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Traders that Twitter

As my Twitter audience develops, I've started to keep a group of my favourite Twitter Traders on Tweetdeck.

I thought I'd share this list with you. Please feel free to recommend the many hunders of great traders I have no doubt missed. I'll be sure to check them out and add them!

In no particular order..

@JohnFCarter

Sample tweet - "Looking to buy gold near $850 an ounce -- 50% retracement off the October lows. Will also buy GG stock at that level"

5:12 PM Apr 17th from TweetDeck

@HubertSenters

Sample Tweet - "@milktrader yeah gaps have been around for a very long time anything that JC and I do is not new or ground breaking. LOL"

3:06 AM Apr 8th from Power Twitter in reply to milktrader

@TimothySykes

Sample Tweet - "8 Cheap Stocks & A Ton Of TIMalert Subscriber Testimonials Adding Up To Over $5,000 In Profits Yesterday Alone! http://tinyurl.com/d5ttub"

5:58 PM Apr 16th from twitterfeed

@TradingGoddess

Sample Tweet - "@AtticManTrader Is your attic insulated? I heard it was rather chilly in your neck of the woods"

10:22 AM Apr 5th from web in reply to AtticManTrader

@HowardLindzon

Sample Tweet - "RT @ratiotrader So many people out there are trying to sell systems when the most important thing is controlling yourself not a system $$"

about 9 hours ago from TweetDeck

@AlphaTrends

Sample Tweet - "we are in the stupid phase of this uptrend, all these little garbage stocks rallying, enjoy but dont overstay $$"

3:11 PM Apr 17th from web

@AtticManTrader (ok, so maybe a bit of self promo here, but according to google if you search 'Traders that Tweet', I'm in at number 2!!

Sample Tweet - "Failing to get filled on a stock by 0.5p that subsequently moves in your favor. The painful reality of trading - http://bit.ly/1EaSC"

11:46 PM Apr 14th from web

@steenbab

Sample Tweet - "12:02 PM CT- This blog post examines an important issue for trading performance: when our bodies control our minds: http://rurl.org/1idf"

about 21 hours ago from web

@PKedrosky

Sample Tweet - "Sneak Peek at Weekend Reading: Here is a sneak peek at some links from my weekly Weekend Reading co.. http://tinyurl.com/ch88uz"

about 21hours agofrom TwitterFeed

@GirlTrader

Sample Tweet - "Testing a new 4X trading method. 2&3 Std Deviation Bollinger Band channels. Direction Daily Chart/Entry1hr candle close. Anyone tried this?"

11:44 AM Apr 16th from TweetDeck

@TraderJon

Sample Tweet - "Finding my best timeframe for trading. Good = days to weeks. Bad = intraday / overnight. Trading with a plan is essential. Leverage kills"

2:44 PM Apr 19th from TweetDeck

@350Trader

Sample Tweet - "Picking stocks is like picking fruit in the dark. You know that some of it will be good, but until the sun rises you can't see the bad."

11:45 PM Mar 30th from web

@TraderGav

Sample Tweet - "All patterns are formed. Waiting for entry setup. Another day, another game of patience."

about 5 hours ago from TweetDeck

@smarkus

Sample Tweet - "Charter ($CHTR.L) ex-div today for 14p, helps to explain it's drop of 25p today, also profit taking from a good rise over the last few weeks"

10:30 AM Apr 8th from TwitterFox

@TropicsZ4

Sample Tweet - "Why It Pays to Befriend the ‘Little Guy’ on Twitter - http://bit.ly/19yLaG -... Read More: http://is.gd/tnxJ"

about 10 hours ago from Tweetie

@agwarner

Sample Tweet - "Thursday and Friday of expiration week are unlikely times to see a turnaround of present trend $$"

3:00 PM Apr 16th from TweetDeck

@TraderAlamo

Sample Tweet - "@jmclarty I always picture u trading sipping on some gin & tonic... Is that the case? LOL"

2:42 PM Apr 19th from mobile web

@DownTownTrader

Sample Tweet - "Materials sector is leading the way lower this morning in spite of strength in Gold miners. Steel and Aluminum taking it on the chin. $$"

about 8 hours ago from twhirl

@Mr_FT

Sample Tweet - "Gold looking good today, back to above 100-day mav. But we had this last week - need to see close over $900 to get interested"

about 2 hours ago from web

G20 Protests - An unusual lunchtime walk.

My lunchtime walk today was certainly a little different to normal...

The G20 demonstrations were well underway as myself and a couple of co-workers (dressed down in order to 'blend in'...) headed over to the Climate Change camp on Bishopsgate.

As we arrived on the outskirts of the Climate Change camp the atmosphere was good. Lots of peaceful protesters, lots of Police and plenty of 'camouflaged' city workers. 

