Opening Bells, pit floors, trading floors, Roaring Kitties, the bull market of 1982, How Do US Treasury Auctions Work, Salomon Brothers scandal, The Trillion Dollar Equation, Billion Dollar day 1985..
Vanesh Patel (7/2/24): His strategy in Darwinex Zero, the DARWIN AHXJ, has received 8 back-to-back allocations from October 2023 to May 2024, ranking 9th in the January edition, and amassing a historical amount of €445,000 in seed capital.
Mike Navarrete (5/30/24): Mike’s trading strategy in Darwinex Zero (DARWIN SLCF) finished first in the January 2024 edition of DarwinIA SILVER and has received six consecutive seed capital allocations from October 2023 to March 2024, amassing a historical seed capital of €615,000.
Clinton Ratanatray (4/24/24): His trading strategy in Darwinex Zero (DARWIN ICBO) shines for its consistency and is one of only 12 DARWINs to have received 7 or more seed allocations consecutively.
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☑️ #14 Jun 16, 2024
A «Super Contango event» ( NYMEX WTI Crude Oil Futures)
1️⃣ The Day Oil Went Negative, These Unlikely Traders Made $660M
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@business : Over the span of a few hours one day in April 2020, a guy called Cuddles and eight of his pals from the freewheeling world of London’s commodities markets rode oil’s crash to a $660 million profit. Now regulators are scrutinizing their once-in-a-lifetime trade.
2️⃣ How A Group of Oil Traders Made Over $660M in Profits
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@MikeSerTrader: Back at the peak of the pandemic in April 2020, global financial markets were collapsing including the price of commodities like oil. While many investors in oil were losing money, a guy nicknamed Cuddles and 8 of his buddies were making profits of upwards of $660M. In this video, I’m going to tell you who these traders are and how they managed to pull off the biggest trades of their career.
cmegroup.com (4/8/20): CME Clearing Plan to Address the Potential of a Negative Underlying in Certain Energy Options Contracts.
[Excerpt] The purpose of this advisory is to assure CME clearing firms and end clients that if major energy prices continue to fall towards zero in the coming months, CME Clearing has a tested plan to support the possibility of a negative options underlying and enable markets to continue to function normally. [full text; pdf]
cmegroup.com (4/15/20): Testing Opportunities in CME's "New Release" Environment for Negative Prices and Strikes for Certain NYMEX Energy Contracts.
[Excerpt] Recent market events have raised the possibility that certain NYMEX energy futures contracts could trade at negative or zero trade prices or be settled at negative or zero values, and that options on these futures contracts could be listed with negative or zero strike prices. Were this to occur, all of CME’s trading and clearing systems would continue to function normally. Support for zero or negative futures and/or strike prices is standard throughout CME systems. All file and message formats support such prices, and we have a variety of products which have long behaved in this manner, for example NYMEX BY (WTI-Brent Bullet) futures contracts and NYMEX BV options on those futures contracts.
Effective immediately, firms wishing to test such negative futures and/or strike prices in their systems may utilize CME’s “New Release” testing environments, for products CL (crude oil futures) and LO (options on those futures.) “New Release” SPAN files and settlement price files already reflect such prices. In the New Release environment, orders may be submitted in CME Globex, block trades may be submitted through CME Clearport, and all normal trade and position processing may be performed in Clearing. [full text; pdf]
🗓 [The next days]:
cmegroup.com (4/21/20): Switch to Bachelier Options Pricing Model - Effective April 22, 2020.
[Excerpt] Pursuant to Clearing Advisory 20-152 that was published on April 8th, the clearing house will switch the options pricing and valuation model to Bachelier to accommodate negative prices in the underlying futures and allow for listing of option contracts with negative strikes for the set of products specified in the link below. The switch will be effective for the margin cycle run at the end of trading tomorrow April 22, 2020 and will remain in place until further notice. [full text; pdf]
risk.net (4/30/20): Negative oil prices put spotlight on investors.
[Excerpt] What part did Bank of China and other investors play in last month’s oil rout, asks derivatives veteran.
[Excerpt] The price of WTI May contracts was under pressure since April 8 when the United States Oil Fund (USO), the biggest exchange-traded fund tracking crude prices, cut its positions over four straight days. The price gap between the May and June contracts further widened after ICBC and CCB rolled over their positions on April 14. Both banks agreed on settling their paper crude products five working days before the contract expiration.
When BOC started to roll over its positions April 20, "the money had been targeted" by short sellers, a futures company manager said.
🗓 [A few months later]:
cmegroup.com (8/13/20): Transition Back to Whaley and Black 76 Options Pricing Methodology - Effective Trade Date August 31, 2020.
