Goldman on High Frequency Trading

There’s only one bank that’s come out publicly against high frequency trading, and that’s Goldman Sachs.

It’s not an easy thing to do. Banks work with high frequency trading firms to execute orders, they also have their own dark pools — private, anonymous exchanges that have become a part of the new market ecosystem synonymous with HFT. Goldman’s dark pool is called Sigma X.

So why would a bank take on HFT?

Because Goldman bank believes it’s hurting their equities trading business, which has been on the decline for some time now. And as the WSJ’s Justin Baer and Scott Patterson point out, the bank would rather have a healthy stock trading business that can make it billions of dollars than a dark pool that only brings in hundreds of millions of dollars.

Thursday morning’s first quarter earnings numbers say it all. Goldman is losing stock trading share to its rivals. In Q1 2014, the bank made $416 million trading equities for clients. That’s down 49% from the same time in 2013 when the bank made $809 million.

In 2013, a year when the price of stocks exploded, Goldman’s client stock trading revenue fell from $3.2 billion in 2012 to $2.6 billion.

Arch rival Morgan Stanley, on the other hand, has seen it’s equity sales and trading rise 16% over the last year, and 24% over the last quarter.

Obviously for the biggest baddest bank on Wall Street, this is worrisome. The bank is not only losing market share in equity sales, but also its dark pool has lost its share of the market as rivals from Barclays, Deutsche Bank and Morgan Stanley have entered the market.

So once big institutional clients — the mutual funds and hedge funds that HFT firms love to pick off when they notice the institutionals’ big block trades in the market — started complaining about HFT, Goldman knew it was time to change their strategy.

Patterson and Baer reported that at a meeting in London several weeks ago, Goldman’s institutional clients voiced concerns that are now familiar thanks to Michael Lewis’ book, ‘Flash Boys‘.  They said that they felt HFT firms were given an unfair advantage and that the market was too opaque, complicated and dangerous.

That’s when Goldman started sending around internal memos asking for commentary on market structure, and COO Gary Cohn wrote the anti-HFT op-ed that shocked people across the Street.

In the op-ed, he mentions one more issue that has Goldman worried about HFT. The bank is known for having some of the best technology in finance, but last August a glitch in its software sent erroneous quotes into the market and cost the bank $100 million. And Goldman doesn’t lose $100 million.

From Cohn’s op-ed:

The economic model of the exchanges, as shaped by regulation, is oriented around market volume. Volume generates price discovery and liquidity, which are clearly beneficial. But the industry must recognize how certain activities related to volume can place stress on a market infrastructure ill-equipped to deal with it.

In other words, exchange software is now so complicated that it is not something a firm can do as a side show — it has to be the main event. 

Read more: http://www.businessinsider.com/why-goldman-sachs-2014-4#ixzz2zFx4Mt9a

Trading Losses

The reason we have cash is to take advantage of bargains presented by Mr. Market

 

 

 

 

60 % Return Offered

A Canadian woman is facing 110 charges in Washington State for allegedly soliciting $135 million from hundreds of investors on both sides of the border with a Ponzi scheme built around a payday loan business.

According to the B.C. Securities Commission (B.C.S.C.), Doris Elizabeth Nelson financed the growth of a number of businesses known as the Little Loan Shoppe by paying existing investors a commission to recruit new investors.

Nelson allegedly told the investors that because her business was so profitable, she could afford to issue promissory notes paying annual interest rates of up to 60 per cent, the B.C.S.C. alleged in statement issued on Monday.

“She also said that the investment was risk-free. In reality, her business was not profitable due to its high rate of customer loan defaults,” said the statement.

In total, Nelson paid out $118 million to investors, including $2.2 million in commissions to recruiters, but about $17.4 million went to operating costs, personal withdrawals by Nelson and other unaccounted losses.

“Nelson was able to create the appearance of profitability, and to pay high rates of interest on the promissory notes, only because she used money obtained from later investors to make payments to earlier investors,” the statement said.

 

The answer to a number of readers asking why I can ” only ” offer 12 % on a promissory note .

 

Milestone Reached : 2000 Articles Published

The Anxiety Disorders Association of Victoria (ADAVIC)'s photo.
Jack A. Bass Managed Accounts
Fess are performance based :
  1% annually and 20 % of portfolio profits
Contact  info@jackbassteam.com
OR call Jack direct at 604-858-3202 ( same time zone as Los Angeles
No cost or obligation.

Rates of Return – Guarantees for Speculation ?

A surprising number of emails ask if I can guarantee a set rate of annual return for a stock market account.

They want to earn the 4 % a month which is the most recent return based on the current portfolio choices.We’d all like to see that return forever and a day – without risk – but that is not what history teaches.

Only Bernie Madoff offered such a guarantee – and that only was implied- not written – by a false set of records .

In general the great potential of the stock market is offset by risk .

To avoid risk consider the current returns I can offer ANY investor:

1) leave all your money in cash under the mattress – safe unless thee is a house fire- but zero return and actual negative the rate of inflation.

2) Bank savings accounts – U.S. and Canada – 2 % – about equal to the rate of inflation.

