculator: http://graphics.latimes.com/rent-or-buy-los-angeles/

[Jedi2155]

Its extremely hard to get to the Yellow section even if you put 100% of your income which would mean you'd be paying off a home in 2-4 years in the yellow areas. The calculator is making a recommendation of a monthly cost to own versus cost to rent in the coloring which skews the results a lot. If you paid off the home in 2-4 years, you'd already be ahead with the cost to own calculation. I doubt this graph would look so blue if they did the calculation to 30 years.

 

[kuhla]

Zip Codes where you cannot rent or buy (in red) with household income of $80,000 @ 30% of income + $90,000 down payment.

 

 

 

Here's the calculator: http://graphics.latimes.com/rent-or-buy-los-angeles/

 

We were actually just talking about this the other day. I doubt many people who live in socal are only spending 30% of their income on housing. Here is an article that quotes that 35% of households in the US pay more than 30% and I bet a huge number of that are in urban areas like ours.

 

Depressingly, even if I gave myself a raise on that calculator and dramatically increased the precent of income, there is still zero yellow on that map for me.

 

Putting in my actual numbers there is a lot of red but some blue close by too.

 

EDIT: I would also add that they have some high numbers in certain areas.

 

EDIT2: ""on a typical two-bedroom apartment."" OH well no wonder.

[Jedi2155]

Depressingly, even if I gave myself a raise on that calculator and dramatically increased the precent of income, there is still zero yellow on that map for me.

 

The way the data is presented is not a sign of affordability but a recommendation. So don't think so badly of it. Let me show you a simple example.

 

 

Nope, you should still rent.

 

 

 

 

 

 

 

 

 

 

 

*edit*

A better analogy.

 

The coloring on the map only compares the price of monthly rent versus your mortgage. It's like saying leasing a car is better than a buying it because the monthly payment is lower but takes none of the other aspects into account.

[ren]

you shouldn't judge your decisions of something as important as buying a house based on the simple calculator from LA Times. There's far too many variables that it's not taking into account; the value of the property you're buying for example. when you buy you're building equity not just paying for some place to live.

[kuhla]

http://fivethirtyeight.com/features/the-american-middle-class-hasnt-gotten-a-raise-in-15-years/

http://www.reddit.com/r/dataisbeautiful/comments/2h4gcl/the_american_middle_class_hasnt_gotten_a_raise_in/

 

I see stuff like this and I get sad and then I get mad. Might as well live fast and die young because it's hard to have hope for anything past that. I've seen this information before and each time I don't see a way out looking at it both individually and collectively. I really feel sometimes like our generation got fucked.

 

[Jedi2155]

They've been talking about how our children and children's children will get f---. We're complaining now about our incomes, but later on they're going to complain to us about how climate change screwed them over, or overfarming, or something else bad we did.

 

I learned to stopped caring TBH and just do the best I can.

[kuhla]

You should care. Our best won't be enough. Some of our parents could half ass their way through life and still retire comfortably at a ripe age. We won't be given that luxury. Those golden years of plenty are gone. We will be worked until we expire at our desks in poverty.

[Jedi2155]

Its a sad but true reality that for most in the USA, they will not be given the same golden life that their parents experienced. Regardless, I feel that most of the individuals in this forum have been fortunate enough still be living on the fruits of their success such as always having the luxury of living with their family given the option. I have heard/known a number of individuals who were not given that option. The hope for an easy life is gone, yes, but there are still many opportunities available here that are not available elsewhere which is why I still feel the subject is complaining. Yes, these complaints are not without merit, but my position is that there have always been reasonable solutions if one is willing to go towards less orthodox options.

 

On another note, this is a great chart listing the differences in wealth after the great recession. A good indication of the actual losses given the vast fall in the middle class wealth.

http://www.vox.com/2014/8/23/6057467/middle-class-households-wealth-fell-35-percent-from-2005-to-2011

[Jedi2155]

Jeebus....

 

All together the 400 wealthiest Americans are worth a staggering $2.29 trillion, up $270 billion from a year ago. That’s about the same as the gross domestic product of Brazil, a country of 200 million people.

 

That's almost the same as the federal budget.

 

http://finance.yahoo.com/news/forbes-400--the-richest-people-in-america-2014-155843156.html