[Excerpt] Further to Clearing Advisory 20-171 dated April 21, 2020, CME Clearing will revert its options pricing and valuation methodology, currently based on the Bachelier model, effective for trade date on Monday, August 31, 2020. Products will transition from Bachelier back to Whaley or Black 76, depending on the product. [full text; pdf]
cftc.gov (11/23/20): Interim Staff Report on Trading in NYMEX WTI Crude Oil Futures Contract Leading up to, on, and around April 20, 2020. [keyword: wti]
[Excerpt] The negative settlement price of the WTI Contract occurred on the penultimate day of trading for the May Contract, which expired on April 21.
cftc.gov (May 2022): [Excerpt] Arbitrage breakdown in WTI crude oil futures: An analysis of the events on April 20, 2020. [keyword: wti]
On April 20, 2020, during the May 2020 NYMEX WTI futures contract (CL) settled to a negative price for the first time in history
On the same day, prices for the CL and e-mini (QM) WTI contracts decoupled
The distribution of arbitrageurs in the market was significant different on April 20, 2020 when compared to all other spot periods from 2011-2020
Supply constraints at the Cushing, OK delivery point contributed to the price anomalies and volatility observed around this event
cftc.gov (8/1/23): CFTC Orders UK Trader to Pay $150,000 and Imposes a One-Year Trading Ban for Spoofing in WTI Futures. [keyword: wti]
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☑️ #13 Jun 14, 2024 🏦 tour
Financial District Walking Tour (February 2020): a "speed of light" delivery of historic facts
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@tomdnyc1: Tour guide, Tomas "Tom" Delgado, takes you on a quick informative and improvised tour of the Financial District of Lower Manhattan. Shot by Keith Glidewell. Route was starting at 1 Broadway heading north -- right on Exchange Place -- left on Broad Street -- left on Wall Street -- right on Broadway -- end at Zuccotti Park.
🔹Related content:
@rexlex1736: Your "speed of light" delivery of historic facts is truly impressive!
@MoniqueDanielle: Is it weird that I find this mixture if wit & information attractive? No? Okay great! Continue
@davidk.1089: Great tour, thanks! Even as a New Yorker, I learn so much! Id like to add that the Customs House you started at, is now an excellent Smithsonian museum that I highly recommend.
5:57 [The Buttonwood tree and the New York Stock Exchange] Plaque:
THIS CENTRAL MARKET PLACE FOR THE PURCHASE AND SALE OF SECURITIES WAS FOUNDED IN 1792 BY MERCHANTS WHO MET DAILY BENEATH A BUTTONWOOD TREE THAT GREW NEARBY. COMPLETED IN
1903 FROM DESIGNS BY GEORGE B. POST. SCULPTORS OF PEDIMENT GROUP WERE J. Q. A. WARD AND PAUL W. BARTLETT.
loc.gov: Gottscho-Schleisner Collection (Library of Congress)
Keyword: New York Stock Exchange > “Museum of the City of New York, 104th St. and 5th Ave., New York City. Stock Exchange, Buttonwood diorama” - 1945 June 29
An Inside Look At The New York Stock Exchange (NYSE)
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@Benzinga: In this video, we're giving you an exclusive tour of the New York Stock Exchange! The New York Stock Exchange is one of the most iconic and historic buildings in New York City. Now it's your chance to see it up close and personal!
Benzinga presents an exclusive tour of the NYSE with Jay Woods.
Jay Woods serves as Chief Market Strategist for DriveWealth Institutional. Prior to joining DriveWealth, he served as an Executive Floor Governor at the NYSE, a position which is voted upon by his peers and held by only six NYSE members.
Jay spent over 25 years as a Designated Market Maker on the NYSE floor. As DMM he was responsible for several high-profile IPO’s and led trading in some of the most active issues at the NYSE. We're giving you a chance to see the inside of the exchange and learn about the history of the NYSE. This is a unique opportunity that you won't find anywhere else, so don't miss out! Join Benzinga’s Money Mitch and Chris Katje as we take a look around the different rooms of this historical building located at 11 Wall Street, meet some familiar faces, and learn about what happens day-to-day. Enjoy the video.
🔹Related content:
Buttonwood Agreement & Buttonwood Room
@richjohnson (1/12/18): Copy of Buttonwood agreement on 7 th floor @NYSE
@NYSE (2/17/19): The 1792 Restaurant is named after our founding year, & is adorned with a large mural entitled “The Signing of the ButtonwoodAgreement in 1792” by Vincent Maragliotti The piece depicts the 24 brokers singing the agreement under the eponymous tree that previously grew on Wall St
@NYSE (1/21/15): Welcome to the new Buttonwood Room
Fast facts:
1st opened in 1922
7k sq-ft
Home to traders, brokers & market makers
The Board Room
@NYSE (1/20/19): In the Board Room of the NYSE stands a priceless Fabergé Russian Urn from 1904 It was a gift from Czar Nicholas II of Russia in appreciation for the NYSE listing $1 billion in government bonds #BeyondTheFloor
@NYSE (7/6/18): This week’s #FBF is from 1969 when rising trade volume prompted us to open a 3rd trading room: The Blue Room. Named for the color of its walls, the Blue Room featured two giant experimental horseshoe-shaped trading posts that each accommodated 300 stocks
@antonia_mdprjct: Whenever I hear someone talking about how easy it would be to convert an office bldg to residential, I think of the first repositioning project I ever worked on. 500K SF of semi-vacant office into 500+ luxury rental apts. 1958 vintage bldg w/ some asbestos & a complex structure.
@LoganGarbarini: Very cool! Gonna leave this here for others as I went down a bit of a rabbit hole. It seems that triple height space below may have been none other than the NYSE “Blue Room” trading floor! Also explains all the low-voltage wiring!
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☑️ #11 Jun 7, 2024
Roaring Kitty Live Stream - June 7, 2024
🔹Related content:
wallstreetbets: Roaring Kitty has added a lengthy disclaimer to the description of his YouTube livestream
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☑️ #11 Jun 6, 2024
'2008 stock market crash' Oct. 24 2008. Stock futures hit limit down. CNBC Opening Bell
Reuters (10/24/08)
An NYSE circuit-breaker halt was last triggered on October 27, 1997 during a wide-scale market plunge triggered by a financial crisis in Asia.
