Tuesday, July 28, 2009

Moving On

Dear Zero Hedge readers and blogger fans, it is time to move on...

...to our new home: www.zerohedge.com

For a little over 6 months blogger has served us well, and yet it reached its limitations some time ago. Our new website, in addition to all currently existing features, now has a full RSS feed, a Contributors section, a complete term Glossary, and a full Forum for reader initiated content, and after a one month beta testing period, is now fully functional (not to mention faster).

And this just the beginning - the flexible architecture of the new site has allowed us to develop some really cool, brand new features which we will be launching in a few weeks. We are extremely excited about these.

We will keep blogger until such time as google/blogger decides to shut it down: it will be a repository for the roughly 2,600+ posts put on here since January 9. Going forward, no more posts will be uploaded to blogger. Also, this website will be preserved as a backup blogsite in case of some unpredictable infrastructure failure at www.zerohedge.com

Readers who wish to continue following our analyses, reports, presentations and opinions are kindly invited to visit us at www.zerohedge.com: you will find it a very hospitable new home.

While it saddens me to leave blogger, it is time to move on to the next phase of the project.

Farewell, blogspot

TD Sphere: Related Content

Monday, July 27, 2009

Ron Insana On HFT

Hey Ron, didn't realize your new position as a contributing editor on CNBC came with the contributing title of "Portfolio Manager." Didn't Stevie put a one year kibbosh on that? But I digress... And in all honesty I am surprised that you seem to have the correct spin on things (as per letter below from Jim Cramer's failed media experiment TheStreet). When you say:

I'd prefer that regulators look into whether a firm like Goldman Sachs (GS) unfairly view [sic] order and information flow ahead of its customers and clients.

we are pleasantly surprised... Yet when you follow up by saying:

But the press won't touch that topic

we are totally ecstatic that you do not lump us into the definition of that derogatory word. Then again, feel free to do a search for "Goldman Sachs" here. Even an erudite portfolio manager such as yourself may learn a thing or two.

High-Frequency Distraction

By Ron Insana

Portfolio Manager

7/27/2009 11:40 AM EDT

The New York Times and The Wall Street Journal are taking aim at a new form of computerized trading known as "High Frequency" trading. The algorithm-based trading is allegedly an illegal form of front-running, as high-frequency traders hook into exchange computers and use "flash trades" to suss out incoming order flow and use the lightning speed of their own programs to jump ahead of customer orders. Critics argue that individual investors are at a distinct disadvantage for this reason and a variety of others. The proximity of high-frequency computers, which can be placed next to exchange computers for a fee, allows for an almost-osmotic transfer of information. Senator Charles Schumer (D, N.Y.) is asking the SEC to ban "flash trades," which are phony orders placed by high-frequency programs that aim to fool market participants into entering orders. The programs jump in front of customer orders and gain a trading advantage. If that is indeed what is happening, it qualifies as "front-running," an illegal practice on Wall Street. If high-frequency traders are just faster than everyone else and not illegally jumping in front of others or paying off the exchanges to get preferential trading treatment, then this new area of technology-based trading is no less legitimate than the use of the telegraph, the telephone, the ticker, computers, handheld devices or older-style "black box" or "dark pool" programs that give sophisticated traders the ability to simply trade faster. I'd prefer that regulators look into whether a firm like Goldman Sachs (GS) -- whose former executives continue to run the New York Stock Exchange (NYX) ; advised on the merger between NYSE and Archipelago, and formerly owned a portion of the combined entity; own Speer, Leeds & Kellogg, the largest specialist firm on the Big Board floor; and control the greatest number of seats in the equity markets -- unfairly view order and information flow ahead of its customers and clients. I am far more concerned about that than I am about the emergence of "high-frequency" trading. But the press won't touch that topic. It's easier to go after the dreaded speculators and dark pool traders than lose access to the most profitable and prestigious firm on Wall Street.

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1 To 3 Years Of Securities Recalls Aka Forced Squeeze To Go

After numerous posts on this blog discussing speculation of assorted forced buy ins, it seems that this phenomenon is quite factual and quite pervasive among the asset management community. As Zero Hedge has noted previously, forced buy-ins are a critical issue as it leaves shorts at the mercy of their securities lenders and repo desks (most of which are TARP recipients and thus beneficiaries of higher stock prices) which generically have the option of recalling lent out shares at a moment's notice, and thus creatingartificial purchasing pressure: i.e. a forced short squeeze. According to Securities Industry News, in a recent survey by Callan Associates, over half of the respondents said they are undergoing a "controlled unwind" with their securities lending desks (aka State Street, BoNY, and Northern Trust).

