Tag Archives: Bonds

Bond Traders prove that the Deer prefer Free Meadows

Today a Bloomberg article caught our eye:

Billion-Dollar Traders Quit Wall Street for Hedge Funds

It contains the shocking revelation that some of the most sucessful bond traders are beginning to offer their talents to firms who are best able to compensate them.

Not surprisingly, the firms who are best able to compensate them are those who do not suffer the burden of regulation which has been thrust upon banks.

From Bloomberg:

Wall Street’s biggest banks have lost almost two dozen of their most-profitable credit traders in the past 13 months as regulators limit the kind of risk-taking that amplified the housing crisis four years ago. As banks slash or defer pay and reduce the amount they’re willing to wager, the traders are seeing better opportunities at hedge funds and investment firms that seek to profit in markets lenders are retreating from.

“People who were contributing quite a bit to the overall profitability of the firms are forced to move on,” said Doug Shaener, managing partner at Quest Group, a New York-based executive search consulting firm that specializes in financial services. “You’re seeing individuals looking to go to places where they obviously aren’t as regulated, where they don’t have as many restrictions in terms of their trading.”

Yes, the Deer bond traders are leaving the overcrowded, cordoned off meadows and leaping towards greener pastures.  It is yet another symptom of the Subtle change from Principles to Rules as it plays out in the finance industry.

Please give it a read and let us know how this disturbing phenomenon is playing out in your corner of the world.

Rockaway Beach, Jaca, and the illusion of Market Homeostasis

11/29/2011 Portland, Oregon – Pop in your mints…

We are back from a wonderful Thanksgiving holiday spent with family in lovely Rockaway Beach, Oregon.  Rockaway Beach is a gem of a town on the Oregon coast which straddles Rock Creek as it descends from the Coastal Range and violently collides with the Pacific Ocean.

We were fortunate to awake each morning with a front row seat to this raging battle.  At low tide, the creek appeared to make headway as it made its final run into the great unknown.  The beach was immense and inviting, and seagulls roamed the sands to find what the sea had left behind as an appetizer.

At high tide, the sea was angry.  The creek’s advances were violently thrust back again and again as the full weight of the Pacific came in against it.  The beach and its inhabitants disappeared and we were glad to be looking down on the raging waves from the third floor of the townhouse.

We now understand why navigating the mouth of the Columbia River was a fool’s game for centuries.

The central Oregon coast is unique.  It is never quite warm enough, no matter what time of year one visits, to be a suitable substitute for the tropics.  Nor is it ever quite cool enough to be easily categorized as Nordic.  It permanently exists in a state somewhere between these two extremes.

The State of Oregon declared the entire coast a state highway in 1913 and affirmed the beaches as public lands via passage of the Oregon Beach Bill in 1967.  These two actions have kept the coast both accessible to the public and in generally pristine condition. 

Essentially, these are no private beaches in Oregon   For this, we are grateful, as the coast may be one of the most peaceful and photogenic places on the planet.

Rockaway Beach
Sunset at Rockaway Beach

Our time in sleepy Rockaway Beach was pleasant.  Apart from seven miles of coastline, the town has a park and a number of antique and craft dealers.  On Friday evening we were treated to the annual town Christmas tree decorating and lighting ceremony along with an old fashioned sing-a-long led by the school choir.

Rockaway Beach
A Family enjoys the sunset at Rockaway Beach, Oregon

Songbooks and cookies were passed around and the choir took requests from the crowd.  The last time we experienced such an expression of civic merry making was in the mountain town of Jaca in Aragon.  As we arrived in Jaca, it was dark and persons were flocking to the green in front of the Castle of San Pedro.  They appeared to jump at our car as if from nowhere.

Once settled in to our accommodations, we joined them and were invited to a sing-a-long in the early autumn evening in the Spanish Pyrenees.  But that is a story for another day.  We are having a hard enough time returning from our vacation bliss.  If we reminisce on our time in Spain we may be on permanent vacation.

Homeostasis?

We love the word homeostasis.  It is a complicated way of saying that an organism, or in our case, an economic system, is in balance, in touch with its inner Chi.  We think of a frog sitting on a log, slowly breathing.  Perhaps it is an image burned into our minds by a biology text we once read.  Whatever images the word conjures in your mind, fellow taxpayer, it is unlikely to trigger a flight or fight response.

We seem to have returned from the raging coastline to a market which appears to have achieved a sort of homeostasis.  The rise and fall of equities, many times over 200 points a day as measured by the Dow, should evoke a fight of flight response from market participants.  Yet now commentators and participants barely blink an eye at such moves. 

After trillions of dollars of stimulus, dozens of government bailouts and guarantees, and collectively learning to think the unthinkable, the market must finally be achieving equilibrium, right?

Oh fellow taxpayer, if only it were true.  Unfortunately, the very perception that the market may be at homeostasis may be the indication that we are at an intermission before the dramatic final act of the play in which we all find ourselves unwilling participants, gets underway.

In the final act, the sovereign debt debacle that first appeared in Greece and is now enveloping France and perhaps Germany finds its way across the ocean to the United States of America.  At that point, the US will succeed where Europe, until now, has failed.

As the financial world trains its binoculars on the equity and bond market indicators, they will continue to declare that all is well, the homeostasis that the American authorities so desire will appear to have been achieved.  US bond yields will remain steady and the equity indices will steadily rise.  Even housing may begin to march forward after its long slumber.

No, the US will not default in the traditional way, as Europe is on the verge of doing.  In fact, perceptive fellow taxpayers will quickly point out that the US has been in the process of defaulting for some time now via quantitative easing (QE).

In markets as in a biological system, all of the actors are always pursuing a state of homeostasis.  Yet the rub of homeostasis is that it is impossible to achieve by unilateral force.  It is something that must collectively be achieved.  It is something that only Anarchy, the absence of the State, can bring about.

The final act of this play will be the ultimate display of unilateral force.  In an increasingly desperate attempt to keep bond and equity indices steady, the Federal Reserve will lose control of the currency in what historians will call a hyperinflationary blow off.

Then modern Central Banking, Western Governments, the warfare/welfare state, and all of its grotesque machinations will take a bow and exit stage left…or they will jump off the stage and attack the crowd.

Come to think of it, we may just leave after this intermission.

Stay tuned and Trust Jesus.

Stay Fresh!

David Mint

Email: davidminteconomics@gmail.com

Key Indicators for November 29, 2011

Copper Price per Lb: $3.38
Oil Price per Barrel:  $99.34

Corn Price per Bushel:  $5.98  
10 Yr US Treasury Bond:  2.00%

FED Target Rate:  0.08%  ON AUTOPILOT, THE FED IS DEAD!

Gold Price Per Ounce:  $1,715 PERMANENT UNCERTAINTY

MINT Perceived Target Rate*:  2.00%
Unemployment Rate:  9.0%
Inflation Rate (CPI):  -0.1%
Dow Jones Industrial Average:  11,556  

M1 Monetary Base:  $2,095,600,000,000 RED ALERT!!!  THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base:  $9,664,500,000,000 YIKES UP $1 Trillion in one year!!!!!!!