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@luc0007: ALL RIGHTS RESERVED, CNBC, NBC, NBCUNIVERSAL This has been uploaded for archival purposes. No copyright INTENDED.
Observation desk: “On October 24, 2008, Asian markets experienced significant declines. For example, the Nikkei 225 index dropped by 9.6%. Major European indexes also fell sharply and in Moscow, the market fell by 14%, causing a suspension of trading1. In the U.S., equity futures trading limit downs were activated before 7 a.m. ET.
Finally the Dow Jones Industrial Average (INDU) fell 312 points (3.6%) after initially dropping 504 points in the morning. ”
🔹Related content:
money.cnn.com: [Excerpt] Markets were so jittery early Friday that the New York Stock Exchange felt it was necessary to post a statement on its blog confirming that trading would open as normal at 9:30 a.m. ET, saying it felt it was necessary to answer widespread rumors that the open would be delayed.
The NYSE also posted updated details of so-called circuit breakers, which would halt trading for certain periods of time if the Dow Jones industrial average falls 1,100 points during the trading day. It said it was posting that information with "the fervent hope we won't need them."
The NYSE will invoke Rule 48 for this morning's opening. Mandatory opening indications are therefore not required. See overview of Rule 48:
NYSE Trader.
Overview of Rule 48. 12 Dec 2007
Rule 48 provides the Exchange with the ability to suspend the requirement to disseminate price indications and obtain Floor Official approval prior to the opening when extremely high market-wide volatility could cause Floor-wide delays in opening of securities on the Exchange.
Rule 48 is intended to be invoked only in those situations where the potential for extreme market volatility would likely impair Floor-wide operations at the Exchange by impeding the fair and orderly opening of securities. Accordingly, the rule sets forth a number of factors to be considered before declaring such a condition, including:
Volatility during the previous day’s trading session;
Trading in foreign markets before the open;
Substantial activity in the futures market before the open;
The volume of pre-opening indications of interest;
Evidence of pre-opening significant order imbalances across the market;
Government announcements;
News and corporate events; and,
Any such other market conditions that could impact Floor-wide trading conditions.
Gap-up moves: Top 3 largest opening gaps since 2020
1️⃣ Opening Bell, November 10, 2022
Opening Gap for S&P 500: gapped up +111.32 points (the maximum increase in the value on the same day: 207.80)
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2️⃣ Opening Bell, March 24, 2020
Opening Gap for S&P 500: gapped up +107.04 points (the maximum increase in the value on the same day: 209.93)
3️⃣ Opening Bell, April 6, 2020
Opening Gap for S&P 500: gapped up +89.60 points (the maximum increase in the value on the same day: 175.04)
markets.businessinsider.com: [Excerpt] Before the opening bell In Europe, Germany's DAX rose 4.5%, Britain's FTSE 100 rose 2%, and the Euro Stoxx 50 rose 3.8%. In Asia, mainland China's markets were closed for a public holiday while Hong Kong's Hang Seng rose 2.2%, and Japan's Nikkei rose 4.2%. In the US, futures underlying the Dow Jones Industrial Average, the S&P 500, and the Nasdaq were up by 3.6% to 3.7%.
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cnbc.com: [Excerpt] Stocks ripped higher to start the holiday-shortened week as a combination of positive headlines eased investor angst after last week’s abysmal March jobs numbers. Though the White House said this week’s COVID-19 deaths could be substantial, the administration struck a more optimistic tone at its press conference on Sunday. Here’s what happened
🔹Related content:
nyse.com/bell: [Excerpt] An expert analyzed the sound of the bell for the NYSE’s trademark registration as follows: "The mark consists of the sound of a brass bell tuned to the pitch D, but with an overtone of D-sharp, struck nine times at a brisk tempo, with the final tone allowed to ring until the sound decays naturally. The rhythmic pattern is eight 16th notes and a quarter note; the total duration, from the striking of the first tone to the end of the decay on the final one, is just over 3 seconds."
nasdaq.com/marketsite/bell-ringing-ceremony: [Excerpt] Tune in to watch the livestream of our daily market Opening and Closing Bell Ceremonies at the Nasdaq MarketSite Studio in Times Square and remotely around the globe.
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☑️ #9 Jun 4, 2024
Should you tame the Roaring Kitty?
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@CNBCtelevision: Jacob Frenkel, Dickinson Wright chair of the government investigations & securities enforcement division and former SEC division of enforcement senior council, joins 'Squawk Box' to discuss the fallout from GameStop’s recent roller-coaster ride after Keith Gill, also known as 'Roaring Kitty', posted a screenshot of GameStop holdings on Monday, whether the meme stock mania can be regulated, and more.
🔹Related content:
CrypticFoxGaming: They are LITERALLY having this conversation on a TV program that is based around people telling viewers what they’re doing and what they think they should buy!
bloomberg.com: Andrew Left (reddit.com/t/andrew_left), Burned in 2021 Meme Mania, Is Short GameStop Again: Stock soars after Keith Gill shows stake of 5 million shares. “When I saw it, I shorted it,” Left says of Gill’s Reddit post.
@simplyfinance: [Excerpt] Some people hate this. They call it froth. They call it a distraction. Morgan Stanley and E-Trade talk about banning him from using their trading platforms..