Some guy decided it would be a good idea to make camp right in the middle of London Wall..

A couple of minutes after I took this photo, about 15 Policeman rushed this chap, picking his tent up (with him still inside) and throwing it onto the pavement into a group of bystanders. No real need for that. This changed the atmosphere instantly.

TheAtticMan decided to move on....

We headed North up Bishopsgate toward Liverpool Street Station. These 3 police vans sped past us at pace. They were headed toward the RBS branch on Threadneedle street that had recently been attacked.

Apparently they had been placed outside the RBS HQ, so we decided to see what was going on up there.

Where it was all nice and peaceful....

Check out this selection of truly amazing G20 photos collected by JonnyA.

Panorama - RBS Witch Hunt

Why is that in this day and age we always needs to find someone to blame when something goes wrong? The financial markets are screwed - right. Well lets bl**dy well move on and focus on the future not the past.

Panorama (BBC 1) tonight threw its hat into the ring in an attempt to find someone responsible for the mess that RBS are in. In a clearly 'thrown together at the last minute program' they wildly point the finger at whomever they can see in their line of sight.

ABN Amro were up first...with Gordon Brown claiming "Almost all losses were in US Sub-Prime and [were owned by ABN]".

Meanwhile Sir Fred is telling the Treasury Select Committee, that "there were no missed siren calls [with respect of the acquisition of ABN]"

Cut then to a 'mysterious RBS' insider who is quoted as saying "We said no to the deal because the numbers have not come through, but they went ahead and did it anyway". He later suggests that they had seen the numbers but that they "did not look good" - Come on Mr Mystery Man, some consistency please - You either saw them or you didn't!

It was then suggested that because RBS's takeover bid was hostile, their due diligence was undertaken predominantly using information in the public domain, and this was the reason they didn't fully understand the toxicity of the ABN loan book. Am I missing something here? Barclay's were also in the race to purchase ABN Amro, which, billed as a 'merger of equals' meant they had access to internal ABN information. Barclays discovered no bones in the ABNcloset during their due dilegence. And anyone remember who lit the touch paper under the whole ABN purchase thing? It was a letter by Christopher Hohn of the Children's Investment Trust who claimed ABN were under performing. For "under performing", read "conservative"?

Meanwhile across the pond in Sandiego, a firm of lawyers are putting together a class action claiming that on 22 June 2007, RBS raised $2.5bn in preference shares "with full knowledge that [they] were in poor financial health". So here we see more inconsistencies. The class action is being fort on the premise that RBS was in poor financial health in June 2007, a full 4 months before the ABN deal became unconditional. And yet Gordon Brown states "Almost all losses were in US Sub-Prime and [were owned by ABN]".

So, then the finger turns to the FSA who make perhaps the most pathetic statement of the night "In the last 18months we have brought criminal proceedings in areas such as insider dealing, money laundering and forgery" - Ok....so which of these offences will you be charging Sir Fred with, as I'm not sure he's guilty of any. In fact, which 'law' has sir Fred broken?

It's clear that there have been a catalogue of errors and mis-judgments in, not only the demise of RBS, but HBOS, Lehmans, Merryl's, Northern Rock, Freddie Mac, Fannie Mae, Goldmans, Citi, HSBC, not the mention 10's of US regional lenders.

But now I say "It's time to stop the finger pointing - enough is enough, l;ets focus our energies positively" No more programs like this please BBC!

Rant Over

The AtticMan

Very Cool - The Album Cover generator

I normally don't bother with sh*t like this, but this is cool! Make your own album cover by following the instructions below.

1 - Go to "wikipedia." Hit “random”or click http://en.wikipedia.org/wiki/Special:RandomThe first random wikipedia article you get is the name of your band.

2 - Go to "Random quotations"or click http://www.quotationspage.com/random.php3 The last four or five words of the very last quote of the page is the title of your first album.

3 - Go to flickr and click on “explore the last seven days”or click http://www.flickr.com/explore/interesting/7daysThird picture, no matter what it is, will be your album cover.

4 - Use photoshop or similar to put it all together.


5 - Blog it and Tweet the Link!!


Here's the 3 I've made today.

Heavy Rock! Band name works so well with the image.

Deep and thought provoking band name. See the little lad in the water, he is clearly wasting time.

Floyd could well be a country and western singer from the Mid-West!

Evan Davis - The City Uncovered Episode 3

Evan Davis delivered the last episode in his 'Uncovered' Series tonight - 'When markets go mad'

Tonight's subject was 'price discovery'  - what it means, how it works and how it can sometimes go wrong...and how this relates to the fascinating world of 'behavioral finance' and ultimately how our natural emotions can affect our decision making abilities.

