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[Sanky Panky]

Sorry if this is not the most fun read, but I have to vent somewhere...

I know GAF loves to hate on capitalism, and rightly so, but this thread is not about capitalism per se, but about the current state of global finance.

One of my favourite quotes ever comes from Godfather Part 3: "Finance is a gun. Politics is knowing when to pull the trigger." Growing up I always knew I wanted to be in Finance. I studied it in college, currently work for one of the big banks (dealing mostly with underwater mortgages), and also have been trading currencies successfully for 4 years now. Just this tuesday I found out I passed Level II (of 3) of the CFA exam (Chartered Financial Analyst), which is one of the toughest designations to get for investment analysis and portfolio management.

It's all a casino ran by algorythms. The fundamentals, the economic theories, efficiency of markets, etc, was all fun to learn, but is bullshit when you are trying to make a buck in the markets. Any schmuck out of the streets can be a market genius if they know how to look at lines crossing on their screens, and have the right psychology for it. I went from wanting to get a master's in Behavioral Finance, to looking into computer science/physics/mathematics to try to understand how the markets work.

From Stock-gaf, it's no secret that I am bearish on the markets. How can you not be? Central banks no longer have the resources to prop up the inflated assets, and we are weeks away from Spain/Greece defaulting/needing bailouts. The Euro is untenable.

If you don't read anything else, you can just read this. Here is what I am angry/sad about:

- Markets are traded by computers in miliseconds, and congress won't do anything to intervene. The DOW once dropped 800 points on a glitch. Oops. Sorry for the sucker that based his long position on fundamentals.

- These past few days, money managers with their fingers on the red button have been so starved for big daddy government to artificially prop up the markets, that two baseless comments by Draghi and today Merkel have lead to two days of the DOW jumping 200 points each. They say BUY the rumours, SELL the news. There is no fundamental demand behind it.

- I paraphrase a saying I read once. The market is like a whore. It's job is to fuck you and take as much of your money as it can. When there is a general consensus of the direction of the market, it's best practice to go the other way, since the big players will hunt for stops (these are levels where traders have set to take losses). For example with the Euro/Dollar it is quoted by 1.23xx. Today a big level for stops was 1.2380. Today the market went up from 1.2260 to 1.2380 on no news. That's 120 "pips" (think of it as points in the DOW, and each pip can be worth hundreds to thousands of dollars thanks to leverage). It hit 1.2380 and like clockwork, it dropped 100 pips after that.

- If there is an investor out there for it, the institutions will create a financial product or derivative for it. Stocks, stock options, stock futures, stock options on futures, swaps, repos, forward rate agreements, CDS, Cash/Synthetic CDOs, mortgage backed security senior/subordinate/variable tranches... the Godman Sachs of the world don't know what other scheme to get investor money. They are trading weather patterns now... it's a flea market for risk/return. No wonder there is a shadow market worth trillions upon trillions that nobody understands.

I'm willing to share experiences with those interested in this stuff, and I'd like to hear how others view the markets and finance. Anybody else as sickened as I am from it?

tl:dr Finance and the global markets are the most bullshit manipulated contrived aspect of our existence as humans, which also happen to be the things that make the world go round. It's a field driven by greed, and not efficiency, no matter what I have read in academia.

*UPDATE*

Thought this info graphic is the main reason why the system is so rigged and manipulated nowadays.

http://demonocracy.info/infographics/usa/derivatives/bank_exposure.html

 

[commedieu]

At this point, I don't think anyone can disagree outside of just being a contrarian.

Depressing reality. It was nice when they hid it better.

 

[Captain Tuttle]

This shit fascinates me. Subscribed

 

[Acerac]

The best part about all of it is that nobody who has the power to change how it is set up has any interest in doing so.

 

[ATF487]

I'm not as far as you, but I'll have finished up my Finance degree in a few weeks.

I don't think I've ever felt this way about a subject before; it disgusts me and fascinates me equally. I don't know if I want to get a job in the industry after being exposed to all the bullshit it entails.

 

[Jb]

That's.... one way to see it.

From an outside perspective I think it' so much easier to focus on the greed and the scandals, while ignoring the fundamental fact that the markets allow for a redistribution of capital to promising industries (FB's IPO) or economies (Brazil). If you're working in the mortgage industry I can see how you would grow to loathe the financial world in general, but I just see it as a (lucrative) excuse to keep an eye on today's economic and political trends, and predict what the world might look like a few years down the road.

 

[Sanky Panky]

I'm not as far as you, but I'll have finished up my Finance degree in a few weeks.

I don't think I've ever felt this way about a subject before; it disgusts me and fascinates me equally. I don't know if I want to get a job in the industry after being exposed to all the bullshit it entails.

Yeah it does fascinate me too, but I'm sad that trading is so mechanical. You are up against firms that hire the best mathematicians, phycisists, and programmers in the world. You surrender to the fact that all you can do is tag along for the ride.