@unusual_whales (6/4/24): The SEC has announced they are looking at GameStop, $GME options activity for manipulation after Roaring Kitty disclosed his option trades. For reference, US Congress option trades all the time! For example, Nancy Pelosi bought $NVDA, Nvidia call options before major bills and news, and is up over 200% on her calls in 190 days. Yet no SEC investigation
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@unusual_whales: BREAKING: The Massachusetts securities regulator is probing the trading activities of GameStop, $GME investor Keith Gill aka DeepFuckingValue aka Roaring Kitty
@CNBCtelevision (2/18/21): Keith Gill delivers his testimony at GameStop hearing: 'I like the stock'.
Keith Gill, trader on Reddit aka 'Roaring Kitty', delivers his opening statement. Gill joins Robinhood CEO Vlad Tenev, Melvin Capital CEO Gabriel Plotkin, Reddit co-founder and CEO Steve Huffman and Citadel CEO Ken Griffin in testifying before the House Committee on Financial Services about the GameStop trading activity in late January. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi
The Reddit and YouTube trading star known as “Roaring Kitty” defended his social media posts that helped spark a mania in GameStop shares last month in testimony released Wednesday, saying he was an individual investor acting only on publicly available information.
The trader, whose real name is Keith Gill, is set to testify Thursday before the U.S. House of Representatives’ Committee on Financial Services. Other than defending his actions, Gill used his testimony to again make the case for why he is still bullish on GameStop.
“GameStop’s stock price may have gotten a bit ahead of itself last month, but I’m as bullish as I’ve ever been on a potential turnaround. In short, I like the stock,” Gill said in the comments. “I believed – and I continue to believe – that GameStop has the potential to reinvent itself as the ultimate destination for gamers within the thriving $200 billion gaming industry.”
Through YouTube videos and Reddit posts, Gill — who goes by DeepF------Value on Reddit and Roaring Kitty on YouTube — attracted an army of day traders who cheered each other on and piled into the brick-and-mortar video game stock and call options.
GameStop’s share price ballooned to $483 per share, before spiraling down more than 90% to around $46 per share currently.
“I believed the company was dramatically undervalued by the market. The prevailing analysis about GameStop’s impending doom was simply wrong,” he said in the testimony. “My investment skills had reached a level where I felt sharing them publicly could help others.”
In his testimony, Gil said he started buying shares of GameStop in 2019, when the stock price declined on disappointing earnings. Plus, Gill liked that famed investor Michael Burry was bullish on GameStop.
“Because I thought the stock was undervalued, I purchased call options on June 7, 2019. I increased my position throughout much of 2019 and 2020, because as I continued to analyze the company and its 3 prospects, I became increasingly confident that the share price was indeed dramatically undervalued,” the testimony said.
He said the market was underestimating GameStop’s growth prospects and overestimating the likelihood the video game company would go bankrupt. Gill believes GameStop can expand its digital capabilities and harness its 60 million loyal members, the testimony said.
The WallStreetBets star went on to say that social media platforms like YouTube, Twitter, and WallStreetBets on Reddit are leveling the playing field for individual investors as they work together to build investment ideas.
“I was abundantly clear that my channel was for educational purposes only, and that my aggressive style of investing was unlikely to be suitable for most folks checking out the channel,” said Gill. “Whether other individual investors bought the stock was irrelevant to my thesis – my focus was on the fundamentals of the business.”
Gill’s latest post on Reddit said he made $7.8 million off of GameStop. A proposed class-action lawsuit was brought against Gill on Wednesday, filed in federal court in Massachusetts, alleging that he pretended to be a novice trader despite being a licensed professional.
r/roaringkitty: Subreddit for the Roaring Kitty youtube channel as well as Deep Value Investing strategies more broadly. Fan operated.
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☑️ #8 Jun 3, 2024
PIT TRADING 101 (2013 Documentary film by Jonathan Hoenig)
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@cpmilken:Imagine a job that required you to stand on your feet for seven straight hours, frantically screaming and yelling, while making bets worth $10,000, $50,000 or even $100,000. But this isn’t Las Vegas – it’s a trading pit.
At the peak of the mid-90’s market frenzy, over 10,000 traders worked on the floors of Chicago’s four major exchanges. Trillions of dollars’ worth of commodities were exchanged with just a flick of a wrist or motion of the hand. While an outsider might see this environment as complete chaos, it was actually quite the opposite. Open outcry, a style of communication relying on specific gestures and vocal cues was a sort of secret language unique to traders; one that has never been replicated elsewhere.
Aspiring traders often got their foot in the through apprenticeships or connections; but others attended the University of Trading, a weekend course offered at the CME, where they learned the how to communicate orders with their hands and practiced making trades with brokers in the pit.
A documentary film crew was given rare access to tape this particular class, which happened to include a young trader named Jonathan Hoenig. The resulting footage was never used and sat, untouched, for 17 years. During that time, the entire industry disappeared. This film is a look back at a job, an industry and a world that no longer exists.
Pit Trading 101 is a must-see for anyone who has ever dreamt of putting on a trading jacket and stepping into the true last bastion of pure, physical trade. For computer trading jockeys; this film shows how trading used to be done, where success was dependent not only on making trades, but on one’s self-confidence and ability to have enough physical presence to stand out in the crowd.
On a cold Saturday in 1996, a small group of aspiring traders gathered in a classroom at the Chicago Mercantile Exchange to participate in the University of Trading. Open to anyone who wanted to attend, the students learned about pit trading, the legendary system of “open outcry” trading pioneered in Chicago’s famous futures pits.