Firms participating in securities lending programs are trying to reduce their risks and push for greater disclosure of what happens to cash given as collateral, according to a survey released this week by Callan Associates, a San Francisco-based investment consulting firm.

About half of the respondents to the Callan survey said they are undergoing a process called “controlled unwind” to reduce the risks in their existing securities lending programs and minimize current and future losses. Properly executed, an unwind involves recalling securities out on loan without incurring any financial loss or restricting either the number of transactions or the types of securities lent.

Almost all the respondents are using their current custodian or securities lending provider for the unwind and most believe it will take one to three years to complete, said Callan.

More than half of the 44 respondents who said they wanted to make changes to their securities lending programs rank fine-tuning their cash collateral reinvestment guidelines as their top priority. This reflects a common concern among respondents about losses coming from the reinvesting of cash used as collateral against the securities that are lent out.

The firm surveyed 72 fund and plan sponsor organizations of which public and corporate funds comprised the majority of survey respondents. About 54 percent of the respondents were mid-sized funds that hold from $1 billion to $9 billion in fund assets. Nineteen percent of the respondents were small funds with less than $1 billion. The remaining respondents were split between “mega” funds with more than $25 billion in assets and large funds with between $10 billion and $24 billion in assets.

Bottom line - in a market where an unknown but significant amount of trading is based on widely permitted and pervasive advanced looks compliments of the exchanges, ECNs and the regulators, and the balance consists of artificial buying from rolling buyins, only the most insane, or foolhardy or both, believe they can trade with any hope of short or long-term success.

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NYSE Claims It Does Not Engage In Flash Trading

From an interview earlier with NYSE's Larry Leibowitz, who is surprisingly vocal against Flash trading. Larry - since the NYSE does not engage in Flash trading, can you please indicate whether or not the SLP program provides advance notice to Goldman Sachs ala Direct Edge's ELP program. Regardless, the escalation in the ECN wars is starting and should be a very interesting one to follow, especially now with a toothless and clueless Mary Shapiro stuck in the middle.

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The Goldman VaR Exemption Question Escalates

It seems only yesterday that Zero Hedge had some questions in regard to Goldman's VaR Fed exemption. No response was received from 85 Broad. Today it appears several Congressmen, lead by Alan Grayson, are willing to drive a sharp stick pretty deep into the hornets' nest, by sending a letter directly to Wall Street Don Ben Bernanke, demanding an explanation exactly to the question of Goldman's VaR Exemption.

Among the reasons provided as casue for potential alarm are the following:

1) In the letter granting a regulatory exemption to Goldman Sachs, you stated that the SEC-approved VaR models it is now using are sufficiently conservative for the transition period to bank holding company. Please justify this statement.

2) If Goldman Sachs were required to adhere to standard Market Risk Rules imposed by the Federal Reserve on ordinary bank holding companies, how would its capital requirements differ from the current regulatory regime?

3) What is the difference in exposure to the taxpayer between these two regulatory regimes?

4) What is the difference in total risk to the portfolio between these two regulatory regimes?

5) Goldman Sachs stated that “As of June 26, 2009, total capital was $254.05 billion, consisting of $62.81 billion in total shareholders’ equity (common shareholders’ equity of $55.86 billion and preferred stock of $6.96 billion) and $191.24 billion in unsecured long-term borrowings.” As a percentage of capital, that’s a lot of long-term unsecured debt. Is any of this coming from the Government? In this last quarter, how much capital has Goldman Sachs received from the Federal Reserve and other government facilities such as FDIC-guaranteed debt, either directly or indirectly?

6) Many risk-management experts, most notably best-selling author Nassim Taleb, note that VaR models can dramatically understate risk. What is your overall view of Taleb’s argument, and of the utility of Value-at-Risk models as regulatory tools?

Zero Hedge had a rather comparable battery of questions, and believes it would be in the general interest of whatever remains of the general investing public, the one that for some reason or another still has not lost all faith in a fair and efficient marketplace, compliments of several major monopolists who have usurped exchanges and ECN as their personal taxpayer and speculator funded piggy banks.

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Schumer Letter To Mary Shapiro

"I write out of concern that the integrity of our capital markets is being compromised by the ability of some insiders to view order information before it is available to the entire market, and use electronic trading strategies to profit from that information at the expense of other investors."

