UBS and the alegged Rogue Trader-Summary
Much has been written on the UBS Rogue Trader theme today. We will hear more on this story in during the coming days. One thing is for sure. To blow up, if that even is true, 2 Bln USD is quite hard to accomplish. One needs to have some rather big positions. Those kind of positions are almost impossible to accumulate in the Equities Market. Below is a good recap of some of the stories today.
Guest Post by Morelivers on UBS and the alleged Rogue Trader.
This is just crisis porn and more suitable for late-night viewing. Fortunes have been made and mostly lost, so this is a good primer on what to expect (FT writing about your Facebook status updates) when the middle office finds those hidden trade confirmations. If you have been lucky or only somewhat unlucky in the markets, this can be thought as a reminder that things could be much, much worse for you.
UBS and the Big Trade?
In order to “loose” 2 bln USD, you need to take quite big positions. While UBS is not saying anything, the “bet” must be in a fairly liquid product, and if not “hidden” below the desk, it is almost impossible to loose it on Equities Trading.
Maybe the trade was an extremely big Vega position on the CHF/EUR. A long Vega position seemed like a rather intelligent trade only some days ago, before the SNB announced to “peg” the CHF.
By doing that, volatility on CHF collapsed to virtually zero. Suddenly a winning smart trade, turned out to a nightmare, when CHF all of a sudden became “pegged”. There are very few, if any, Risk Matrixes capturing this kind of scenario, because it does not happen. This is an event outside any Risk Managers stress test. This is a Black Swan event for the holder of Volatility, and the biggest ironi, such a trade would have been perfectly positioned for the turmoil in the Financial Markets. A Black Swan is not always a Black Swan.
Below 30 day chart of the CHF/EUR. Note the totally vanished vol in the pair. If this was the trade or not is to be seen, but this is a possible senario, given the liquidity in the currency market.
The Alleged Rogue Trader’s Facebook Update on the 6th of Sep;
Mr Adoboli’s last update to his Facebook page, dated September 6, simply reads “Need a miracle”.
….it just might be the above trade that caused the loss, as SNB “pegged” the CHF on the 6th of Sep…
SPX back in the Channel (as Intervention vanishes)
The Central Bank Intervention effect is gone. We are back trading in the Channel. Market will eventually get the last bears to go long. That is how human Psychology works.
Unemployment Re-Emeges as most important problem in US
While the HFT community is busy buying everything, when the World once again is saved by Ben, the Americans have just shifted interest. Now Unemployment is the most “disturbing” problem amongst Americans. By Gallup;
Thirty-nine percent of Americans in September name unemployment or jobs as the most important problem facing the country, up from 29% in August. Unemployment has now passed “the economy” as the most frequently mentioned issue. In the month since the passage of debt ceiling legislation, concerns about the federal budget deficit have eased, while the percentage citing dissatisfaction with government as the top problem has held steady at 14%.
The results are based on a Sept. 8-11 Gallup poll, conducted just after President Obama announced his proposed jobs bill to Congress to address the United States’ high unemployment rate. Obama’s proposal came shortly after the government reported that no net new jobs were created in the U.S. in August. The increased government attention to unemployment is likely the reason behind the bump in the percentage of Americans citing it as the most important problem.
Full article here.
SPX Navigation Channel
After the initial sell off earlier today the market is back to “normal”. The Trend Channel SPX initiated some days ago, is still intact. Back to basics, buy the support, sell the resistance…
Does the Euro Have a Future?-Soros
George Soros, one of the absolutely greatest investors and thinkers, is telling the Truth.
To resolve a crisis in which the impossible becomes possible it is necessary to think about the unthinkable.
The euro crisis is a direct consequence of the crash of 2008. When Lehman Brothers failed, the entire financial system started to collapse and had to be put on artificial life support. This took the form of substituting the sovereign credit of governments for the bank and other credit that had collapsed. At a memorable meeting of European finance ministers in November 2008, they guaranteed that no other financial institutions that are important to the workings of the financial system would be allowed to fail, and their example was followed by the United States.
Angela Merkel then declared that the guarantee should be exercised by each European state individually, not by the European Union or the eurozone acting as a whole. This sowed the seeds of the euro crisis because it revealed and activated a hidden weakness in the construction of the euro: the lack of a common treasury. The crisis itself erupted more than a year later, in 2010.
Full article here.
News That Matters
Ft.com
Several large corporate clients’ of French banks are seeking financing from banks outside of Europe to avoid a funding gap if markets there close, says the WSJ, citing people familiar with the situation.http://ftalphaville.ft.com/thecut/2011/09/15/677761/french-bank-clients-looking-outside-europe/
Ernst & Young faces a fresh threat to its reputation after an Irish accounting regulator said it would hold a disciplinary hearing to examine E&Y’s auditing of Anglo Irish Bank, a lender that had to be rescued by the Irish government in 2009, http://ftalphaville.ft.com/thecut/2011/09/15/677731/ey-faces-probe-on-anglo-irish-bank-audit/
The Securities and Exchange Commission is further expanding a probe into collateralised debt obligations, including pressing for a $200m settlement with Citigroup, negotiating a settlement with Credit Suisse, http://ftalphaville.ft.com/thecut/2011/09/15/677716/sec-and-citi-in-cdo-settlement-talks/
Britain is to sue the European Central Bank for setting rules that allegedly handicap the City of London and would force one of the world’s largest clearing houses to decamp operations to the euro area,http://ftalphaville.ft.com/thecut/2011/09/15/677681/britain-to-sue-ecb-over-threat-to-city/
Covered bonds are not the universally safe assets that some investors think they are, rating agency Standard & Poor’s has warned in a new report, says the FT. Many investors consider the bonds “super-safe” because, http://ftalphaville.ft.com/thecut/2011/09/15/677651/sp-report-urges-covered-bond-caution/
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