Back then, the world markets were booming and the trading floors in Chicago were the center of the financial universe. Traders were like rock stars, making money hand over fist while chatting it up with Maria Bartiromo on CNBC after the close.
On this day, these men and women would experience first-hand what it felt like to put on a trading jacket and make trades in the CME’s currency pits; to experience that thrill and know if they were cut out for a job as a pit trader. Some people were hooked immediately, while others quickly learned that it wasn’t for them.
In 1996, there were over 10,000 floor traders working in Chicago’s four exchanges, making it the trading capital of the world, a bastion of U.S. capitalism. By 2013, there were less than 250 left as a result of computerized trading. This film is a look back at a job, an industry and a world that no longer exists.
Pit trading was unique to the Chicago way of life for over 100 years. The four financial exchanges: Chicago Board of Trade (CBOT), Chicago Mercantile Exchange (CME), Chicago Board Options Exchange (CBOE) and the Chicago Stock Exchange (CSE) were important financial hubs and the liquidity these traders provided was critically important to the entire world.
The average person, observing the trading floor from one of the viewing stations, would see a chaotic mass of sweaty bodies, standing shoulder-to-shoulder, shouting and making incomprehensible hand gestures. But in reality, pit trading was an orderly process. The hand signals were used to communicate orders; once mastered, the traders could communicate faster with gestures than they could with their voices.
The trading floor attracted people from all walks of life. You didn’t need an Ivy League degree; in fact, you didn’t need a diploma at all. A mix of intelligence, physicality, independence and tenacity enabled a person to thrive as a pit trader. You needed to be able to take a risk and think for yourself, to differentiate yourself and stand out in the crowd. These are lessons that transcend the pit.
OFFICIAL SELECTION: Chagrin Documentary Film Festival (2014), International Film Awards Berlin (2014), Sunset International Film Festival (2014)
Jonathan Hoenig, Producer, is managing member at Capitalistpig Hedge Fund LLC. A former floor trader at the Chicago Board of Trade, Hoenig's first book, Greed is Good was published by HarperCollins. He is a frequent commentator in the financial press, and has written for publications including The Wall Street Journal Europe, Wired, Maxim and Chicago Sun-Times. Jonathan was named one of Crain's "Forty Under Forty".
@ratione: @Pancho2413 OMG!! I could see that he sold almost 30 futures contracts like 4000 tons of wheat; with a starting price of 870.00 and apparently a final price of 840.00 that means he wons around $45,000dllrs in less a minute. But these days I've seen guys who trade more than 200 contracts XD
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☑️ #7 May 29, 2024
The Great Bull Market of 1982 (2): Kaufman’s Team
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@NYUSternBusiness: Fireside Chat with Dr. Henry Kaufman & Panel with Dr. Kaufman's Economics team at Salomon Brothers (5/3/21)
On April 22, NYU Stern's Center for Global Economy and Business hosted a fireside chat with Dr. Henry Kaufman (ARTS '48, PhD '58) to discuss his book: “The Day the Markets Roared: How a 1982 Forecast Sparked a Global Bull Market.” NYU President Andrew Hamilton introduced the event and Professor Kim Schoenholtz, Director of the Center, led the conversation.
The fireside chat was followed by a panel with leaders of Dr. Kaufman's Economics team at Salomon Brothers: Robert DiClemente, Former U.S. Chief Economist, Citigroup; John Lipsky, Former Deputy Managing Director, IMF; and Nicholas Sargen, Former CIO, Fort Washington Investment Advisors. NYU Stern Professor of Finance Richard Berner moderated the panel.
🔹Related content:
fraser.stlouisfed.org (pdf): [Excerpt] Interview of Albert M. Wojnilower Conducted by Robert L. Hetzel August 29, 2002
Albert Wojnilower: Yeah, well, it could have. I don’t specifically remember. But I think your description of it is absolutely accurate. At that time, I saw Volcker relatively often. He might disagree but I don’t think he ever gave a damn, pardon the expression, about the money supply other than as a political instrument for justifying what he and the Federal Reserve were doing at the time.
So it wasn’t really because of Volcker’s personality or psychology that I forecast those 20 percent funds rates a couple times. I advanced them because I could tell that the economic situation was one that once he was committed to going that way, it was going take him further than he expected at the beginning, but that he would stick to it.
01:12:28
Robert L. Hetzel: Yeah, nobody at the time expected just how difficult it would be.
Albert Wojnilower: That’s right. It was hard for anybody outside the financial markets or outside sort of who was part of the official sector who always attempts to think incrementally, it’s very hard for them to have understood what the climate was in the country then.
And then, when I didn’t—well, actually, Henry Kaufman and I, in some sense, predicted when the raising of interest rates or the Fed’s funds rates would stop. But when Volcker did it, there was no justification in money supply developments for doing so. If anybody had been on money supply, they would have said the rate would have had to go further.
Robert L. Hetzel: So this is summer 1982 you’re talking about?