Price discovery - What it means

The basics of supply and demand control the price in any 'free' market. If more people want something the price goes up, if less people want something the price comes down. This concept reveals itself in 'normal' market conditions as continually small increments around what is termed 'value'. When the stock markets are operating in this manner it's possible to benefit and to a certain extent 'control' these movements, simply by selling when an instrument is over-valued and buying when its under-valued. In trading terms the level at which the instrument is considered over-valued is termed 'resistance' and the level at which its considered 'under-valued' is termed 'support'.

Wild market swings can occur during 'normal' market conditions. This is an accepted fact. For example in 2007, Wheat doubled in price from $7 to $13 before quickly returning to around $7. Why this happened is explained below.

How it works

In normal market conditions, the 'value' price of an instrument has a relationship to it's fundamental price. The 'value' price for a bushel of wheat takes into account, the cost of production, storage and  distribution - fundamental components, together with 'supply' and 'demand'. When this lot is thrown together, out pops a 'fair' value for a bushel of wheat. In early 2007, adverse weather conditions had severely impacted the supply of wheat. Crop reports began to hint at supply problems - (remember the film 'Trading Places' and the importance of the report on Orange Juice?). These supply problems quickly drove the price of wheat to record highs. At the same time, farmers, realising the additional margins to be had from Wheat, switched from growing soybeans and corn to growing wheat. As this additional supply filtered back into the market, so the price quickly reduced. The natural laws of a free market prevailed - BUT the swings were super-normal.

Fischer Black (an American economist) and one of the authors of the famous 'Black-Scholes' equation stated that Free Market theory means prices are usually somewhere between double and half of their fundamental value! 

And how it can sometimes go wrong

Lets head back to sub-prime in the US....Banks stocks rose in the US because of the increasing amounts of mortgage backed securities that they were trading. As they lent more to mortgage companies, who in turn securitised more debts with the banks, so the stocks rose even more. Ascertaining what the fundamental (fair) price of a bank is, is hugely complex at the best of times, however as their loan books continued to explode, it became even harder. As the first signs of trouble began to filter through the US economy (increasing numbers of foreclosures), investors in banks, driven by their emotions (greed), continued to purchase bank stocks - and their stocks continued to rise. Banking stocks were now rising in a manner that was inconsistent with 'price discovery' and 'fair value'. As foreclosures increased, so banks themselves, began to doubt their valuations. Suddenly the emotion of the investor switched from greed to fear and banks valuations began to fall sharply. Again 'price discovery' and 'fair value' played no part in these huge falls.

What is evident here is that bubbles and crashes have little to do with fundamental valuations and ALL to do with the behaviours of those who participate in them. 

Behavioral finance

Behavioural finance is a well known subject areas and has been studied by some of the greatest economists in modern times. And yet, we (the investor) continue to make the same mistakes! We trade on our emotions, we buy because we are greedy and we sell because we are fearful. Studies were done on professional traders during the tech bubble/bust in the early 2000's. It was noticed that during periods of profit, traders displayed higher levels of testosterone, which lead to increased risk-taking and more bravado. During the bust period, traders displayed higher levels of Cortisone, the body's natural way of dealing with stress, and a way of suppressing bad memories. Greed and Fear are natural emotions and removing them from your trading is extremely difficult.

The greatest traders however HAVE removed them from their trading. They can admit when they wrong and they can make rational and informed decisions irrespective of their emotion. They do not follow crowds, they do not listen to others, they have trading plans and they stick to them. These people are few and far between, but it is these people that will continue to profit in the markets in good times and in bad.

Million Dollar Traders - Episode 3

And so Mr Van Dam's experiment drew to a conclusion tonight. 

As a social experiment it was certainly interesting, as a piece of theatre it had its moments, but as a trading experiment did it offer much at all?

After procrastinating for the last two episodes, Lex and Anton (sounds like a couple of celebrity chefs) finally got rid of the blo*dy annoying Cleo.

"Do you think she'll cry when we fire her?" asked Lex

"For sure" replied Anton.

And she did not let us down! The floodgates opened and as she frantically wafted her hands around her face, it all became too much for her. 

The response from the trading room was pure theatre, with Emile deciding to show solidarity he proclaimed "you can't treat people like that!" he picked up his bag and headeded for the exit. Amit and 'Social trader Dude' took this a signal to head for the door too - no doubt relieved to have an excuse to leave.

As the proverbial dust settled, it was interesting that the 3 remaining traders Oki, Mike and Caroline would have placed in the top 4 traders of the group (Emile being the other). Lex's $1million was swiftly carved up amongst the remaining 3 and Anton issued his now customary order "Lets go make money". With two weeks to go in the experiment and only 5 minutes to run on the episode, it was clear that not much happened in these last two weeks. Sure enough we cut to the last day and as the traders closed out their positions and cashed up, I did not get the feeling that much money had been made.