I'm in it to take my piece of the pie. Maybe a hard reality hammer to the face will bring back some fundamentals to the whole thing. Investors booking the trillions of dollars in losses, and starting from scratch. Economies deflating to pre-1980 levels. Even then, it will be rinse and repeat because in Finance, humans always forget the previous lessons.

That's.... one way to see it.

From an outside perspective I think it' so much easier to focus on the greed and the scandals, while ignoring the fundamental fact that the markets allow for a redistribution of capital to promising industries (FB's IPO) or economies (Brazil). If you're working in the mortgage industry I can see how you would grow to loathe the financial world in general, but I just see it as a (lucrative) excuse to keep an eye on today's economic and political trends, and predict what the world might look like a few years down the road.

I think yeah, the main thing that was lost, was Finance being used to allocate capital where it is needed. The game became about making money from money itself. It happened in the 1600's when the first share of ownership in a venture was traded.

 

[Freezie KO]

I have no idea what you just said, but it sounds important. Can you please write it in crayon on the back of my worthless liberal arts degree, since that's the only way I'll understand?

 

[Sethos]

South Park quote: "Aaaaaaand it's gone"

 

[RSTEIN]

Dark Knight Rises spoilers:

Spoiler

Stock exchange trader: This is a stock exchange. There's no money for you to steal!

Spoiler

Bane: Then what are you people doing here?

 

[Biff]

Congrats on level 2. Just passed level 1 myself

The reason you are feeling this way is because, from what I gather, your exposure to trading is in heavy algo markets. FX is notoriously algo, no retail investor should be dabbling in there any more. You're essentially gambling if you don't run algos yourself.

The equity markets, however, still run heavily in fundamentals. Day traders will not understand this as liquidity is largely algo dependant. Hence why retail day trading is illogical. However, major buy side firms do not operate in the bleak way you describe. They run algos mainly to disperse trades based on fundamentals... But at the end of the day it is still a human investing in companies based on the strength of their business.

Tl;dr Liquidity is algo traded. This only matters to you if you're dumb enough to day trade. When you get high enough up the food chain you will see where fundamentals still matter. Algos can't stop corporations from making good business decisions.

 

[Ushojax]

I've always found the idea of 'make money by moving other peoples money around' to be quite pathetic. I've never met a financier who wasn't a compete arsehole.

If my kid grew up wanting to work in finance I'd think I'd failed as a parent.

 

[WeAreStarStuff]

I went to undergrad for finance. Worked for a Hedge Fund right out of school (I was 23 years old and pricing Credit Default Swaps having no idea what the hell I was doing!). Studied for the CFA while at my first employer. Went to a rating agency for a short stint, and then worked for one of the bailed out banks for a while. I now work for a law firm fighting the banks - consequently this is the only job I've ever had where I don't leave feeling like a terrible human being. The system is completely rigged, but I don't expect anything to change anytime soon with the revolving door between govt. and the Street nothing can change until people demand it.

 

[Sanky Panky]

Congrats on level 2. Just passed level 1 myself

The reason you are feeling this way is because, from what I gather, your exposure to trading is in heavy algo markets. FX is notoriously algo, no retail investor should be dabbling in there any more. You're essentially gambling if you don't run algos yourself.

The equity markets, however, still run heavily in fundamentals. Day traders will not understand this as liquidity is largely algo dependant. Hence why retail day trading is illogical. However, major buy side firms do not operate in the bleak way you describe. They run algos mainly to disperse trades based on fundamentals... But at the end of the day it is still a human investing in companies based on the strength of their business.
.

Congrats on Level 1! Level 2 is a monster, so dedicate twice as much time to practice problems and get confortable with the question format.

Thankfully on my trading, despite my fundamental bias, I go solely on technical analysis. I don't trade anything lower than the 4H timeframe, because I also think day trading/scalping is a sucker's game. I will also concede that individually, company valuation matters, even if it is automatically handled by computers itself. There are fewer and fewer Warren Buffets out there. The market volume is done 70-80% by computers.

What I say is that even inflated stock prices are the result of manipulation, central bank intervention, and false hopes. The fact that corporate earnings have been more and more in the shitter for a few months now, and the market bounces off of empty words from politicians, tells me there is little meat on the bone.

I went to undergrad for finance. Worked for a Hedge Fund right out of school (I was 23 years old and pricing Credit Default Swaps having no idea what the hell I was doing!). Studied for the CFA while at my first employer. Went to a rating agency for a short stint, and then worked for one of the bailed out banks for a while. I now work for a law firm fighting the banks - consequently this is the only job I've ever had where I don't leave feeling like a terrible human being. The system is completely rigged, but I don't expect anything to change anytime soon with the revolving door between govt. and the Street nothing can change until people demand it.

Pretty much this. That's only Goldman Sachs. We have the real old money like the Rothschilds, Medici, Carnegie, Mellon, JP Morgan money out there. JP Morgan bailed out the US once, the Rothschilds used to finance wars between countries. It's not like this money is parked in some mutual funds and they are now sipping coktails at the beach.

