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Weekend reading: Cynical trader revealing in more ways than one

Weekend reading

Some good articles from around the Web.

The uproar this week over the frank revelation from a trader interviewed by the BBC that he planned to profit from a massive market crash (and that you can too!) was revealing.

Here’s the video:

Thanks to the combination of a suited trader dreaming of another Depression, an astonished BBC newsreader, and even a name check for Goldman Sachs, the video went viral.

Thousands of people watched in astonishment at – apparently – the notion that there are two sides to a market.

I am the first to condemn the financial industry as overpaid and overvalued, but trading is what traders do! Condemning this chap for taking a view is ludicrous – like condemning your plumbing for bringing some rubber gloves just in case your drains are blocked.

Remember that there’s another party on every side of the trade, who will be losing if this guy wins. Does that make the loser morally superior? Nonsense. A bearish trader buys a credit default swap betting on a Greek default, and another sells that insurance. Numbers, not morals, drive their decisions.

Active traders come a long way down the list of culpability for the woes felt by the public today – well behind dreadful over-leveraged banking, short-sighted politicians, slack rating agencies, and the greedy man in the street. The trader is just the final piece in the picture, mopping up the outcomes of decision making by the great and the good, and usually as much to blame as a beetle feasting on a carcass is for Mad Cow Disease. Neither bad nor good, and often not pretty, but pretty irrelevant.

Wishful thinking is what dominates our nursery rhyme news agenda, however. The newsreader wanted a few soundbites about ‘decisive action’ and ‘settling the markets’. Encountering a foot soldier from the front line of a market economy Did Not Compute.

Hilariously though, as The Telegraph discovered this new era Gordon Gecko turned out to be less a City bestriding big swinging dick, and more simply a… good talker:

“They [the BBC] approached me. I’m an attention seeker. That is the main reason I speak. That is the reason I agreed to go on the BBC. Trading is a like a hobby. It is not a business. I am a talker. I talk a lot. I love the whole idea of public speaking.”

Which capped it all off perfectly.

The BBC betrayed its agenda, the terrified public that spread the video wanted to blame the middleman rather than their propensity to take on debt for 30 years, to abandon prudent financial planning, and to ignore rigorous thinking – whether it be the flimsiness of the Euro framework or sky-high house prices – and the middleman turned out to be a muppet.

Just another dispatch from the bear market. I redoubled my efforts to look for cheap equities in the aftermath.

From the money blogs

Deal of the week: If you’ve been waiting for an excuse to buy a Kindle, this week’s announcement that the new, elegant and keyboard-less one will cost just £89 could be it! Pre-order now at Amazon.

Mainstream media money

  • The changing triple-X business – The Economist
  • Harvard’s swelling endowment fund – BBC
  • 3 things holding back the US jobs market – The Motley Fool
  • Volatile gold unnerves investors – FT
  • Managers see value in corporate bonds – FT
  • ‘Best buy’ tables give conflicting advice – FT
  • Goldman: World may be headed for ‘great stagnation’ – Telegraph
  • Ten thousand buy the National Grid RPI bond – Telegraph
  • 15 income trusts with a great 25-year record – Telegraph
  • FTSE suffers biggest quarterly fall for nine years – Telegraph
  • How to get a better work-life balance – Independent
  • Bolton’s China trust revisited – Independent
  • The case for converting to LPG – The Guardian
  • If I ruled the world: P.J. O’Rourke – Prospect

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{ 11 comments… add one }
  • 1 Alex October 1, 2011, 5:38 pm

    1. I agree: the ‘trader’ on the BBC episode is instructive in so many ways.

    2. How did we cope before the rolling 24-hour TV news channels and their insatiable appetite for ‘experts’?

  • 2 Calum October 2, 2011, 1:04 am

    I think viewers need to be very careful about some of the commentary on BBC. To put it bluntly, a lot of the BBC “trader” commentary is from people who are going on to rip the public off or sell something of very dubious quality.

    To start with the guy above, he isn’t even a trader. He runs a public speaking company (badly, it is loss-making but won’t be anymore thanks to the BBC) and sells bad trading “courses” for six grand a piece. It seems he doesn’t trade actively and it is pretty clear he doesn’t know what he is talking about (there is a good Forbes or Fortune interview out there). It is unbelivable that the BBC have promoted him because the only result is he ends selling more of his courses with no value to people who don’t know better.