Albert Wojnilower: Yeah, right. Basically, I think it was in November that he made a speech, the bulk of which was to say, “Who cares? Twenty percent is enough.”
oaktreecapital.com (7/29/21): [Excerpt] Among the defining elements that marked my early years in investing was the 5-15% annual inflation that prevailed in the U.S. from the early 1970s through 1982. Dr. Doom and Dr. Gloom (chief economists Henry Kaufman of Salomon Brothers and Al Wojnilower of First Boston – I forget which was which) regularly admitted in their depressing speeches that they weren’t sure what was causing the inflation or how to bring it down. No one was able to make progress combatting inflation until Fed Chair Paul Volcker solved the problem by raising interest rates dramatically, bringing on a significant double-dip recession in 1980-82.
Traders love a bull market, and they’ve had plenty to work with in the stock market since August 1982. But now it’s 1984. Can the upward trend continue as it historically goes during an election year?…
As Kaufman freely acknowledges, the trend in interest rates had already turned positive 10 months before his reversal made the markets roar. No other news of 17 August 1982 could account for that day’s spectacular rally. Prices essentially soared based on nothing that qualified as information, as strictly defined by financial economists. The only thing that changed was one man’s opinion of previously known facts2. In short, the event qualifies as an efficient market hypothesis (EMH) anomaly.3
Die-hard EMH adherents might comfort themselves with the thought that this all took place four decades ago and could not possibly occur today. Kaufman implies as much:
“The way economic and investment information reaches Wall Street has already changed considerably over the last forty years, which may be yet another reason why no private-sector individual since has caused the markets to roar (or collapse) to the same degree.”
@HezakyaNewz: The Reagan years were marked by a renewed push for capitalism and business, with national efforts to de-regulate industries such as telecommunications and aviation. The economy resumed upward growth after a period in the early 1980s of languishing.
A report in The New York Times described that the flushness of money and growth during these years had spawned a drug culture of sorts, with a rampant acceptance of cocaine use although the overall percent of actual users was most likely small. A reporter wrote:
The Wall Street drug dealer looked like many other successful young female executives. Stylishly dressed and wearing designer sunglasses, she sat in her 1983 Chevrolet Camaro in a no-parking zone across the street from the Marine Midland Bank branch on lower Broadway.
The customer in the passenger seat looked like a successful young businessman. But as the dealer slipped him a heat-sealed plastic envelope of cocaine and he passed her cash, the transaction was being watched through the sunroof of her car by Federal drug agents in a nearby building. And the customer — an undercover agent himself -was learning the ways, the wiles and the conventions of Wall Street's drug subculture. — Peter Kerr in The New York Times, 1987.
In 1987, the stock market plunged, and, in the relatively brief recession following, the surrounding area lost 100,000 jobs according to one estimate.
Since telecommunications costs were coming down, banks and brokerage firms could move away from the Financial District to more affordable locations.
One of the firms looking to move away was the NYSE. In 1998, the NYSE and the city struck a $900 million deal which kept the NYSE from moving across the river to Jersey City; the deal was described as the "largest in city history to prevent a corporation from leaving town".
🔹Related content:
Equity valuations still seem high by historic standards.
quantopian.com (5/31/24; emailed): The Mathematician Who Cracked Wall Street | Jim Simons
In memory of Jim Simons, we’d like to share an interview he did with TED’s Chris Anderson in 2016 about his life and his work.
Jim Simons was a mathematician, investor, and philanthropist who is well known for incorporating the use of quantitative analysis into his investment strategies. He founded the incredibly successful hedge fund Renaissance Technologiesin 1982 which uses mathematical models to filter financial data. In regards to his philanthropic efforts, he founded the Simons Foundation, which is one of the largest private funders of scientific research, as well as Math for America, a non-profit that fosters STEM innovation in classrooms through a fellowship program for NYC public school teachers.
Jim Simons passed away this month at the age of 86 in his home. He will be missed by many, but his legacy will live on through his great work, generosity, and innovations.
You can watch his 2016 TED talk below or at this link.
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@investorarchive: Warren Buffett, interim chairman of Salomon Brothers, testifies before a House Commerce subcommittee on Capitol Hill in Washington, D.C., Sept. 5, 1991. Buffett apologized on behalf of the investment firm and promised wholehearted cooperation with investigators probing recent disclosures of the firm's illegal activities in the government securities market.
store.hbr.org: [Excerpt] Business Case Studies > Salomon and the Treasury Securities Auction (3/8/92)
Set in June 1991, two months prior to Salomon Brothers' announcement that the firm had violated the Treasury Department's rules governing the auctions of new Treasury securities. Salomon Vice Chairman John Meriwether must decide how to address problems that continue to appear in the management of the firm's government bond trading activities. In April 1991, one of his managers admitted that he had submitted an illegal auction bid in February 1991.
Now, one month later, there is mounting speculation in the press that Salomon tried to corner the market for May 2-year notes. Structured to allow students to analyze the ethical, legal and managerial dimensions of John Meriwether's situation. Background information about the history of Salomon Brothers and the investment banking industry, the markets for government securities, and the regulation of securities dealers and brokers is interwoven with Meriwether's story. Accessible to individuals with and without experience in investment banking.
elibrary.imf.org: [Excerpt] Chapter 16 Government Securities Market Regulation: The Case of Salomon Brothers (8/3/95)
berkshirehathaway.com: [Excerpt] Berkshire Hathaway, Inc. - 1995 Annual Report (1996)
Convertible Preferred Stocks
As many of you will remember, Berkshire made five private purchases of convertible preferred stocks during the 1987-91 period and the time seems right to discuss their status. Here are the particulars:
Our other two preferreds have been disappointing, though the Salomon preferred has modestly outperformed the fixed-income securities for which it was a substitute. However, the amount of management time Charlie and I have devoted to this holding has been vastly greater than its economic significance to Berkshire. Certainly I never dreamed I would take a new job at age 60 Salomon interim chairman, that is because of an earlier purchase of a fixed-income security.
