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<\/a><\/p>\nIt will continue to be volatile as Europe keeps pushing its problems down the road, praying they’ll go away.<\/p>\n
Meantime, this\u00a0 market is going anywhere given Europe\u2019s financial mess and America\u2019s economic mess.\u00a0 Don’t expect much for the second half of 2011.<\/p>\n
Does the Euro have a future?<\/strong><\/span> Long article by George Soros in the New york Review of Books. Click here.<\/strong><\/a><\/p>\n The three lessons from the “rogue” trader at UBS.<\/strong><\/span><\/p>\n 1. Banks are bored by banking, like lending money. But they love gambling. Since there are no longer restrictions on what banks can and can’t do, big “rogue” losses will always appear. And since you can’t predict when their gambles will screw up, this makes them lousy investments.<\/p>\n 2. If you run\u00a0 a business, you’d better assume you won’t be able to borrow from your friendly bank. Hence accumulate cash for rainy days. This is what big American companies have intelligently been doing in recent years, especially tech companies.<\/p>\n 3. If the bank can’t manage its own money, how can they manage yours? They all have “wealth management” divisions. But they’re all — in the main — awful. And they basically don’t care about you. They do like the fees, however.<\/p>\n This piece is from a blog at the Financial Times:<\/p>\n A rogue trader at UBS or a rogue bank?<\/strong> by John Gapper<\/p>\n Given the recent history of UBS, it is fair to ask if Kweku Adoboli is a rogue trader or his employer is a rogue bank. The latter has in the past allowed rogue traders such as Nick Leeson of Barings and J\u00e9r\u00f4me Kerviel of Soci\u00e9t\u00e9 G\u00e9n\u00e9rale, to conceal losses while appearing to be doing what their employers wanted. Mr Adoboli has been arrested but not charged, let alone convicted, so he has the presumption of innocence.<\/p>\n But we do know plenty about the proclivity of UBS for getting involved in fiascos in which the bank believed it was taking relatively little risk but ended up losing large amounts of money. The biggest example is the \u20ac50bn losses it sustained in the US mortgage market, including its holdings of super-senior \u201crisk-free\u201d debt.<\/p>\n Before that, the bank\u2019s entire senior layer of management was forced out following its involvement in the 1998 collapse of Long-Term Capital Management, the US arbitrage hedge fund run by John Meriwether. UBS had pressed to be closely associated with an operation it regarded as smartly and safely run.<\/p>\n There are similarities between the products relating to the LTCM case and the trading desk on which Mr Adoboli worked. As Izabella Kaminska of FT Alphaville points out, banks\u2019 Delta 1 desks traded and hedged exchange-traded derivatives in ways that involve complex \u2013 and difficult to monitor \u2013 risk-taking. Mr Kerviel worked on SocGen\u2019s Delta 1 desk. \u201cTop management was too complacent, wrongly believing that everything was under control, given that numerous risk reports, internal audits and external reviews almost always ended in a positive conclusion. The bank did not lack risk consciousness; it lacked healthy mistrust, independent judgement and strength of leadership.\u201d<\/p>\n Until now, Oswald Gr\u00fcbel, the UBS chief executive, has been praised for pulling the bank round from the 2008 crisis and for instilling greater risk discipline. His mantra to his traders was initially: \u201cDon\u2019t lose any money.\u201d He amended that last year, however, to: \u201cStill don\u2019t lose any money but do more.\u201d<\/p>\n Now, it does not look as if Mr Gr\u00fcbel managed fundamentally to reform the accident-prone nature of UBS. After all that has happened, he cannot simply blame individuals within an organisation that looks distinctly rogue-like.<\/p>\n The business of selling call options. <\/strong><\/span>Many of my friends sell call options against stocks they own in their portfolio. This provides them an\u00a0 income, but deprives them of the growth\u00a0 should their stocks appreciate. Options go up and down in price, just like stocks. When the market is rising, options rise. When the market drops, it’s not a good time to sell them.<\/p>\n This piece came in a promotion for a pricey newsletter. You don’t need to know which one. The story is neat:<\/p>\n The root of this month’s idea stretches back to the 17th century… when a Viennese botanist introduced an exotic Turkish flower to Europe.<\/p>\n As the tulip made its way from Austria to Germany, Holland, and England, it created a sensation.<\/p>\n The flower soon became the focus of one of the earliest recorded financial manias. As growers cultivated more and more varieties of colors, demand spiraled and almost everyone wanted the newest-colored bulb.<\/p>\n Tulip mania led to relative prices that make the U.S. housing boom of the 2000s look sober by comparison. At the height of the 17th century boom, a single bulb fetched 17 times the annual wages of a skilled laborer and totaled more than $50,000 in today’s dollars.<\/p>\n Many bulbs carried the names of their growers and famous people. Names like Viceroy and Semper Augustus as single bulbs were bought and sold at ever-increasing prices. The most valuable was named Admirael van der Eijck.<\/p>\n Another prized flower was the black tulip. Rumor has it that the first person to own a black flowering tulip sought out other black bulbs, bought them, and smashed them. That way, he remained the sole seller of black buds from his one and only black plant.<\/p>\n By the mid-1600s, tulips were traded in designated places all over Holland. Trading invited speculation, which stoked the mania.<\/p>\n To bring order to the market and reduce their risk, florists in 1636 started demanding money upfront for protection against the possibility that their buyers would renege nine months later… essentially creating the first options market. If you owned bulbs, you could collect money up front (today called “option premium”) in exchange for selling bulbs in the future.<\/p>\n When the bubble burst in the spring of 1637, those who sold the options had protected themselves by collecting money earlier. Those who bought the options lost everything.<\/p>\n Actually there’s a much better explanation of Tulipmania on Wikipedia.<\/strong><\/a> It’s worth reading.<\/p>\n Harry Newton who warns about bathrooms and stairs.All his ageing friends and relatives have been slipping in bathrooms and falling down stairs. All this happens when they’re on a pleasure trip to\u00a0 some god-for-saken country with slippery bathtubs and rickety stairs.<\/p>\n The two biggest “screaming buys” of the mortgage REITs are MITT and MTGE. They’re new, haven’t accumulated their entire portfolios and don’t have a quarter of solid dividends behind. Hence they’re being discounted in low value.<\/p>\n
\nAt one level, Mr Adoboli might appear to fit neatly into the stereotype of the rogue trader, a phenomenon that recurs so often that it is an endemic aspect of modern investment banking. He is young, fairly junior and works on a desk that combined proprietary position-taking with \u201cflow trading\u201d in customer orders.<\/p>\n
\nUBS itself commissioned a report on its experience in the 2008 crisis that was scathing about its inability to control risk and the complacency of its senior management. The paper, by Tobias Straussman of the University of Zurich, concluded:<\/p>\n<\/a>
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