Full letter here:

Schumer Letter

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Goldman's Ed Canaday On The Requirements For High Frequency Trading Oversight

Damage control... Or is Goldman a little worried what Direct Edge may disclose.

From the appended Schumer piece on Bloomberg:

“Goldman Sachs believes high-frequency trading should have an accompanying obligation to provide liquidity, and be subject to appropriate regulatory oversight,” Canaday said.

Ed, we have been giving you the chance to provide your side of the story for months. Please take us up on the offer.

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Paul Tudor Jones Exposed

The mythical "TRADER - The Documentary" is finally available on You Tube. Relevant "full frontal" insights on the making of a hedge fund legend, and a paleolithic market dominated by monochrome PCs (what, no Bloomberg?), running to the municipal library for that 10-K, and no Flash orders frontrunning every trade.

Part 1, and related series (2-7) are on You Tube.

hat tip j.m.

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The ETF Gloves Are Off

Bearish bets made impossible, compliments of UBS. Either that, or UBS' recently upgraded (with i7 chips of course) computers just cant handle the basis calculations. Either way, is something very fried with ETFs going on behind the scenes?

IMPORTANT NOTICE: Inverse, Leveraged and Inverse-Leveraged Exchange Traded Funds are no longer available for new or additional purchases at UBS

Effective July 27, 2009, UBS is suspending the offering of Inverse, Leveraged and Inverse-Leveraged Exchange Traded Funds (ETFs). You will no longer be able to make new or additional purchases and will only be able to liquidate current positions through UBS at this time. Any attempt to execute a trade of such ETFs will be rejected.

Please contact your Financial Advisor with questions.

Hopefully iShares and Direxion have some good class action defense lawyers. Sphere: Related Content

Daily Highlights: 7.27.09

  • Administration looking for Chinese help to narrow trade gap and boost US jobs.
  • Advertisers are getting cheaper rates than a year ago on television commercials.
  • Aetna 2Q profit dropped to $346.6M due to greater commercial expenses and cuts full year forecast.
  • Asian markets were higher Monday on hopes for further earnings recovery, Nikkei hits 10,000 mark.
  • China's new small-company stock exchange gets 108 IPO applicants on 1st day as launch nears.
  • China shares up for 4th day on high liquidity-driven sentiment, led by metals and airlines.
  • Euro rises to $1.4263 in European morning trade as investors continue to leave dollar.
  • EU says Iceland's entry talks will likely be simpler, shorter than others.
  • German consumer confidence rises amid lower prices and stable job market.
  • Oil rises above $68 in Asia as economic recovery hopes fuel 3-week rally.
  • US Economy probably shrank at slower pace, signaling recession abated.
  • US stock futures point to higher open ahead of earnings, new home sales update.
  • Aetna Inc. puts its pharmacy-benefit management business on the block.
  • ArcelorMittal exploring a JV spin off of its stainless steel business, est. $3B.
  • Citigroup trader is pressing it to honor a 2009 pay package that could total $100M.
  • Corning's June net income declines from $3.2B to $611M.
  • De Beers qtrly net drops 99%; but sees sales of uncut diamonds improving.
  • Eastman Chem beats by $0.15, posts Q2 EPS of $0.86. Revs fell 31.7% to $1.25B.
  • Ericsson to buy Nortel's North American Wireless unit for $1.13B.
  • Fortune Brands' net falls 27% on continued weakness in home-products segment.
  • Honeywell's June net income declines from $723M to $450M.
  • Julius Baer profit falls 47% to $204.3 million as managed assets slump.
  • MSFT bows to pressure, gives European users of Windows choice of Web browsers.
  • Pearson raises earnings guidance for 2009, shares rise 9 percent to top FTSE.
  • RadioShack 2nd-quarter profit rises to $48.8 million as company trims expenses.
  • Verizon added 1.1M customers in Q2 vs. 1.4M added by AT&T in the same period.
  • Virgin Blue of Australia airline reports losses, launches capital raising of $189M.
  • Volkswagen plans to raise up to $5.7B via rights issue to fund purchase of Porsche.