 

[RedNalgene]

Congrats on passing Level 2 OP, that's the hardest one. Level 3 is by no means easy, but it's certainly easier than Level 2. I'm so glad I have those tests out of the way and never need to study the books and guides anymore. For any of you who don't know the tests or what they are about, they're one of the most difficult set of financial exams, with a pass rate of ~30% per level. So, think about that a sec - 30% of the people who take Level 1 pass it, and only 30% of the people who passed Level 1 PASS LEVEL 2. It's pretty nuts.

It's funny you're coming to this realization at this point in your career - I had a similar awakening while I was studying for the CFA myself. As I've spent more time in the industry (10+ years) I've come to very similar conclusions myself. In addition to the points you've made above, you can also add that as an individual investor you're basically at the mercy of all the institutional investors (Goldman, JP Morgan, etc). They have much more inside information than you do - they are actually in the market, controlling all the moves, finding out stuff that never hits the public tape. So, if they want to move the market (or know they're gonna do something that will move the market) they can prepare themselves, either to get in or get out, before they actually move it. It's all a big game, and individual investors don't have the playbook.

Now, that's not to say that I'm a bear or I don't have money in the market because I have a decent chunk of my money actively being traded in the market. But going in you need to know that you are at a disadvantage right out of the gate, no matter how much you think you know.

Also, after dealing with so many supposed "experts", I've come to realize that nobody really knows anything, they just think they do. Sometimes news drives the market, but sometimes it's the other way around and the market does something and everyone scrambles to figure out what news caused the market do to what it did. Theoretically it can't work both ways like that.

The markets are a big gambling institution. I could probably write 10k words about this, but I'll save you all that boredom!

 

[GabDX]

I don't know anything about the stock market or finance but to me it looks like those people are making money by contributing nothing to society. Please tell me I am wrong.

 

[fredrancour]

Congrats on passing Level 2 OP, that's the hardest one. Level 3 is by no means easy, but it's certainly easier than Level 2. I'm so glad I have those tests out of the way and never need to study the books and guides anymore. For any of you who don't know the tests or what they are about, they're one of the most difficult set of financial exams, with a pass rate of ~30% per level. So, think about that a sec - 30% of the people who take Level 1 pass it, and only 30% of the people who passed Level 1 PASS LEVEL 2. It's pretty nuts.

It's funny you're coming to this realization at this point in your career - I had a similar awakening while I was studying for the CFA myself. As I've spent more time in the industry (10+ years) I've come to very similar conclusions myself. In addition to the points you've made above, you can also add that as an individual investor you're basically at the mercy of all the institutional investors (Goldman, JP Morgan, etc). They have much more inside information than you do - they are actually in the market, controlling all the moves, finding out stuff that never hits the public tape. So, if they want to move the market (or know they're gonna do something that will move the market) they can prepare themselves, either to get in or get out, before they actually move it. It's all a big game, and individual investors don't have the playbook.

Now, that's not to say that I'm a bear or I don't have money in the market because I have a decent chunk of my money actively being traded in the market. But going in you need to know that you are at a disadvantage right out of the gate, no matter how much you think you know.

Also, after dealing with so many supposed "experts", I've come to realize that nobody really knows anything, they just think they do. Sometimes news drives the market, but sometimes it's the other way around and the market does something and everyone scrambles to figure out what news caused the market do to what it did. Theoretically it can't work both ways like that.

The markets are a big gambling institution. I could probably write 10k words about this, but I'll save you all that boredom!

But that would be fascinating. As a layman I have no idea where to gather info on such things. Every word i can find is meaningful.

 

[Mr. Blonde]

the cfa is hardly difficult. the grad finance and econ programs at top schools are probably a million times harder to get in and out of.

 

[LJ11]

the cfa is hardly difficult. the grad finance and econ programs at top schools are probably a million times harder to get in and out of.

Depends. Financial engineering and PhD eco programs can be difficult to get into, but an MBA finance program from a top school is easier than some may think. Lots of factors, but if your employer foots the bill, or pays most of it, you're in and even Stern is a cake walk.

Edit: My former employer paid for graduate degrees in full and you had no obligation to stay after receiving it. Place was a revolving door. Remember a data entry guy who got into Stern. Data entry is all he did until he started working the syndicated loan desk with me. He was an Ancient Greek and Latin major, aced the Verbal on GMAT, did alright on the Math, and got into Stern easily. His practical work experience was shit, monkey work and getting me docs off EDGAR.

When I asked him how his courses were going he was acing everything, but at the same time felt like he was learning nothing. No worries, he'd fit right in is what I told him.

 

[RedNalgene]

But that would be fascinating. As a layman I have no idea where to gather info on such things. Every word i can find is meaningful.

Ha, OK, maybe I'll do it in parts so as to not post walls of text every two minutes.