Perhaps surprisingly, Oki was the star performer with a 1% return, with Caroline delivering a 0.5% return and Mike posting a small loss of 0.5%. Not at all bad considering the market turmoil. It made them all feel better when Lex revealed he had lost 0.7% during the same period.

So, here are a couple of takeaway items from Million Dollar Traders

1. Having a point of view backed up with a clear rationale is key to success (Plan your Trade, Trade your Plan)

2. Build your portfolio - invest all your cash (Please note: This doesn't mean risk all your cash). I'd add to this - It's ok to have a cash element in your portfolio (or put another way, a low risk investment vehicle, like a bond or gilt)

3. If you don't have a plan, don't trade

4. It's harder to make money in a falling market

5. It's even harder with increased volatility

6. Emotional intelligence aids success (Eliminate Fear and Greed and try not to cry too much:))

7. Their is no substitute for experience

8. Not all city traders are ar*seholes!! (Personally I thought Lex and Anton were reasonable, logical and fair)

9. Trading can be taught, but really successful traders have natural character traits that help them succeed.

An experiment in business development

As I mentioned in an earlier post, one of my goals for 2009 is;

"To develop my trading business to a point where it can become my sole source of income"

In this post I'm going to discuss how I intend to hit this goal.

Developing the trading business beyond simply earning from the markets has been a goal for sometime. I developed equationIT.com in early 2008, primarily as a way of incentivising me to undertake my daily disciplines, the logic being, that if I had an audience following my postings, I would be compelled to continue posting. Two things happened that scuppered this plan.

1. The turmoil in the financial markets effectively rendered my strategy as ineffective.

2. No-one came to the website. Not entirely surprising, given I made no attempts to market it.

Well now is the time for me to work on promoting my business. And I figured if I was going to invest some time and energy in marketing the website, that I'd share on the blog how I was getting on. That way, I may be able to point other webmasters in the right direction. I'm keen to understand which web 2.0 networking products work the best. Can I direct traffic to the site simply by joining all my web 'assets' together?

Here's the outline plan.

1. Complete the re-design of the website - I need to increase the sites 'stickiness'. I'm considering a couple of options.

2. Streamline the business profile - I'm currently blogging as 'the atticman', posting in forums as 'equationTrader' or 'aidaweb01', I'm facebooking and linkingIn as my real name and I'm 'twittering' and 'deliciousing' without really understanding what the bloody hell I'm doing! It's clear that I need to come up with a single brand. I need to unify my message!

3. Identify all web 2.0 / social networking options that I can leverage - As well as the above, I can also think of YouTube - to post commentary, creating a FaceBook Business page, developing my Amazon and Ei42 stores (If you are going to buy a book, why not go through my store and earn me some commission - All earnings will be posted here and perhaps contribute to future get together's.

4. Ensure that I can work out where traffic is coming from - That way my results will be more meaningful.

5. Focus on certain aspects of the website and see what sort of content is more popular than others - I'm keen on developing a personal style trading website - nothing too corporate and presenting myself as the sort of guy that people know 'an honest question will get an honest answer' - I want to detach myself from the majority of trader type wa*nkers that belittle beginners and show little respect for people who are honestly trying to develop themselves and their businesses.

6. I'm happy to promote my competition - Not as silly as it sounds, especially in the trading game where ones mans successful strategy is another mans downfall - What I'm saying here is that if my website and advice doesn't work, then what is the harm in pointing people to other sources of information?

7. Discuss my other business interests - a small business club that I've set up with a couple of old friends. We try and meet once a month to discuss and share ideas around our respective businesses. Since we've been meeting all our businesses have taken huge leaps forward and we are keen to continue to develop a community around our business club.

First things first - I need to come up with a company name that I can then use across all my web assets. Initially I used equationIT, simply because this was the name of an old IT company I ran. To be honest its a sh*t name for a Trading business! I'm growing fond of The Atticman. I also need to ensure the word 'Trader' (or something similar) appears in the URL. So something like TheAtticTrader may work? I'm pondering ideas, I know I need to get an answer soon, but one thing I've learned about myself, is that sometimes there's no need to rush. A well thought out URL should last my business a lifetime and so it needs to be right.

Any thoughts welcome!!

Evan Davis - The City Uncovered Episode 2

Mr Davis delivered another fascinating insight into the often murky and little understood world of high finance. His mission tonight - to shed some light on the intriguing world of the "Hedge Fund".