Recent Egan-Jones Rating Actions


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Frontrunning: July 27

  • Tenacious G - Is Goldman Sachs evil? Or really good? (NY Mag)
  • Bernanke feared a second great depression; he may still very well get it (WSJ)
  • Europe braced for rising credit card defaults (FT)
  • Loans by U.S. banks shrink as fear lingers (WSJ)
  • Credit crunch part deux (Merk Mutual Funds)
  • Real yields highest since 1994 aid record debt sales (Bloomberg)
  • Ryanair plunges on outlook for fares, earnings (Bloomberg)
  • Earnings - not what they seem (Investment postcards)
  • Aetna again cuts 2009 outlook, profit slides (WSJ)
  • Verizon profit falls 21% (WSJ)
  • Same old story from Radioshack - revenue down, earnings up (MarketWatch)
  • David Rosenberg on BNN (BNN)
  • Weekly economic and financial commentary (Wells Fargo)
  • Deutsche Bank also expected to post profits on credit trading (Bloomberg)
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Sunday, July 26, 2009

The End Of The End Of The Recession

Zero Hedge, in collaboration with David Rosenberg, Chief Economist & Strategist, Gluskin Sheff + Associates, Inc., is pleased to release the attached analysis "The End Of The End Of The Recession." It is our hope that this piece will provide some badly-needed perspective on "the recession is over" debate, a topic that has become as one-sided as it is wrong-headed. Our purposes is to promote rational, informed discourse on the subject and to this end we enthusiastically solicit reader feedback. Our presentation is licensed "creative commons: attribution" and we hope that our readers will feel free to forward it on or excerpt from it freely, provided attribution is preserved.

The End of the End of the Recession

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Some Weekend Thoughts By John Mauldin

Some interesting stuff in John Mauldin's latest piece. We'll include some pertinent quotes along with our thoughts.

China is growing by about 8% a year, which is amazing on the surface of it, as their exports are down about 20% (more in some sectors). How can that be? I continually read about how China is going to lead the world out of its global funk. And 8% growth in GDP does seem pretty strong. But we need to look a little deeper.

If I told you that the next US stimulus package would be $4.5 trillion dollars, mostly given to banks that would be forced to loan out the money quickly, do you think that might jump spending and GDP in the short term? Would you start looking for a few bubbles to be created? What about the dollar?

That is the equivalent of what China is now doing. The volume of credit that is flowing into China is equivalent to one-third of their GDP. Banks that already have large problem-loan portfolios are now lending even more, in a very short time frame. China has severe capacity-utilization problems, as trade has sharply fallen; and the US consumer is unlikely to return to anywhere near the level of consumption that was the case in 2006.

The Chinese stock market is up 85% this year, and commodity and real estate prices are rising. And no wonder: the money supply shot up 28.5% in June alone. That money is looking for a home. My friend Vitaliy Katsenelson has written a very perceptive essay for Foreign Policy magazine, talking about the nature of the current growth in China.

"But don't confuse fast growth with sustainable growth. Much of China's growth over the past decade has come from lending to the United States. The country suffers from real overcapacity. And now growth comes from borrowing -- and hundreds of billion-dollar decisions made on the fly don't inspire a lot of confidence. For example, a nearly completed, 13-story building in Shanghai collapsed in June due to the poor quality of its construction.

"This growth will result in a huge pile of bad debt -- as forced lending is bad lending. The list of negative consequences is very long, but the bottom line is simple: There is no miracle in the Chinese miracle growth, and China will pay a price. The only question is when and how much."

This is very much in line with our theme of the recent China bubble. John has done a much better job in attaching specific numbers and analogies to the situation but the fundamental picture aligns with many of our posts going back to April. The larger view has not changed and the question becomes if China can complete this transition before the legs give out. The US can not be expected to provide the bubble year levels of aggregate demand that has created and supported the existing Chinese manufacturing and employment infrastructure.

I am going to quote at some length from Simon Hunt's latest note. He travels very frequently to China and is one of the world's true experts on the copper market. If you want to know something about copper, ask Simon. Copper, we are told, is the metal with a PhD in economics. If copper prices are rising, then the economy is booming. And historically, that has more or less been the case. But there may be reason to believe that PhD may be no more useful this time around than a regular Ivy League degree.

"There is no better example of this speculative activity than what is being seen in the copper market. It is easy for global merchants, hedge funds etc to ship cathode into China and warehouse it outside the reporting system, so fuelling investors' sentiments that copper demand in China is soaring and at the same time draining copper from the rest of the market.