One of the things that blows my mind is the concept of Indications of Interest. Basically, a trader can float an idea out there and see how the market reacts. Something like "Hi there, I'm an anonymous seller who is looking to sell 10m shares of Facebook on the market....anyone interested?". The trader may get lots of responses back about that and can connect up with buyers in this manner. But, what he also could be doing is lying. Oh, but why would he lie, you may ask? Well, if you didn't know too much about Facebook's inner workings, you may think "Damn, I see this huge sell IOI, someone is really trying to unload a big position in Facebook, I need to get out and sell my position before the news gets out about this!" and you sell out. Selling triggers a drop in the price of the stock on the market. Anonymous trader laughs to himself because even though he pretended to be a seller he was actually a buyer and now that the price has dropped he can move in and buy it up much cheaper. Totally slimy.

 

[SouthernDragon]

I figured this out during my Finance bachelors. I was very very interested academically... but disgusted by the needless bullshit and horrendously lazy and shaky foundations for the industry.

It's hard to take people in the industry seriously.

 

[Sanky Panky]

But that would be fascinating. As a layman I have no idea where to gather info on such things. Every word i can find is meaningful.

It's fun to read about all the asset bubbles throughout history, only to see how greed (then fear) brings out the worst in people. For recent times, I'm enjoying this read a lot on how electronic trading and high-frequency trading evolved in the US.

Dark Pools: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System

http://www.amazon.com/dp/0307887170/?tag=neogaf0e-20

the cfa is hardly difficult. the grad finance and econ programs at top schools are probably a million times harder to get in and out of.

Of course a chapter on mortgage backed securities for the CFA won't go in as much depth as a course at Harvard, but the hard part is having 4-6 months to drill in your head how to value every asset class out there, while understanding economics, portfolio management theory, and ethics/professional standards. It's not for everybody.

 

[chaostrophy]

The system is completely rigged, but I don't expect anything to change anytime soon with the revolving door between govt. and the Street nothing can change until people demand it.

Yeah, pretty much. The claim is that these people are needed in government because of their experience with finance. It's no different than if the US hired al-Qaeda operatives to top Homeland Security positions due to their experience with terrorism.

 

[LJ11]

Of course a chapter on mortgage backed securities for the CFA won't go in as much depth as a course at Harvard, but the hard part is having 4-6 months to drill in your head how to value every asset class out there, while understanding economics, portfolio management theory, and ethics/professional standards. It's not for everybody.

Some of my professors would rip questions right out of CFA Level 1 or 2 and put them on the exams.

 

[Silas Lang]

Now this shit pisses me off. Clearly a conflict of interests. When it comes to politics, just follow the money. It will tell you what you need to know. And holy crap didn't know stocks were traded automatically on a computer. Is it some kind of computer program or something?

 

[WeAreStarStuff]

Now this shit pisses me off. Clearly a conflict of interests. When it comes to politics, just follow the money. It will tell you what you need to know. And holy crap didn't know stocks were traded automatically on a computer. Is it some kind of computer program or something?

Algorithms. Some of which are constructed by genius level intellects that could prob. cure cancer.

 

[DanteFox]

Any schmuck out of the streets can be a market genius if they know how to look at lines crossing on their screens, and have the right psychology for it.[/B]

I'd be interested in hearing more about what you mean by this.

i.e. teach me how to be a market genuis. :3

 

[otake]

I've been investing for about 2 years now. I know, it's a very short amount of time. What I've learned so far is too consider all this money lost. Maybe, when I cash out it will be worth something. Maybe it won't. The way I look at it is, it's money I can afford to lose and I base my financial decisions on it being lost.

 

[ATF487]

I went to undergrad for finance. Worked for a Hedge Fund right out of school (I was 23 years old and pricing Credit Default Swaps having no idea what the hell I was doing!). Studied for the CFA while at my first employer. Went to a rating agency for a short stint, and then worked for one of the bailed out banks for a while. I now work for a law firm fighting the banks - consequently this is the only job I've ever had where I don't leave feeling like a terrible human being. The system is completely rigged, but I don't expect anything to change anytime soon with the revolving door between govt. and the Street nothing can change until people demand it.

Haha I don't think anyone did!

Just looked at some CFA sample questions. Shit.

 

[Sky Chief]

My Dad sent me this blog the other day and I thought it was very interesting. Basically, it asks the question does what the Finance Industry does = Capitalism?

Stock and Debt are integral components of Capital formation. However, what happens to those instruments beyond the creation of Capital is not necessarily 'capitalism'. It becomes a different activity. The bundling of products becomes just that....bundling. Nothing is 'formed' anew per se. Instruments are merely repackaged. The initial purpose of capital creation was over. The 'capitalistic' exercise completed.

http://www.americanthinker.com/blog/2012/07/are_all_securities_created_equal.html

 

[Sanky Panky]

Now this shit pisses me off. Clearly a conflict of interests. When it comes to politics, just follow the money. It will tell you what you need to know. And holy crap didn't know stocks were traded automatically on a computer. Is it some kind of computer program or something?

They sell crappy black box systems that rarely work for the retail trader, but these algorythms are so sophisticated that not only do they try to predict price movements, but they adapt to what other algorythms are doing. They can adjust orders to buy/sell in front of everybody else, and take advantage of this in nano-seconds. Algorythms are the market, and they evolve around each other.