Hedging basically means managing your risk. Risk management is fundamentally about transferring the risk (there's more to it than that, but for the sake of simplicity.....). Risk transference has been around for centuries. Edward Lloyd in his coffee shop in the 1600's offered insurance to major shipping firms. He'd charge them a premium and in return he would insure them against the occurrence of 'an' event - typically the ship sinking. If the ship sunk, he'd pay the firm some cash. If the event didn't happen, he'd pocket the premium. His coffee shop became Lloyd's Of London (not Starbucks as some of you may be thinking....)

Similarly, producers and users of raw materials or commodities, would use a mechanism called a Future to transfer their risk. Futures or derivatives started life as being a way for these buyers and sellers of, for example wheat, to protect against future price movements. For example a brewery uses wheat to make their booze. If they sell their booze for £2, they need to be able to control the price of their raw materials to ensure their profits. Wheat prices can vary widely - wheat crops are not only heavily subjected to the weather, but also the growing global demand - in 2008 wheat prices doubled (before halving again). Lets say your £2 pint of booze consists of 40p's worth of wheat. If wheat prices go up, your margin on your beer reduces. By buying a Wheat Future, you can profit from the increase in the price, hence offsetting the loss you make when you buy the wheat itself. For companies that trade in the underlying commodities, the futures market represents the perfect hedge. They have managed their risk effectively.

The watershed 'moment' for the still relatively archaic futures industry was 1973. A group of economists worked out a way of providing accurate futures prices of stocks and commodities. In effect making them exchange tradeable - meaning anyone could trade a future.

Now instead of Futures just being traded amongst those with vested interests in the physicals, futures trading was now available to the 'speculator' and was traded on regulated exchanges. One of the elements of futures trading is called leverage - Leverage allows me to 'control' for example £1,000 of stock, but only have to 'put up' £100. (10:1 leverage)

As the Futures markets developed, so the concept of the Hedge Fund evolved. The traditional Hedge Fund would typically have investments that were un-corrolated and hedged, meaning they could profit if markets went up or down. Their weapon of choice became the Futures contract.

In the 1990's some of the finest minds in the US including the economists from 1973, created a hedge fund called Long Term Capital Management (LTCM). Their product was simple in concept and was potentially 'a perfect hedge'. Using some pretty complex maths they identified 'similar' US bonds whose price's had diverged. They would then go Long on bond and Short the other, betting that the bonds would converge. The strategy worked, but make real money they needed to invest huge amounts, which they had no problem borrowing from Wall Street. Their strategy also required them to be heavily leveraged - at their peak their leverage was 28-1. All went well for a couple of years and they made incredible returns using this strategy. Their downfall however began when Russia defauled on their debt - effectively devaluing the rouble overnight and causing a ripple throughout the financial system. LTCM themselves had little exposure to the rouble, but because those banks they had borrowed from did have exposure, the markets got jittery and the problem cascaded toward LTCM. They lost $550m in a single day and it was clear they were heading for bankruptcy. The Federal reserve stepped in and effectively bailed them out to the tune of $3.5bn - ensuring a controlled collapse, and thus preventing a potential meltdown. A company that appeared to have created a risk free hedging product, that had made their investors millions of dolars, now lay in ruins.

Roll the clock forward to AIG. The largest insurance conglomerate in the world. A company that understood risk and had grown from a market capital of millions to billions in a couple of decades. AIG in 2008 was very different to the AIG of the 1990's. They were in effect a huge financial services company. They ran a hedge fund out of their London office that had huge exposure to a product called Credit Default Swaps. A CDS provides a creditor with protection against the debtor defaulting on a loan. If the debtor defaults, the creditor in paid under the terms of the CDS. AIG had a gargantuan liability on CDS of $400bn and as companies began to default on loans, so they were obliged to pay creditors under the terms of the CDS. As global economic conditions deteriorated, so more companies defaulted to the point where AIG could not themselves pay their clients. The government of the USA bailed AIG to the tune of $180bn. It was not insurance that killed AIG, its was derivatives.

It was appearent that corrolation had been created where there had never been any corrolation before - Derivatives did not cause this financial crisis, but they seem to have accelerated it.

RBS - Where do they go from here?

In February 2007 The Royal Bank of Scotland's share price stood at over £7:00. It was valued at £75bn. With Sir Fred Goodwin at the helm it seems as though the bank could do no wrong. They were aggressive in the lending and innovative in their product development. They were undoubtedly the darling of the UK Banking Sector - and they were making serious money - upwards of £10billion in 2007.