"It is not so much industry which is doing this buying in China, but individuals, financial institutions and even small companies divorced from the copper industry who are buying and holding the metal because copper is a store of value and prices will go up is the common response. We updated our numbers for the first half of this year. They are truly staggering. Over 1 million tonnes of cathode is sitting in China mostly outside the reporting system as a punt on rising prices." (Emphasis mine)

If it is happening in copper it is likely to be happening in other commodity markets as well. If you are trading the metals, you should be aware that a quick drop could happen if demand falls off due to there being a glut of supply coming back onto the market.

This is another long-term theme that we have been exploring. Again, John does a much better job of providing specifics to back up our original assertions. We don't know who Simon Hunt is but if John asserts that he is a "true expert", we'll take his word for it. This piece we put up covers most of our thoughts on the subject, so we won't rehash but it is an ongoing story with the potential to have some serious impacts across global markets.

This is a very big deal, and from the Chinese point of view, quite smart. Right now they are stuck with $2 trillion in US Treasuries, agency paper, etc. They can't sell their dollars without really hurting the dollar, thereby forcing the renminbi to rise and hurting their own exports. But they, and much of the world, feel that the US is pursuing policies that are going to be harmful to the value of the dollar and therefore to China's largest reserve exposure.

What to do? Take those dollars and buy physical assets. Companies, natural resources, maybe a few small countries. (To my Chinese readers: that's a joke, although some in the West worry about that.)

In the card game called Old Maid we played as kids, the loser was the one who ended up with the "Old Maid" at the end of the game. For the past decade, the Chinese sent us "stuff" and we sent them dollars in the form of electrons. They in turn invested those dollars in our debt so we could buy more stuff. It was a form of vendor financing.

And now the Chinese have apparently decided to pass the Old Maid of the dollar on to other parties, who will sell them their assets for dollars. Seriously, did anyone not think they would do this? Massively selling the dollar, which so many conspiracy-theory types keep saying they will, was never really a rational option. But using those dollars to acquire productive assets? Very smart, very rational. If you figure out what they want to buy and get there first, there are profits to be had. Attention should be paid.

This is an interesting point. Many have picked up on this point previously but most have assumed those asset flows are going to be into commodities. We disagree mostly because of the numbers involved ($2.2T is a hell of a lot of commodities) but John explicitly defines the agenda of overseas acquisition, including commodities, equities and any other real assets China can get its hands on. On a quick tangent, the implications for inflation-protected or -hedged assets are huge. Specific equity sectors are likely to see flows go through the roof - we'll leave it to our readers to discuss in the comments.

Notice in the chart below that unemployment continued to rise until the first quarter of 2003. And that is also when the stock market took off. Those who see green shoots need to think about that. Meanwhile, the market is clearly telling us that it sees nothing but blue skies in the future. I truly marvel at this rally, but I continue to think it is a bear-market rally. The weakest, high-beta names are rallying the most. This rally does not seem to be the basis for a sustained bull market. That being said, Richard Russell has removed the bear from his letter and put in a bull. I may be the last bear standing.


Nothing new here for regular ZH readers but it's almost comical in the simplicity of the argument. People aren't employed. Unemployed people don't spend money. Not spending money means no green shoots. Forget second derivatives, revised seasonally adjusted housing numbers or Dennis Kneale's belief in the power of the smiley face.

This is going to be a long, jobless recovery. Hours worked per week are at an all-time low. As noted above, part-time work is very high. Employers, when things actually start to turn around, and they will, will first give current employees more hours and then expand the hours of part-time workers. There will be few new jobs for a long time.

Because our population is growing, between 130-150,000 new jobs are required each month to keep unemployment from rising. Initial and continuing claims suggest we are currently losing at least 300,000 a month.

(As an aside, the media talks about initial unemployment claims falling. That is actually not true. Unemployment claims are in fact quite high and rising, but the seasonal adjustments make them look smaller. Normally, this would not be a big deal. But the summer seasonal adjustment assumes a normal automobile manufacturing market, with layoffs in July. The layoffs came much earlier this year, distorting seasonal adjustments.)

Higher and persistent unemployment, lower incomes and wages, higher savings rates, capacity utilization at 50-year lows and still falling, rising home foreclosures, a deleveraging financial system, etc. are not the stuff of "V-shaped" recoveries. Throw in that Moody's estimates that US banks will have to write off $400 billion in 2010, and it's a very weak recovery indeed that shapes up for next year.

Not to rehash, but John again does a great job of tacking on numbers to a scenario we have been covering for a while. Investors hoping to recoup their losses from the bubble burst in short order are in for a surprise. Overall, a good reading piece to ruminate on over the weekend.