    More generally, the BBC has an amazing habit of finding the most unscrupulous people in the financial industry and presenting them as experts. It has promoted Mike Baghdady, Amplify Trading and Million Dollar Traders. All of this ends up being free advertising for people who have gone on to rip unknowing people off (in most cases). More worrying, is that no-one in the BBC seems to know this. I think the reason is that there is still this culture of the wise, all-knowing “trader”. The reality of sales & trading in I-banks couldn’t be further from this.

  • 3 The Accumulator October 2, 2011, 11:42 am

    So the BBC is to blame for sticking sensationalist big-mouths on screen that people can’t resist watching but we shouldn’t blame ruthless city types for dreaming of human misery? Or by that logic, pathological murderers for killing people? It’s just what they do…

    If behaviour has no social good, indeed causes social harm then it needs to be regulated. I don’t have a problem with markets, but if a system is malfunctioning or being manipulated for profit regardless of harm done to others then it needs to cleaned up. I guess I’m specifically thinking of sub-prime, but I might as well be talking about baby formula cut with ajax. The fact that there’s a loser on the other side of the trade is not necessarily morally neutral.

  • 4 The Investor October 2, 2011, 8:32 pm

    @Accumulator — I think sub-prime is an illustrative example. As we know from The Big Short, the only people who ultimately did anything to defuse (entirely for their own motives/profits) the looming sub prime implosion were the hedge fund managers who looked at the fundamentals of the market and the securities being traded, said ‘this stinks’, both morally but more importantly (if you’re a hedge fund and it’s your job) financially, and bet against them. They bet that those securities would fall in value, because the market was rotten. They were a messenger (that were long ignored) not the creators of that misery.

    In contrast, the bloated, borderline crooked in places and ludicrously blase banking system exploited its vast network of respectable looking branches, presumed AAA status/security, and one way view of house prices (note: it’s very hard to short the housing market — academics have written papers saying the lack of predatory traders betting against it is one reason why the bubbles get so big) to make good profits until it blew up.

    Consumers happily thought it reasonable for house prices to double in a few years (against logic and social good) until it blew up.

    Ratings agencies slapped high ratings on crappy products from the gutter (see banking above) and took the fees until it blew up.

    Central banks / Gordon Brown claimed they’d tamed the markets, until it blew up.

    I have nothing against measured regulation to try to stop this happening again, but traders IMHO have nothing to do with the problem and are probably more part of the solution.

    The other issue as I tried to say above is that people have a ‘yuck’ factor feeling about a downside bet, but in my opinion we should try to logically set aside such feelings.

    An insurer sells an annuity based on its belief that roughly half its customers will die before their predicted time (with roughly half doing better, and it taking a spread from the middle). It’s ‘betting on death’ quite literally. Actuaries trade in human misery. Quite rightly. Just like plumbers unblock toilets and get paid for it.

  • 5 The Accumulator October 2, 2011, 9:14 pm

    My comments aren’t directed at traders, my comments are directed at those who manipulate markets and those that dream of global disaster on the basis that they’ll make a bob or two out of it. I’ve no problem with the hedge funds who exposed the rot at the centre of sub-prime but with those who sold mortgages to people they knew couldn’t afford them and the banks that knowingly palmed off crappy CDOs onto the rest of the world.

  • 6 The Investor October 3, 2011, 9:13 am

    Ah well, here’s evidence for readers that we really are two different writers! 🙂

    I don’t mind *traders* dreaming of big downturns to make a few bob (‘disaster’ perhaps a bit much but traders are often full of hyperbole. Few would want to protect their winnings with armed henchmen).

    Architects of disaster or reckless bankers etc who knowingly bring it about as an inconvenient by-product get my ire (or who visit disaster one individual at a time — eg subprime lenders who lend knowing their rate will triple in 2 years).

    I don’t even believe one has to make a moral case for traders’ differing views — they are what makes the market liquid.

    But if I had to, I’d say more people dreaming (and betting) on disaster would help burst bubbles sooner, and more heterogeneous opinions in a market is a good thing.

    In my view we need the most odious misanthropic views in the market, not least to counter the Panglossian tendency of the establishment and masses in good times. Let them dream of world war 3 and that view to have a price — very distinct from bringing it about.

  • 7 Matthew October 3, 2011, 6:11 pm

    I think there is a key difference between the statements – “I dream about another recession”, and “I dream about significant stock market falls and a return to a temporary bear market”. The former is rather an unpleasant thing to be saying in light of people losing homes, jobs and standard of living, and the latter is perfectly reasonable as this does not automatically mean a recession.

    Personally I would never dream of a recession, (ironically a the recession has been good to me with low interest rates) those who do, need to think about themselves carefully.