Soon after our purchase of the Salomon preferred in 1987, I wrote that I had "no special insights regarding the direction or future profitability of investment banking." Even the most charitable commentator would conclude that I have since proved my point.
To date, our option to convert into Salomon common has not proven of value. Furthermore, the Dow Industrials have doubled since I committed to buy the preferred, and the brokerage group has performed equally as well. That means my decision to go with Salomon because I saw value in the conversion option must be graded as very poor. Even so, the preferred has continued under some trying conditions to deliver as a fixed-income security, and the 9% dividend is currently quite attractive.
Unless the preferred is converted, its terms require redemption of 20% of the issue on October 31 of each year, 1995-99, and $140 million of our original $700 million was taken on schedule last year. (Some press reports labeled this a sale, but a senior security that matures is not "sold.") Though we did not elect to convert the preferred that matured last year, we have four more bites at the conversion apple, and I believe it quite likely that we will yet find value in our right to convert.
latimes.com: [Excerpt] Taming the Bond Buccaneers at Salomon Brothers
How Warren Buffet and friends swept up after the Salomon scandal, possible saving the firm from federal regulators furious after a decade of skuldggery on Wall Street.
Soon thereafter, observers gossiped that the Gutfreunds’ social whirl was deflecting John’s attention from business. Whatever the truth, by 1987 Salomon was floundering, its stock price so low that it became a target of takeover specialist Ronald O. Perelman, chairman of Revlon Inc.
Gutfreund prevailed over Perelman only because Buffett came to his rescue with a $700-million purchase of preferred Salomon stock. Many insiders were angry about the deal--another secret Gutfreund negotiation. They worried that Buffett’s $63 million in annual dividends could shrink their bonuses. Furious shareholders filed 19 lawsuits, eventually settling for an undisclosed amount.
Buffett joined the Salomon board of directors and lionized Gutfreund in the Berkshire annual report as a man of integrity. However, many admirers questioned the deal, because Buffett had long denounced Wall Street for sleazy ethics. He once advised, “If you want to make money, hold your nose and go to Wall Street.”
🙂
☑️ #4 May 23, 2024
How Do U.S. Treasury Auctions Actually Work? (Explained Simply)
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@FinanciallyAware: How do U.S. Treasury Bill and Bond auctions actually work? If you are a noncompetitive bidder, do you get the same interest rate as competitive bidders? How do you know what interest rate you will get before the auction starts? I go over how the Dutch auction method used by the U.S. Treasury actually works. I also explain some of the bond jargon used like: when issued, snap, bid to cover, stop , tail, stop through, and on the screws.
Bond Issuance - Treasury Direct (“TD”): [Excerpt] A web-based system for holding Treasury marketable securities and savings bonds directly with the U.S. government. For marketables, TreasuryDirect is an alternative to banks, brokers, and dealers. For savings bonds, TreasuryDirect is an alternative to paper savings bonds.
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@veritasium: The most famous equation in finance, the Black-Scholes/Merton equation, came from physics. It launched an industry worth trillions of dollars and led to the world’s best investments.
🔸Keywords:
Call options, Put options, L. Bachelier, H. Poincaré, random walk, normal probability distribution, Markov process, E. Thorp, J. Simons, Black-Scholes/Merton equation, R. Brown, J. Fourier, A. Einstein, A. Lo, and more:
Galton Board [1:55] Veritasium uses an incredibly nice visual representation of this by using what's called a Galton board in their video. This is a board which simulates many many such events which determine simultaneously many decisions whether to go left or right, or up and down in the case of stock market, and it demonstrates very well how this leads to a so-called normal probability distribution which is just the classic bell curve. It does this by dropping a whole lot of ball bearings down a chute where they bounce off pins which force them to go left or right for several layers. This is a really great moment in their video and one of the best parts. It illustrates really well how such a process can lead to a bell curve, but the huge problem with this model is that bell curves don't actually accurately represent financial statistics, and they assume that each step in the process is random and independent of the last.
Demo with the Galton Board with Pascal’s Triangle: galtonboard.com
🔸References:
The Man Who Solved the Market: How Jim Simons launched the quant revolution, Gregory Zuckerman. Penguin Publishing Group. - https://ve42.co/GZuckerman
The Physics of Finance: Predicting the Unpredictable: Can Science Beat the Market? James Owen Weatherall. Short Books. - https://ve42.co/FinancePhysics
Black, F., & Scholes, M. (1973). The pricing of options and corporate liabilities. Journal of political economy, 81(3), 637-654. - https://ve42.co/BlackScholes
Cornell, B. (2020). Medallion fund: The ultimate counterexample?. The Journal of Portfolio Management, 46(4), 156-159. - https://ve42.co/Medallion
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The Trillion Dollar FLAW in Financial Market Trading
@fractalmanhattan : Ever heard of the Black-Scholes-Merton equation? It's the bedrock of options pricing in financial markets, but what if I told you it's hiding a monstrous flaw? 🤯 Dive deep into the world of financial mathematics with me in this eye-opening video where I dissect the "trillion-dollar equation" and reveal its Achilles' heel.