To prove their position at the summit of the banking world, Sir Fred embarked on a audacious plan - to snaffle Dutch banking giant ABN Amro from under the nose of his greatest rival John Varley of Barclays. His rationale at the time seemed sound, ABN Amro had a massive global network that they had repeatedly failed to leverage. The plan succeeded and in late 2007 RBS, in partnership with Belgium banking giant Fortis and Spanish conglomerate Santander, bought the Global Banking division of ABN Amro in a record Euro 27bn deal (give or take). During the battle for control of ABN Amro, global credit markets began to display the warning signs of what has become the biggest single banking crisis in modern history. However Sir Fred (without the benefit of hindsight), ploughed head on, committed to doing the one deal that would cement his place in corporate history.

As markets deteriorated RBS now had two fights on their hands - one they shared with virtually every other global bank and one they had to deal with on their own - the integration of two huge entities. In spring 2008 Sir Fred went cap in hand back to his investors. He admitted that perhaps they had over extended themselves with the purchase of ABN and that now they would require another round of financing. Amongst his competitors, he was the first to do this, and at the time, it seemed like a shrewd move. They duly raised £15bn from their shareholders. This did not arrest the alarming decrease in the share price (now hovering around the £2:00 mark). This decline continued and in September 2008, RBS's share price went from £2 to £1 in a couple of days trading. A business that was once worth over £7:00 per share was now worth £2 - effectively less than the price it had paid for ABN. Sir Fred's position had become untenable. The governments bailout (another £20bn) all but nationalised The Royal Bank of Scotland.

Today RBS's share price stands at 11p - a market cap of £4.5bn. It announced potential losses for 2008 of a staggering £28bn - The largest loss in corporate history. There are calls for the total nationalisation of not just RBS, but the whole banking system. These are indeed unprecedented times.

But what lies ahead for RBS? Their share price at the moment effectively represents the massive sell off that occurred as a result of their announcement today. Traditionally this need not have represented the companies value (what their assets are worth). But with so much off balance sheet debt, that is clearly hugely challenging to accurately identify (let alone value) what are the shareholders to think?

The government have announced they intend to underwrite 'toxic' debt - effectively ring fencing the bad 'stuff' in the hope that confidence will be restored and that banks will continue to lend again. But exactly how much bad 'stuff' is there? If the banks don't know how can we expect the government to understand the scale of the problem. They are effectively underwriting a position that they have no real knowledge of. But what is the option? Let a bank go bankrupt? The knock-on effect would cripple, not just the banking world, but almost every business sector and market the world over. Small businesses would find themselves with no access to funds, Charities and local government would lose their money. Banking counter parties would lose out. Retail investors with mortgages would face uncertainty. The list goes on and on, but in truth, no-one really knows exactly what would happen if another major bank were to fail. What Gordon Brown is sure of, is that he is not going to let us find out. For this I applaud him. 

City Boy - Geraint Anderson

Being a 'city boy' myself (albeit far removed from the dickhea*ds depicted in this blokes book), I did used to read 'City Boy' in The London Paper. And I did find myself rather enjoying his rants. I was admittedly mildly excited when he decided to 'out' himself. Since then, however the guy has really got on my t*ts. He's published a book, written a song, and continues to try and extend his 15 minutes of fame. I've no doubt that his rantings are loosely based on some of the going's on in the city, but enough is enough. For every 'city boy' there are hundreds of good eople that work in the square mile who think you are quite honestly a pain in the arse. Come on Geraint, put away your laptop, stop writing your half cocked bull and sod off back to Wales.

Million Dollar Traders - Episode 2

Tonight's episode of Million Dollar Traders finally began to show some promise. We have now been introduced and begin to get to know the 8 'traders'. It's becoming clearer which of the bunch are showing natural flair and its becoming even clearer which of them we should fade at every opportunity.

Poor old Simon, probably selected to represent the older generation. Maybe described as the 'safe pair of hands' of the group. But alas, all he touched turned to shit - and because he had been one of few to get fully invested (to his credit), there was a fair bit of shit flying about. I think if he had fought his corner with Lex, then he would have been given another opportunity, but you could see that he was in essence a broken man. He had tried - I was impressed with the way he decided to take it upon himself to lead the early morning meetings, but it was clear his mind wasn't in the right place. Simon's downfall shows what can happens when confidence erodes.

Cleo, on the other hand was also given the opportunity to fight her corner with Lex. In the two weeks they have been trading Cleo had invested less than 20% of her allocation. She would sit at her desk reaching for, and then retracting, the phone and then looking at the screen and saying under her breath 'go on just trade', one a her desk a post-it note with the words 'Don't be a girl'.  When confronted with Van Dam (who lets face it, isn't the scariest bloke you'll ever meet) she defended her corner with so much passion and vigour that he decided to let her stay! Cleo, if you put as much passion into your trading as you did into defending yourself, you'd be top of the pile.

