Background here and here.

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Brilliant. Not sure what it says about Merrill Lynch's training methods though.

Favourite quote from the 'Transcript' tab (and it was a hard decision):

"Knight Capital did not take our advice to downplay new purchases or trying new things during the apparent retrograde motion of Mercury."

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The choice would seem clear enough:


But two funny things happened this week to Porsche. The first: CEO, Matthias Mueller, remarked that he anticipated flat demand into 2013 despite great results so far in 2012.

The second: two lawsuits against their Volkswagen acquisition strategies in 2008 were halted. Porsche shares surged.

Contrasted to the tenor of this article in the Wall Street Journal’s ‘Driver’s Seat’ blog one wonders if equity holders are, well, a touch complacent: the double whammy of stagnant European and decelerating Chinese demand may be priming the luxury German airbags for use.

Is there opportunity in this? If so, is there a hedge?

The shot below is the spread of Porsche vs Honda over the last 18 months with the recent ‘lawsuit turbo charge’ clearly visible.



Honda plan to double sales of small cars (led by the ‘Fit’) in emerging markets over five years and the firm, for what it is worth, is loved by analysts even more than Porsche.

The Honda Fit (‘Navigate the urban maze in style’) is no 911 Carrera. But with a volume vs niche automaker trade it may matter little.

(Usual disclaimers, merely food for thought etc etc. PAH3/HMC are cointegrated; this analysis run with a time-adaptive beta)

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Bloomberg today published this article on deposit flight from weaker to stronger members of the Eurozone banking fraternity.

One might wonder if there is a relative value opportunity in this – for example, long one of the beneficiary banks in the Netherlands, France or Germany and short a bleeder in Italy, Greece, Spain or Ireland.

Minimal research suggests, for example, the Dutch subsidiary of the Royal Bank of Scotland (RBS) versus Credito Emiliano Spa (CE). However, RBS N.V has flight issues of its own – the parent is shuffling deposits from Amsterdam to London doubtless for the usual purpose of enhancing shareholder value.

Moreover, Credito Emiliano S.p.A does not (if you believe analyst sentiment) look that bad next to RBS (possibly not the best acid test anyway).

So, casting around elsewhere with the view that the Eurozone banks are all pretty much going to sink or swim as a group in the current crisis, perhaps setting CE against France’s Caisse régionale de Crédit Agricole mutuel de Paris et d’Ile de France (CAF - praise be to abbreviations) is worth a thought.

Nothing particularly wrong with CAF – nice, solid roots as an agricultural cooperative bank. But it is owned by Crédit Agricole whose fortunes it mirrors. Happily this latter now repents, as only true sinners can, the days it strayed so far from its roots into derivative instruments and dodgy Greek and Italian investments. Management appear sincere converts.

Usual disclaimers plus a small graph to round things off:


Entering long CAF, short CE territory


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Apple, pairs & Samsung

Monday, September 17, 2012 | 1 comments »


Apple vs Samsung (cointegrated spread w/Kalman filter adaptive beta)

Little 'blog-app' for you.

Does it truly not take a genius as Samsung suggest? Can 2 million iPhone 5 pre-orders be wrong?

Apple vs Samsung as a relative value trade consistently shows Apple to be very hard to pick up as a bargain. Roughly four times as hard as it is to purchase Samsung at relative value. The folks out there consuming may love an Apple product. But the folks out there in equity markets love an Apple stock even more.

So Samsung at least comfortably has the measure of its rival when it comes to the buy-leg of pairs trading volume. Will that continue?

With the Samsung Galaxy S4 arriving a full 5 months from now; and the fanaticism of Apple owners (goods and equity) showing no signs of abating one can't help but think the odds are favourable it will.

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Lewis vs Bolt
Bublé vs Sinatra
Palin vs Ryan
HFT Algorithms vs Fat Fingers

The debates rage. Well, at least one of them does (Ed: Bublé? Are you serious?). A comparison:

HFT Algorithms
Fat Fingers
Pro: the word ‘algorithm’ sounds cool. Its derivation from the name of an 8th century Iranian mathematician who failed to anticipate Stuxnet is now forgotten.
Con: uncool phrase. Except for weight loss stocks.
Pro (submitted by various Investor Relations Depts): difficult for punters to understand, lends itself to marketing & shifts focus from content to bells and whistles
Pro: easy for Senate Committees & Parliamentary Inquiries to understand and score partisan points off.
Pro: burgeoning career field for computer programmers
Con: a world where an ”extra zero” is not what you had in mind. At all.
Pro (submitted by GS Legal Dept): rich pickings for lawyers
Pro: rich pickings for comedic material.
Pro (submitted by Citadel LLC): capable of destroying one’s competitors in 10 minutes. Also capable of same for an entire capital market. Which may be regarded by some as a ‘con’.
Pro: unlikely to threaten the capitalist system but nonetheless an innovative way for Governments to lose taxpayers’ money.
Pro: win while you sleep seductiveness
Con: work while you sleep / update your Facebook page issues.

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Casino Capitalism: hedge it!

Thursday, April 19, 2012 | 1 comments »



“It is usually agreed that casinos should, in the public interest, be inaccessible and expensive. And perhaps the same is true of Stock Exchanges. That the sins of the London Stock Exchange are less than those of Wall Street may be due, not so much to differences in national character, as to the fact that to the average Englishman Throgmorton Street is, compared with Wall Street to the average American, inaccessible and very expensive”
When JM Keynes wrote that in The General Theory of Employment, Interest and Money it is certain he was not on the lookout for a gap in the market in order to create a gambling service for every pocket. 

Still, the more famous casino quote from chapter 12:

“When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done”
does rest on likelihood not certainty. So with this allowance for even improbable outcomes Mr. Keynes perhaps would not be surprised that betting companies have come to resemble capital exchanges. Or miss the irony of a relative value trade hedging the two.

Here are a couple of graphs showing just how much the London Stock Exchange and the sports betting and gaming company William Hill, plc have become substitutes since the turn of the year.


These are 30 minute intra-day observations from a cointegration analysis going back to mid December 2011. Even after application of the UK’s Tobin Tax Stamp Duty it has been a neutral and profitable trade.

But - and in keeping with the Spirit of the Times - those opposed to transaction taxes on the grounds of principle will side-step the 0.5% by using Contracts For Difference. Sold, in a neat twist, by one of William Hills’ financial market betting company competitors.

For more on Keynes and his investing methods see this excellent recent paper neatly summarised by CXO Advisory Group here.

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Limited time offer, ends 17 February!

Not only have the New Year sales just kicked off in France (the dates of which are governed by legislation, an interesting curio) but you can still get a bargain for those old francs under the mattress!

You read right. Take your Pierre and Marie Curies, your Eiffels, your Cézannes and your Debussys - coins no longer accepted, navré - down to your local Banque de France and get...euros (while stocks last)! Affaire!

Who says the EFSF is illusory and circular?


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