I've read that let's say that a buyer wants to buy a stock for $25. Usually normal investors use a few types of orders, and algos know of this order because it is shared information. Nowadays, algorythms customize the orders, so that they are hidden to everyone else, and they trigger automatically once the $25 price hits. What happens is they get filled first, and immediately sell to the next in line, so that the investor ends up paying $25.05 for example. Tiny gains, thousands of times a day, makes quite a dent.

I'd be interested in hearing more about what you mean by this.

i.e. teach me how to be a market genuis. :3

Jeje maybe a bit of hyperbole, but even most of the algos function by finding patterns in price. If you have indicators that study price, and have a high probability of predicting the ups and downs of the market, all you need is to make sure you always lose less than you win, when the indicators are right/wrong. This works mathemtically as it is a game of probability and controlling risk per trade. However, there's this little thing called being human that fucks everything up

 

[iamblades]

All of what you said only really affects traders.

If you buy and hold a diverse set of assets long term none of that shit really matters.

Trading, especially day trading or any short term trading really, is for suckers and fools who think they are special and will come out on the positive side of the average. The derivatives and options markets are useful for insurance if in certain circumstances you find yourself underdiversified, but again, trading in them is silly.

 

[RedNalgene]

They sell crappy black box systems that rarely work for the retail trader, but these algorythms are so sophisticated that not only do they try to predict price movements, but they adapt to what other algorythms are doing. They can adjust orders to buy/sell in front of everybody else, and take advantage of this in nano-seconds. Algorythms are the market, and they evolve around each other.

I've read that let's say that a buyer wants to buy a stock for $25. Usually normal investors use a few types of orders, and algos know of this order because it is shared information. Nowadays, algorythms customize the orders, so that they are hidden to everyone else, and they trigger automatically once the $25 price hits. What happens is they get filled first, and immediately sell to the next in line, so that the investor ends up paying $25.05 for example. Tiny gains, thousands of times a day, makes quite a dent.



Jeje maybe a bit of hyperbole, but even most of the algos function by finding patterns in price. If you have indicators that study price, and have a high probability of predicting the ups and downs of the market, all you need is to make sure you always lose less than you win, when the indicators are right/wrong. This works mathemtically as it is a game of probability and controlling risk per trade. However, there's this little thing called being human that fucks everything up

Haha, yup. Exhibit #1 - LTCM....

 

[NullPointer]

This shit fascinates me. Subscribed

Same.

Shine some light on the darkness.

 

[Wazzim]

I don't know anything about the stock market or finance but to me it looks like those people are making money by contributing nothing to society. Please tell me I am wrong.

Yes and no. We need them because they hold the capital we need to produce things (and eventually make profit out of the production) and/or consume but they use that power to fuck us over as much as possible.

 

[Sanky Panky]

All of what you said only really affects traders.

If you buy and hold a diverse set of assets long term none of that shit really matters.

Trading, especially day or any short term trading, is for suckers and fools who think they are special and will come out on the positive side of the average. The derivatives and options markets are useful for insurance if in certain circumstances you find yourself underdiversified, but again, trading in them is silly.

I agree that you can park your money in a mutual fund, and historically, in 30 years you can average returns that are just as good as most hedge fund managers.

With that said, you can certainly make a living trading and others could see value in how you manage their money. The only difference is the days of judging how a stock will move based on the action at the pits are over. No more phone thumping to buy or sell. The game is changed.

 

[Uncompromisable]

Sorry if this is not the most fun read, but I have to vent somewhere...

I know GAF loves to hate on capitalism, and rightly so, but this thread is not about capitalism per se, but about the current state of global finance.

One of my favourite quotes ever comes from Godfather Part 3: "Finance is a gun. Politics is knowing when to pull the trigger." Growing up I always knew I wanted to be in Finance. I studied it in college, currently work for one of the big banks (dealing mostly with underwater mortgages), and also have been trading currencies successfully for 4 years now. Just this tuesday I found out I passed Level II (of 3) of the CFA exam (Chartered Financial Analyst), which is one of the toughest designations to get for investment analysis and portfolio management.

It's all a casino ran by algorythms. The fundamentals, the economic theories, efficiency of markets, etc, was all fun to learn, but is bullshit when you are trying to make a buck in the markets. Any schmuck out of the streets can be a market genius if they know how to look at lines crossing on their screens, and have the right psychology for it. I went from wanting to get a master's in Behavioral Finance, to looking into computer science/physics/mathematics to try to understand how the markets work.

From Stock-gaf, it's no secret that I am bearish on the markets. How can you not be? Central banks no longer have the resources to prop up the inflated assets, and we are weeks away from Spain/Greece defaulting/needing bailouts. The Euro is untenable.

If you don't read anything else, you can just read this. Here is what I am angry/sad about:

- Markets are traded by computers in miliseconds, and congress won't do anything to intervene. The DOW once dropped 800 points on a glitch. Oops. Sorry for the sucker that based his long position on fundamentals.