I certainly warmed to, Emile. The scouse fight promoter who has built a portfolio based on going Long the stocks 'he likes' and shorting the stocks 'he doesn't' like. I'm not sure how that can deliver a nicely hedged portfolio, but it certainly demonstrates the value in understanding what you are investing in. He also displays a lack of emotion when getting into positions (Is this because its not his money at risk?) and seemed calm and thoughtful whilst the group were analysing the Russian invasion of Georgia.

The dark horse of the race was the quiet female Entrepreneur, so quiet in fact, that I have forgotten her name! She was however clearly 'in the right place' to trade. Her approach was considered and calm. She clearly understands what a balanced portfolio should look like and she was prepared to accept that it can take time for positions to work out.

What this episode certainly demonstrated is that a traders real battle is in their mind and the fear is a much greater negative emotion than greed. Mind you none of them have made enough money to be concerned about greed yet.

Evan Davis - The City Uncovered Episode 1

Tonight BBC2's "city series" featured a fascinating documentary presented by the appealing presenter of the Dragons Den - Evan Davis.

"The City Uncovered" presented a logical and sometimes frightening account of how the global banking crisis unfolded. Ex CEO of Northern Rock, Adam Applegarth and Dick Fuld of Lehmans Brothers were presented as the villains of the piece, but as this incredible story unfolded it became clear that Davis believes that villains existed at almost every level in the complex and fragile house of cards that is global finance. From the bankers and the ratings agencies, to the customers and the regulators and even to rocket scientists, no-one appeared totally blameless.

And you know what? I agree with him. My generation became accustomed to cheap credit. I've had huge self-certified mortgages, I have credit cards with staggering credit limits. I have a sizable interest only mortgage. I have very little savings (bar the ever eroding capital in my house). And I don't think I've done anything wrong, I've not broken any laws. I have simply made use of the credit I was offered. But do I have an obligation to understand how banks can make this money available to me? Should I have stepped back and wondered how they can lend me huge sums, with me only paying the interest? Or should I have expected the banks and their regulators to protect me from their greed? In truth only a very few people understood exactly what was going on in the wholesale markets. Even fewer fully understood how debt was being securitized and sold on.

Davis's narrative presented a clear explanation of the chain of events that unfolded to cause this crisis. For the sake of posterity, I'm going to record them here in as simple a terms as possible.

The origins of banking date back to China via Venice and Marco Polo. On returning from his travels he explained how paper was used in place of cumbersome assets such as gold. This revolutionary invention suddenly made it much easier to trade. Instead of paying for items in gold, paper could be used as a guarantee or a bond. This in turn made it much easier to borrow and lend. The Christians in Venice felt prevented from lending (and earning interest) as this was implied as incorrect in the bible. So, it became the responsibility of the Jewish community in Venice to become the bankers. They would borrow at a certain interest rate and lend at a higher rate - making the margin as their profit. This concept quickly spread throughout Europe and America and formed the basis of the banking industry as we know it.

Fast forward to the US in the 1850's. Two German brothers, The Lehman's began a simple trading business, the explosive growth of the cotton industry lead them to begin accepting cotton as a form of payment. This spawned their second business as cotton traders. Their business grew to form one of the worlds first and biggest investment banks.

Meanwhile on the other side of the Atlantic in Newcastle, England the company that was to become Northern Rock opened for business. Their model was far removed from Lehman's. Northern Counties Permanent Building Society, began accepting deposits from local people. They would save until they could afford their own home. They were in effect a classic retail bank - taking savings from local people at a certain interest rate and loaning to other local people (to buy their own homes) at a higher rate. Northern Counties Permanent Building Society operated in this way for over 100 years.

So as retail banks went about their business of taking deposits from retail customers and loaning this money back to them in the form of mortgages, investment bankers were busy trying to figure out how they could get a piece of this pie. The solution - securitization, or CDO's (Collateralized Debt Obligations). These complex financial instruments enabled investment bankers to underwrite mortgage debt, package that debt up into a financial instrument and sell these debts to investors. This made sense to the retail banks, because now the mortgage debts that had traditionally sat on their balance sheets as a risk, were now no longer their problem. It made sense to the investment banks as they were earning huge returns on these CDO's. The problem with being a retail bank was that you relied on your customers deposits - your growth was restricted. Because CDO was such a profitable product for investment banks they began to lend to retail banks to fuel their lending - this is known as the wholesale money market or inter bank lending. In return the investment bank would securitize the mortgage loans and make big returns selling these products to investors.