Veritasium, known for its captivating science content, recently tackled this very equation, but they missed a crucial piece of the puzzle. Join me as I break down the misconceptions and uncover the hidden dangers. I'll introduce you to the reality of volatility clustering and fat-tailed distributions, concepts that could reshape your understanding of market behavior, and reveal the infamous bailout of Long-Term Capital Management's trading positions, where the brightest minds in finance were blindsided by their own models.
🙂
☑️ #3 May 20, 2024
Enterprise -- Billion Dollar day -- 1985
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@pressmin :Enterprise series "Billion Dollar Day." Here you will see the foreign exchange markets in 3 cities: New York, Hong Kong, London. You will see how quickly the foreign currency rise and fall.
🔹Related comments:
4th June 1985: Billion Dollar Day
@TheCoOrdinator: "Commercial Breaks filmed round the clock in London, New York and Hong Kong as three men gambled on which way the dollar would turn...."
The day in question was 4th June 1985, with the programme being aired on BBC 2 some weeks later. This 'landmark' documentary is now available in its entirety in high quality!
@charlesandrews2360: I was working in the currency futures pits at the CME at that time. The atmosphere was electric. Every month when the government would release the merchandise trade balance figures the place went absolutely bananas. It was like the Wild Wild West with all the old robber barons trading in the livestock pits and all the hot shot young guns trading currencies. It was marvelous
@charlesandrews2360The old Eurodollar Options pit is still open. As of about two weeks ago they're trading a different contract in that pit. I don't know what they call it now but the last euro-dollar contract traded two or three Fridays ago
@dac8939I did MSc financial mathematics quite a few years ago but never got into trading. Worked in investment management for quite a while and now want to do some option trading in my own account. Is it true 95% lose money (retail traders?). Any tips to start out or not worth it?
@salsperspective9745 Look How far we have come to the point of single person clicking button on a screen.
@ambiencelectronica Sounds unreal! Where can you see foreign exchange trading in the next few years? Will it still be a thing or will it all crash?
@charlesandrews2360I think currency trading will always be there but at some point won't be as volatile.
@ambiencelectronicaI don’t have any real experience in the financial game but i was just thinking with the BRICS nations and new countries now joining up it’s difficult to grasp what they’re trying to achieve with a single digital ledger currency and where will that leave the currency market and affects on trade, or maybe we’re to speculate on this also.. haha
@charlesandrews2360 traditionally the strength of a currency is based on the interest rate of that particular country. As long as interest rates change there will be volatility in the currency markets. To be honest I was a floor broker during my career in the pits where all we needed to qualify is 3rd grade level English and 4th grade level math. That was a common joke on the floor of the exchange that wasn't really a joke. I just don't know enough about how markets work to give an informed opinion. Anyway, I'm much more concerned about our domestic political situation but at some point I will take the time to look into BRICS in depth.
@retiredbroker I know some of the guys that worked there then. The stories were crazy!
@poloska9471 I just recently became a pro futures trader (indexes - ES, NQ) and I can only imagine doing it like you guys back in the day, must have been a truly crazy (in an amazing way) experience... markets still going strong but the game has certainly changed...
The Myth of Michael Milken with Richard Sandler | Unveiling the True Story of a Financial Icon
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@iconnections2984: Explore the untold story of Michael Milken, the financial maverick who left an indelible mark on the world of finance!
Read the book: Witness to a Prosecution: The Myth of Michael Milken by Richard Sandler https://a.co/d/7iaW7j8
Join us for a conversation at Global Alts as Richard Sandler, Executive Director of the Milken Family Foundation, unveils the remarkable life and legacy of the iconic Michael Milken. Moderated by Joshua Friedman, Co-Founder and Co-CEO of Canyon Partners, this interview delves deep into the myths and realities surrounding the enigmatic figure of Mike Milken.
Discover the groundbreaking innovations that reshaped the financial markets, transforming high-yield bonds and empowering private equity. Learn about the unprecedented legal challenges, overzealous prosecutors, and the enduring impact on individuals and businesses.
But that's not all! Dive into the post-prosecution chapter of Mike Milken's life, where philanthropy took center stage. Explore how he channeled his vision to improve public education, advance medical research, and foster global problem-solving through the Milken Family Foundation and the Milken Institute.
Don't miss this unique opportunity to gain insights into the man behind the myth and uncover the true story of Michael Milken. Whether you're a finance enthusiast, history buff, or simply curious about the hidden narratives of the financial world, this interview is a must-watch!
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@palmtreeshinobi: In private credit, all roads lead to Michael Milken. Throughout the 1970s and 1980s, Drexel Burnham Lambert revolutionized high-yield corporate lending. After the bank collapsed in 1990, Drexel alumni dispersed across Wall Street and set the stage for today's $1.6tn private credit market. For more, check out my full write-up on the history of private credit at Wall Street Fintech (linked in my bio)
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Link: Even more remarkably, approximately a month before the day the market roared, the New York Daily News reported that a rumor that Kaufman had revised his interest rate outlook triggered a one-day rally.
Link: In “Do Brokerage Analysts’ Recommendations Have Investment Value?” Kent L. Womack summarized thus the argument presented earlier by Sanford Grossman and Joseph Stiglitz: “Information is costly to process. Brokerage firms spend hundreds of millions of dollars annually analyzing stocks and trying to persuade investors that certain stocks are more or less attractive than others. . . . Market prices cannot perfectly reflect all available information, or else information gatherers would earn no compensation for their costly activities.”