- These past few days, money managers with their fingers on the red button have been so starved for big daddy government to artificially prop up the markets, that two baseless comments by Draghi and today Merkel have lead to two days of the DOW jumping 200 points each. They say BUY the rumours, SELL the news. There is no fundamental demand behind it.

- I paraphrase a saying I read once. The market is like a whore. It's job is to fuck you and take as much of your money as it can. When there is a general consensus of the direction of the market, it's best practice to go the other way, since the big players will hunt for stops (these are levels where traders have set to take losses). For example with the Euro/Dollar it is quoted by 1.23xx. Today a big level for stops was 1.2380. Today the market went up from 1.2260 to 1.2380 on no news. That's 120 "pips" (think of it as points in the DOW, and each pip can be worth hundreds to thousands of dollars thanks to leverage). It hit 1.2380 and like clockwork, it dropped 100 pips after that.

- If there is an investor out there for it, the institutions will create a financial product or derivative for it. Stocks, stock options, stock futures, stock options on futures, swaps, repos, forward rate agreements, CDS, Cash/Synthetic CDOs, mortgage backed security senior/subordinate/variable tranches... the Godman Sachs of the world don't know what other scheme to get investor money. They are trading weather patterns now... it's a flea market for risk/return. No wonder there is a shadow market worth trillions upon trillions that nobody understands.

I'm willing to share experiences with those interested in this stuff, and I'd like to hear how others view the markets and finance. Anybody else as sickened as I am from it?

tl:dr Finance and the global markets are the most bullshit manipulated contrived aspect of our existence as humans, which also happen to be the things that make the world go round. It's a field driven by greed, and not efficiency, no matter what I have read in academia.

Hi friend. I worked two years in capital markets (1 year on a buy-side trading floor, another on a sell-side equity research desk) and I can attest to some of what you say, but in my opinion you're very generous in your description of the problems in Finance. Here's my take:

-It's ALOT about relationships. To be good in this game, it's not just who you know but who you blow. This is as above stated a giant casino, and the only thing keeping you at the tables when your luck runs out (because it will) is goodwill. Even goodwill is not enough sometimes when the mistake is big enough, but it helps a hell of alot.

-Because it all depends on relationships: the game is rigged for some players. To understand how fundamental the rigging is you need look no further than the recent Libor scandal. To rig something so fundamental means that the shit stinks all the way up. I've seen a ton of bullshit from the little time I was there.

-Research, on the sell-side, is an extension of corporate marketing. With something like 90% "buy" ratings on the street, you don't need to be a genius to figure out something's wrong. I saw research analysts get calls from investment banking dictating to them which companies to cover and what to write. Reason for this is that investment banking wants to court M&O relationships with these companies, who won't give them a second chance if they don't properly promote their stock. And as a side-benefit, since it's all about relationships, those who kiss up get to get closer to the people who run the companies (more 'insider-ish' info) and/or they must be tight with the institutions to get them to buy whatever stocks through them. Basically, the quality of the research is shit (this seriously depressed me when I found out, can't believe I had to actually work in capital markets before realizing this, how naive I was).

-On a personal level: the hours a dogshit (especially on the sell-side), you're always expected to be available and take minimal vacations (my bank 'disapproved' of taking two weeks in a row of vacation). Ethically you're a dirty weasel out to make money day-in day-out. Spiritually: the people that surround you are some of the greediest, soulest and most arrogant people you will ever meet. The office politics can get extremely dirty (remember that Macquarie dude that got fired because someone sent him an email with a naked while there was a film crew behind him?). Basically: it's not anywhere near as meritocratic or intellectually fulfilling as they make it out to be. Lose hope all ye who enter.


Anyway I could mention a few more things, but the stories end because I quit finance for now and its bullshit. I am doing a PHD and hope that if I do re-enter the industry, it'll be in a much more technical (and hopefully less political) position.

Congrats on the CFA. Although I personally dislike the superficial threatment of economics and "ethics" (some serious BS in there), and was part of the reason I quit finance actually.

 

[sonicfan]

CFA here.

We are pretty much fucked, I don't see how any way out of it long term. The US and European standard of living that we have gotten used to will be looked at longingly by today's young people, who will face vastly different futures than their parents and grand parents.

Talking about the system, the greatest problem is shifting of risk and the backing of governments for large financial firms. In the old days when firms like Goldman or Merrill Lynch were partnerships, when they took risks, it was their own ass and capital on the line. With the blurring of investment banking and traditional banking (repeal of Glass–Steagall) and then "too big to fail", bankers could take greater and greater risk. With the risk comes greater return. But now when the fail, instead of losing everything themselves, they have government insurance or too big to fail bailouts to save their silly asses. Hey, let's bet on CDOs and CMOs, if we are right, we make billions, if we are wrong, no problem, somebody will come and save us, we will get our bonus next year then.