Because securitization was such a profitable product, investment banks were keen to loan as much as possible in order to sell on the CDO's. They turned their attention to people who they had traditionally never loaned to before - the poor. In effect, this was the turning point. Instead of the CDO being a by-product of lending, the CDO was now THE reason to lend. It was suddenly possible for people with poor financial credit worthiness to borrow money. The fire was now raging out of control and yet very little could be done. This cycle of borrowing and lending and re-borrowing and re-lending, meant that banks were making huge profits. Banks shareholders were happy, borrowers were happy, banks were happy and ratings agencies were happy because of the huge fees they were making. There was no turning back.

As the range in the quality of these loans became wider, so the products became more complex. Banks would now package different qualities of debt together in their CDO's, selling triple A rated loans with no problems, but finding themselves saddled with more risky debt. Still this wasn't a major problem as long as borrowers continued to meet their obligations and the value of the underlying assets didn't drop. Unbeknown st to all those happy home owners and credit junkies, the situation was now so precarious, that the slightest change in economic conditions would bring a total collapse in the global financial markets.

This slight change was the slowing of the US housing markets. As loan defaults increased, concerns were raised over the quality of debt that banks had on their books. This led to an almost immediate collapse of the Interbank lending market. It was now simply a question of time before the cries of help were to be heard.

That cry of help came from Northern Rock, who had built their business model around borrowing from banks in the short term via the overnight money markets and loaning (at a higher rate) in the long term . Using this model, they had grown their share of the UK mortgage market from 2% to 17% in less than 5 years. As it became harder for Northern Rock to borrow they very quickly became unable to service their debt. Their capital reserves disappeared in a matter of days and they requested emergency funding from the bank of England. Panic spread throughout their customer base and the first run on a UK bank in over 100 years ensued.

As the situation gathered momentum, now it was the turn of the investment banks to feel the wrath. Their business models, which had so heavily relied upon income from CDO's, were now unsustainable. Bear Sterns was the first to go, aided by the US government, and with their share price hovering at all time lows, they were quickly bought by JP Morgan. The attention then turned to Lehman Brothers. With their capital based eroded and no deal to save them Lehman's were declared bankrupt on September 14 2008 - an institution with a proud 150 year history had vanished forever. If there was panic before this landmark event, then what ensued was global pandemonium.

Suddenly no institution was safe, Merrill's, Goldman's and Morgan Stanley in the US and LloydsTSB, HBOS, Barclays and RBS in the UK were now in grave danger of going to the wall. Mass panic lead to huge stock market volatility which in turn caused further problems for these banks as suddenly their capital bases were eroded further. Only the intervention of global governments and the pumping of billions and billions of dollars into the banking system prevented a global meltdown. We are by no means out of the woods; the global banking system still sits precariously overlooking the precipice and ther are no doubt more obsticles ahead.

Million Dollar Traders - Episode 1

Last night, a new BBC2 reality TV show aired its first episode. Million Dollar Traders, the brainchild of a former Goldman Sachs director - Lex Van Dam. I watched with interest, in fact, I remember a colleague forwarding me the application for the show. I didn't apply - mainly because I have some trading experience (I think even if I had, I would have struggled with the interview - whats 32x32 - my answer "About 1000" - probably wouldn't have cut the mustard!)

The concept - take 8 members of the public, give them 2 weeks intensive training, a $1 million account and a custom built trading room in the heart of London and see if they can make any money.
Van Dam claims this to be 'his own idea'. This surprised me, given that any trader worth his salt will have heard of the now legendary Turtles experiment (brainchild of Richard Dennis).

I guess there is a difference in the two experiments. Where Dennis described in detail to his 'apprentices' a detailed strategy (it was a simple breakout strategy - its complexity lay in its money and risk management rules), Van Dam appears to have provided nothing more than an overview of how the markets work. I was surprised at how little the program detailed the training that Van Dam gave his apprentices - especially given how disappointed he was that one of the traders lost £2,000. On the one hand it seems he has given them little real help and on the other he seems angry at such a small loss?

It's clear from the first show that Van Dam is looking for PR from the show, but will he make a return? Can 8 members of the public become proficient traders, especially in light of the additional pressure's of the TV camera?

I would have liked to have seen some more detail on money and risk management. Van Dam himself is clearly a successful trader, so why has he given his apprentices what appears to be such a small amount of information?

Each trader was initially given £25,000 and was allowed a maximum risk of 20%. This seems exceptionally high to me? Put simply 5 losses in a row and these traders accounts are blown away. Assuming a strategy that wins 50% of the time, there is a high probability of 5 consecutive losses.

The show will no doubt explore the human side of trading and this could be interesting. Admitting a loss and moving on is hard enough when cooped up in your own private trading room, but for that loss to be exposed on national TV is another thing entirely. It will certainly provide an insight into what makes a bad trader, but with Van Dam's million at stake, is that what he wants?

I look forward to episode two next Monday January 19th (BBC 9pm)