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Guest Post: 30 Year Review Ahead of Short Term Auctions, Q2 adv-GDP and Aug 7 NFP

Submitted by John Bougearel of Structural Logic

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Weekend Reading

  • Must read: Fast-on-the-draw trades need spot of marshalling (FT, h/t Joe)
  • Roubini Op-Ed on Bernanke: The Great Preventer (NYT)
  • Lennar signals fleeting buildling rally as buyers flee (Bloomberg)
  • JP Morgan to raise banker salaries (FT)
  • The man spreading false rumors about Harman and Textron takeovers (that fooled fast-money's Najarian) found dead in suicide (Bloomberg)
  • Chinese steel executive beaten to death, (FT)
  • Alan Abelson: It could be worse (Barron's)
  • Real homes of genius: The California housing collapse deconstructed (Dr Housing Bubble)
  • Rally may cool on earnings reality check (Reuters)
  • California officials worried about new budget woes (BusinessWeek)
  • US probe targets UBS banker visits (Reuters)
  • Phibro trader Andrew Hall is holding Citi hostage over $100 million pay package (WSJ)
  • Who caused the economic crisis: an email debate between Simon Johnson and Goldman's John Tablott (Salon part 1, part 2 and part 3)
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JPM's Carl Carrie On Algorithmic Trading

When the former head of product development in the electronic client solutions group at none other than JP Morgan, Carl Carrie, was last quoted on Zero Hedge, he had some very nasty words for High Frequency Trading. Today, in a podcast transcript by algotradingpodcast Carl shares much more light in just why any reform movement against HFT and PT in general will be met by a huge pushback by exchanges, brokers, infrastructure providers, telcos, and all derivative market players:

Clearly, algorithmic trading is a huge factor. High-frequency trading for Arbitrage's, indexes, ADRs, pairs, ETFs, interlisted trading, as well as automation around auto-working, have all been factors contributing to the growth of algorithmic trading and trading on exchanges.

The exchanges themselves have also been contributing factors. They've invested heavily in capacity and throughput. And the allocations of assets to European equities has also been a minor factor.

Carl also touches on another, so far undiscussed issue - the industrial oligopoly and the economies of scale advantages to the select few:

In the electronic trading space, you're seeing the beginnings of a fallout, and you're seeing larger scale players, some of them become clear winners. Not that they can permanently sustain their competitive advantage, but for a period of time, there is an economic advantage in being the preeminent, top scale player, and probably the next two rungs below.

Hey Christine Varney - if you can look away from Google for longer than 10 seconds, maybe you can focus on where the next real fight for monopoly is ocurring, with materially greater consequences than Firefox being bundled in with Windows 7.

Most notably, Carl discusses the emerging risk types with this new technology. Not surprisingly as Joe Saluzzi would attest, and much to the chagrin of program trading "specialist" Irene Aldridge, the key risk is liquidity, and much more so to the downside, i.e., when it disappears.

There are new risk types. I think, it used to be about timing cost and market impact. Those were two twin pillars that most algorithmic trading has been based on.

And I think, if you look at what's happened recently in the credit markets, it hasn't opened our eyes to liquidity risk, but liquidity cost and liquidity risk is perhaps a different animal. It's not just about price volatility. It's about volume volatility. It's about timing of that volume volatility. It may be there today, and when you want to get out of your position, it may not be there tomorrow. And how do you reflect that into your own trading and into, not just your alpha generation, but on the risk side of the alpha generation? Most risk models don't really take into consideration the kinds of anomalies that we may see on a yearly basis.

It's not a Six Sigma event, typically, that happens when we have a liquidity crisis. And a liquidity crisis very easily moves across from one market, as a class, to another. So, you've got this contagion correlation effect that's massive. So, I think, it's important for all of us to develop new science and new tactics to really deal with that. And particularly, as you talk about emerging markets, there's no sphere that is as liquidity-sensitive as emerging markets is.

Curiously, when Carl left JPM his parting letter had this to say: "Yes, I love equities but I think the biggest transformation in the market over the next couple of years will be in the OTC fixed income, credit and commodity markets that are both begging for more liquidity and transparency and are ripe for a major transformation. I want to be there at the genesis of that transformation." We at Zero Hedge completely agree with this statement and will be presenting some of our extended ideas on this matter over the next several weeks.

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