And on your comments about markets being casino ran by algorythms, that is sadly far too much the case. I lived in Santa Fe NM and got to know some of the guys who came out of the Prediction Company, and other quant hedge funds guys. My favorite guy was an Ex Cambridge Phd who was teaching Physics at Cambridge in the UK and was denied tenure. He quit and left to get into finance. He traded equity only, totally quant driven, and only had market exposure during regular trading hours. When he started, what was important was the speed of his network connections so he could get his trades in fast enough to take advantage of what his models were telling him were market inefficiencies. To be honest, I don't know if he is still doing it, as now his type of shop wants to be physically as close as possible to the trading exchange so their models don't have basically any lag on market data and how fast their machines can gets trades in to be executed. That is not investing......yet that is the sort of stuff that moves the markets...

Now having said that, I do believe that you can truly invest if you are willing to be patient, and behavioral finance is important as ever. There is a lot of heard mentality on the street, and if you have the guts to go against it at the right time, you can still do well. For instance, right now, many managers are very cautious, and the average hedge fund beta is at a low point. If you have the guts, historically, right now would be a good time to be long....

 

[gutter_trash]

http://www.cba.ca/en/media-room/50-...as-strong-banking-system-benefiting-canadians

Canadian bank regulations, financial institutions done right

 

[PastorOfMuppets]

I'm one of the big beneficiaries of the housing boom years. Daytrading options bought me my condo at the age of 22. I'll add more later because I gotta leave right now. But the long and short of it is this:

* I hit a goldmine with agricultural and solar energy stocks in the mid 2000's.
* Hedged with gold in the late 2000's and was able to finish 2008-2009 with "only" an $80,000 loss (it would have been much worse had I not had money in gold)
* Exited the market completely a year later, with almost no cash left but a condo (70% paid off though - I didn't go nuts with property like my contemporaries) to show for it.
* Had to drop out of school, got a job and started playing poker as a semi-serious thing.

 

[RedNalgene]

-Research, on the sell-side, is an extension of corporate marketing. With something like 90% "buy" ratings on the street, you don't need to be a genius to figure out something's wrong. I saw research analysts get calls from investment banking dictating to them which companies to cover and what to write. Reason for this is that investment banking wants to court M&O relationships with these companies, who won't give them a second chance if they don't properly promote their stock. And as a side-benefit, since it's all about relationships, those who kiss up get to get closer to the people who run the companies (more 'insider-ish' info) and/or they must be tight with the institutions to get them to buy whatever stocks through them. Basically, the wuality of the research is shit (this seriously depressed me when I found out, can't believe I had to actually work in capital markets before realizing this, how naive I was).

This happens all the time even though it's illegal.

 

[Silas Lang]

They sell crappy black box systems that rarely work for the retail trader, but these algorythms are so sophisticated that not only do they try to predict price movements, but they adapt to what other algorythms are doing. They can adjust orders to buy/sell in front of everybody else, and take advantage of this in nano-seconds. Algorythms are the market, and they evolve around each other.

I've read that let's say that a buyer wants to buy a stock for $25. Usually normal investors use a few types of orders, and algos know of this order because it is shared information. Nowadays, algorythms customize the orders, so that they are hidden to everyone else, and they trigger automatically once the $25 price hits. What happens is they get filled first, and immediately sell to the next in line, so that the investor ends up paying $25.05 for example. Tiny gains, thousands of times a day, makes quite a dent.

Thanks for clearing that up, I don't really know a lot about this stuff. I can definately see how these algorithms take some very very very smart people to come up with. Just imagining all the numbers and variables that go in it is enough to give me a headache.Had no idea that's how people make a lot of money.

 

[commedieu]

I went to undergrad for finance. Worked for a Hedge Fund right out of school (I was 23 years old and pricing Credit Default Swaps having no idea what the hell I was doing!). Studied for the CFA while at my first employer. Went to a rating agency for a short stint, and then worked for one of the bailed out banks for a while. I now work for a law firm fighting the banks - consequently this is the only job I've ever had where I don't leave feeling like a terrible human being. The system is completely rigged, but I don't expect anything to change anytime soon with the revolving door between govt. and the Street nothing can change until people demand it.

We tried to. But the banks paid the police off :\ I love this image though. Theres a website with a buggy javascript map of Bankers in government, can't remember it, but this simple image is so much better.

and kudos to gaf.

This is the first time I've seen people not sit on top of their piles of shit and pretend its not that bad from where they are looking. Awesome thread.

 

[iamblades]

I agree that you can park your money in a mutual fund, and historically, in 30 years you can average returns that are just as good as most hedge fund managers.

With that said, you can certainly make a living trading and others could see value in how you manage their money. The only difference is the days of judging how a stock will move based on the action at the pits are over. No more phone thumping to buy or sell. The game is changed.

Oh I agree you can make a living trading especially if you do so conservatively and wisely, and the traders do serve a valuable role in the economy. Even if they are wrong most of the time individually, as a whole the average gets pretty close to reality over a long enough time scale, which is good for the rational people who think long term.

All the noise and confusion about the markets just promotes fear and uncertainty in the average investor(or person too intimidated to invest) though.

 

[SpinningBirdKick]

It seems like a life time ago now but I used to trade index and currency futures using technical analysis, mainly on the short side as prices often drop much faster than they rise.