    Matt

  • 8 The Investor October 3, 2011, 6:37 pm

    @Matt — Fair enough, I think most would agree. For me this language though this is what I’m putting down to trader-style hyperbole.

    For some at least, their Alpha male talk is peppered with “killings”, “crushed”, “raped”, “murdered”, “meltdown” etc. But it’s in the same way that a football coach would use the words (well, perhaps not the unpleasant third one of those) without seriously meaning his team should kill the other side’s players.

    I don’t expect a global recession, I’m hugely long equities, and I’ve spent large amounts of my time here flagging up the grossly overpaid / under-deserved rewards garnered by much of the financial system. (E.g. You won’t hear me arguing traders as a group aren’t hugely “overcompensated”, as our American friends say!) So it’s odd to be defending them, especially when the actual trader in question is only a showman!

    I’m a broken record, but I can only repeat traders aren’t the problem: Smooth talking bankers who would never use any of the expressions while craftily dressing a pig up as a princess and using their implicit guarantees to take on vast amounts of risk and/or leverage are far more of a threat to economies, typically, IMHO.

    Thanks for commenting, and sorry I’m repeating myself!

  • 9 The Accumulator October 3, 2011, 10:19 pm

    Well put Matt. For me, it’s not about the trader, or traders. It’s about what that comment represents. And what it represents is the view of a financial caste that engineering misery is ok if you make a profit out of it. Couple of caveats: he didn’t say engineer. But I’m moving things along a bit. It’s a small step from wishing or dreaming something to trying to make it happen. Taking a view is a different mechanism. Believing that a market will fall is qualitively different from wishing for calamity to fall upon those least able to bear it.

  • 10 The Investor October 4, 2011, 8:08 am

    I just two minutes ago heard a BBC interview on Radio 4 that sums up the ‘traders are root of all evil’ attitude that I’m trying to warn us not to fall for.

    It was an interview between John Humphreys and Robert Harris, with the latter having written a novel called “The fear index” I think — I’m paraphrasing from memory, so this is by no means anything close to word for word, but it went something like this [my comments italics]:

    Harris: So you had this flash crash where shares fells 19% [or similar] and this was due to the computers running the market
    Humphreys: Incredible
    Harris: Yes on that day which was our election day over 19 billion shares were traded.
    Humphreys: 90 billion! Incredible.
    Harris: Yes, 19 billion in a day, which is as many as in the whole of the 19[-somethings]
    Humphreys: All in a few milliseconds. [A DAY humphreys!]And this was caused by the computers?

    [some waffle followed between the two about computers being both intelligent AND dumb, whatever that means]

    Harris: And we can see this in the swings we have every day of 2-3%.
    Humphreys: Well, not just that we have booms and crashes every couple of years! [This is the nub of it for me. Humphreys, a presenter who interviews loads of politicians, economists, business people etc every week, seems happy to completely conflate the economic cycle with share trading]

    A bit later on he is talking to a second interviewee:

    Humphreys: So the old fashioned idea of an investor who looks at a company and says “this car doesn’t is going to sell really well over ten years” and buys the shares, that’s all gone now?
    Interviewee: No, it hasn’t. [Oops! Reality is clearly a bit more complicated then ‘crazy witless short term computers are ruining the economy’]

    The whole thing would have left the listener with LESS idea about how the markets worked, not more. For instance, Humphreys was shocked by the revelation that 78% of shares in New York traded are traded by computers, which he considered “a huge majority” with no evidence that he brought to the table. There’s no explanation that nearly all these trades happen for hundredths of a second and are designed to exploit tiny pricing anomalies, hence the massive volume which arguably simply provides extra liquidity. Instead, a listener would have left feeling that it was computers having wars with each other and causing the recession that has hit their pension.

    Humphreys’ last question was something like “tell us about the disaster that you think could happen”.

    All an utter obfuscating waste of time in my view, dangerously conflating reality with paranoid fantasy.

  • 11 The Investor October 5, 2011, 11:14 am

    A good example of the sort of language trader types use which I’m suggesting they shouldn’t be shot for:

    “This is the part where people’s faces are just absolutely ripped off”.

    http://www.thereformedbroker.com/2011/10/04/chart-anatomy-of-a-face-ripper™/?utm_source=dlvr.it&utm_medium=twitter

    I’m pretty sure nobody actually had their faces physically ripped off by the modest last minute rally in the Dow Index.

    You can say you don’t approve of such language, but I’d suggest being careful for mistaking it for a sane pronouncement, as I said at the top of these comments.

    That’s a decent blog, too, as short-term market timing action-packed trading blogs go.

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