Posted: December 18th, 2008 | Author: Wayne Weddington | Filed under: Opinion | Tags: federal funds, interest rates, intervention, policy | 
Email This Post
1 Comment »
Or Ree-dikk-you-leez. Same idea.
That is where the fed funds rate levels have descended. There is no other adjective that would apply. On December 17, the Federal Reserve lowered the fed funds rate to 0.00%. Thus the Fed has now made money available for free. Free money. The beneficiaries, banks, are lining up to apply… but they are not turning around and making the fire-sale available to businesses or to you, the borrower.
This is strong indication that the credit markets are still quite gummed up. Despite Congress’ valiant efforts to pump capital to the financial sector in order to stimulate lending (much of which is dutifully going out the back door by way of annual bonuses) the intended lubricant to the economic system has still not taken effect. One of the problems is that Congress forced the money upon the bank institutions but, “oops”, Congress did not actually require them to do anything with it. Opponents to regulation would point out that regulation though well-intended is often ill-executed and therefore ill-advised. Something should be done of course, but the current apparat has not had a great track record thus far.
- Wayne Weddington
Posted: December 7th, 2008 | Author: Wayne Weddington | Filed under: Opinion, Strategy | Tags: global macro, global opportunity, intervention, Trading | Email This Post
Make a Comment »
“People have married for many reasons — to gain a fortune, accumulate land, forge an international alliance, secure a dynasty, raise children — and even on the account of affection, a marital motive that became widespread rather late in human history with the rise of bourgeois society.”
- Randy Cohen, The Ethicist
Yes, it is true. I just got married…. but it is not what you think. I have not had any formal nuptials.
My “wife” is the alternative strategy we have employed in order to navigate the current global market conditions. It feels like I am on “call” 24/7… and I certainly talk to the traders more than I speak to my significant other (which has caused some chafing). My voice is hoarse at the end of each trading day. It is decidely counter-culture to traders’ increasing use of IM and email, obviating the need to talk. These days we talk all the time, all day.
In the last year I launched a global futures trading strategy, Global Opportunity…. out of necessity. The strategies of which I was once an avid purveyor — stat arb and long short equity — are still viable but today’s fat opportunities are availed to current-condition-specific strategies such as distressed debt and global macro.
The interest in distressed debt reflects investors’ sentiments: why buy equity products when you can buy debt, which is further up the food chain, at cents on the dollar? Global macro has also been a favored destination because it enables fast and tactical movements of capital across the globe in a fast changing environment. Given the market rumblings which started in the 4Q 2007, Global Opportunity seemed a prudent thing to do.
I was skeptical at first. I admit I was a little hard on futures traders in Do it Yourself Hedge Funds (“DIYHF”). I referred to managed futures trading as little more than gambling and as proof of the point I showed that the comparative reward to risk was scarcely greater than buying a good SP500 index fund.
The truth — and I redeem myself in DIYHF by pointing this out — is that volatility-loving strategies have their place and time. And now is one of them. In fact global macro is one of the few bright spots in performance this year for some managers.
In my case, in Global Opportunity, we began trading the US equity markets intra-day using the mini-futures contracts in the SP500 and the NASDAQ. We go home at the end of every day flat, that means with no account positions overnight. Everything is in cash at the market’s end. It ensures that I sleep at night. Potential government interventions as they are, coupled with an increasingly unstable geo-political environment, are not contributive to a deep sleep.
We trade the intra-day volatility that has be-deviled so many managers this year. But the thing to which I have had to get accustomed is the nearly continuous interaction with the traders even though we employ a systematic trading strategy. Systematic trading strategies are supposed to be, well, systematic and automated. The reality is that even the best models require an even greater model — the human mind — to look over the shoulder and be alert. If anything ever does burp, you can be there with a napkin.
The result has been that my ear is practically glued to the phone. I would be better off with walkie-talkies: it would save the finger cramp from hitting the speed dial. Every day, really every hour, is a drama: watching Congress, the Fed, Obama, economic “numbers”, foreign markets, the TED spread, etc. The intent is that vigilance will enable us to trade against the other market participants, taking capital from their ledger and putting it in ours. It is after all a zero-sum result. Profits only come because you took them from someone else’s trading account by being on the profitable side of a trade. It is somewhat brutal… but I assuage myself by concluding that I have taken profits only from people I would not like. Because, after all, when I lose money I certainly do not like the miscreant who ‘took’ my capital either.
-Wayne Weddington