If you're trading on fundamentals alone you don't stand a chance unless you have very very deep pockets. The markets can stay irrational much longer than you can stay solvent as a position moves against you.

I have no doubt the markets are rigged but that is what I loved about it. When you can spot distribution or accumulation occurring ahead of the crowd, it's relatively low risk to jump on and ride the momentum. Finally closing out positions before the end of the day so that you can start afresh the next day.

I found doing inter market technical analysis fascinating. It like an intricate puzzle where the effects in one place ripple through to another. Finding these invisible links used to be a license to print money while they lasted.

On the negative side, the hours were terrible and you had to put in a tremendous amount of time after the markets closed preparing for the next day.

 

[kame-sennin]

Lot of democrat appointees. And we know the republicans are pro-Wall Street as well. This problem will not be fixed electorally.

We tried to. But the banks paid the police off :\

Successful protest movements and revolutions can take years or even decades. We shouldn't write something off after 6 months.

 

[Sanky Panky]

A lot of great posts and experiences here. GAF never fails.

Congrats on the CFA. Although I personally dislike the superficial threatment of economics and "ethics" (some serious BS in there), and was part of the reason I quit finance actually.

As I was studying the Ethics part, I could not help but cringe at the parts they recommend you go to management to "suggest they implement proper procedures to prevent conflict of interest, blah blah blah". I could only picture a new analyst at GS, recent CFA charterholder, being laughed out of the office because he tries to abide by the CFA ethics Codes and Standards.

I would never ever be a sell-side research analyst. Not because I utterly hate accounting shenanigans, but because I could never be an ass-kissing stock pusher. I've heard that you have to earn your stripes on the sell-side first, so I don't think I'm headed into equities. I think if I stick with institutions, I'm sticking to credit analysis, especially dealing with commercial real estate. I love that stuff.

Talking about the system, the greatest problem is shifting of risk and the backing of governments for large financial firms. In the old days when firms like Goldman or Merrill Lynch were partnerships, when they took risks, it was their own ass and capital on the line. With the blurring of investment banking and traditional banking (repeal of Glass–Steagall) and then "too big to fail", bankers could take greater and greater risk. With the risk comes greater return. But now when the fail, instead of losing everything themselves, they have government insurance or too big to fail bailouts to save their silly asses. Hey, let's bet on CDOs and CMOs, if we are right, we make billions, if we are wrong, no problem, somebody will come and save us, we will get our bonus next year then.

I think this time around, there is so much "collateral" insured by CDSs, that these are the final stages of governments trying to maintain investor confidence, at whatever cost. The CDS bubble has not popped yet, and IF/WHEN it does, countries will be the ones begging for mercy, not just the big institutions. Because the governments have prevented all these CDS from triggering, is why we still have a DOW pushing 13,000.

After it all implodes, I give it less than 10 years until they find another asset class with loopholes that they can chase. Like you said, it's all about shifting the risk around from bubble to bubble.

 

[WeAreStarStuff]

We tried to. But the banks paid the police off :\ I love this image though. Theres a website with a buggy javascript map of Bankers in government, can't remember it, but this simple image is so much better.

and kudos to gaf.

This is the first time I've seen people not sit on top of their piles of shit and pretend its not that bad from where they are looking. Awesome thread.

Protesting infront of banks while getting beat by police isn't demanding. Honestly; I don't think anything will change until there is either a global economic collapse, or a second American Revolution (it will have to be won by intelligence and unification, not violence.)

Also, I kind of look like your avatar and it's creeping me out.

Lot of democrat appointees. And we know the republicans are pro-Wall Street as well. This problem will not be fixed electorally.

Democrat, Republican, it doesn't really matter. Both parties are whores to special interest and only present a facade of choice to the common man.............which they have nothing in common with.

 

[FroJay]

Democrat, Republican, it doesn't really matter. Both parties are whores to special interest and only present a facade of choice to the common man.............which they have nothing in common with.

Agreed 100%.

 

[RJT]

I don't know anything about the stock market or finance but to me it looks like those people are making money by contributing nothing to society. Please tell me I am wrong.

While I completely agree with the criticisms put forward by the OP and others in this thread, finance does contribute to society.

The stock market is important for two main reasons: it provides a centralized and transparent way to buy/sell capital (think about all the money that goes into venture capital and cool tech companies that would not be allocated there if there wasn't a mechanism like the IPO) and helps price discovery (i.e., by looking at the stock market, and other exchanges, you can learn the commonly accepted price of certain fundamental goods - interest rates, currencies, etc.).

Financial companies shoulb be mainly intermediaries that help you find a counterparty that is interested in buying something you want to sell (e.g., people with money want to lend it and get something in return, people without money want to get it now and are willing to pay something in return).

To put it in simple terms, finance is like the lubricant of capitalism: you don't need it per se, but things work out much better with it.

BTW, congrats on the exam. I know a lot people that did level 1 and it's really difficult to do it. I'm glad I didn't enroll (I am much more interested in the corporate finance side)...