3) Bonds – 3% little better than inflation and now some risk when the Fed starts the ” taper “

4) Real estate – current projects with which I am familiar  6 % annually plus the appreciation of the property.

5) Promissory notes – a rate equal to Second Mortgages – currently 12 % and the risk is the quality of the guarantee.

Paid monthly at the rate of 1 % you can earn a compound rate and lessen the total exposure.

Renewed every 12 months so you can withdraw all or a portion of funds.

6) Stock market – unlimited potential but a risk that there is a market down turn of 30 or greater per cent.

You can elect to receive 1 % or more as a MONTH as a withdrawal to lessen your exposure.

Managed Accounts require a six month notice to withdraw but that is a formal requirement only to prevent a
” run” if there is a sharp turn in the market.

For assistance at obtaining the rates set out in items 3 to 6 please email info@jackbassteam.com or call Jack direct at 604-858-3202 ( same time zone as Los Angeles)

 

Trading Rules – The Tortoise Wins

In 1983, commodities trader Richard Dennis set out to show that anybody could trade profitably provided they were taught some simple rules.

His partner, William Eckhardt, disagreed… and a wager was born.

(If this sounds familiar, it should be. It forms the basis of the plot to John Landis’ 1983 comedy, ‘Trading Places’.)

Dennis placed classified ads in the financial press soliciting trainee traders– no experience required. Successful applicants were subsequently taught some basic rules about risk management and trend-following.

These aspirant traders were called ‘turtles’ after Dennis’ experience of seeing a Singaporean turtle farm, and his belief that successful traders could be “grown” just like those turtles.

21 men and two women were hired over the next two years in two separate programmes. Long story short, many of ‘the turtles’ went on to become multi- millionaires.

Not only that, but some of ‘the turtles’ went on to join the ranks of the most successful traders in history.

Richard Dennis believed that a successful trading philosophy could be taught to anybody provided they kept to the rules. Dennis himself borrowed $400 from his father and by the early 1980s had amassed a fortune of $200 million.

As his father famously observed, “Let’s just say Richie ran that $400 up pretty good.”

The basic ‘turtle’ rules involved entering trades on the basis of markets breaking out from previously established ranges. If a given futures market traded at a new 20-day high, then it should be bought. If it traded at a new 20-day low, it should be sold. Stop losses were included for hedging downside risk. Risk per transaction was also carefully controlled.

The turtles were allowed to trade a variety of US futures markets, including interest rates, currencies, energies, metals and commodities (hard and soft). Futures markets were favoured due to their depth and liquidity.

Whereas most fund managers try and predict the future, the turtles simply paid attention to the market price. For as long as price trends persisted and they weren’t stopped out, they would add to their positions (subject to obeying the rules about appropriate position sizing).

 

The Pareto Principle of Portfolio Selection

copyright Jack A. Bass and Jack A. Bass Managed Accounts

Background

The Pareto principle (also known as the 80–20 rule, the law of the vital few, and the principle of factor sparsity) states that, for many events, roughly 80% of the effects come from 20% of the causes.

It is a common rule of thumb in business; e.g., “80% of your sales come from 20% of your clients”. Mathematically, the 80-20 rule is roughly followed by a power law distribution (also known as a Pareto distribution) for a particular set of parameters, and many natural phenomena have been shown empirically to exhibit such a distribution.

Application to Portfolio Selection

The Pareto principle serves as a baseline for Jack A. Bass Managed Accounts analysis  for the purpose of optimizing portfolio returns.

Example : Three recent sales of the lowest yielding stocks in the portfolio allowed for the addition to the selections in the shipping sector . The addition to Safe Bulkers has increased our year to date increase to 21% .

In the Apprentice Millionaire Portfolio ( available from Amazon.com you can read of the sector and company analysis that preceeds selection.This will give you the baseline information for applying the amp2012 blog entries to your portfolio selections.

Portfolio Selection

If you wish to have Jack Bass make those selections simply write info@jackbassteam.com or call Jack direct at 604-858-3202 ( no cost or obligation).

Fess: 1% annually and a performance fee of 20 % of the annual gains.

What Is A Bond Investor To Do ? Guidelines

Bond returns are at record lows.

Bond investors must consider a switch of some funds into equities but conservative investors fear the stock market is a Jedi Knight turned to the Dark Side waiting to swoop down and destroy their portfolio. You must act to preserve your ” buying power” but what to do ?

Here is a guideline we suggest for building a portfolio that cuts down risk( risk cannot be eliminated ):

1) limit selections to common stock listed on major exchanges

2) no stock selling for less than $5.00

3) only select companies that are profitable

4) only purchase stocks that are paying a dividend

5) avoid attempts at market timing

The strategy outlined in this  guideline is simple but not easy to follow. For a more detailed explanation of selection criteria please refer to The Apprentice Millionaire Portfolio available from amazon.com

Portfolio  Management : Engagement Process for Jack A. Bass Managed Accounts

The Engagement Agreement authorizes us to officially act on your  behalf and also provides for protection of confidentiality in regards to the dissemination and distribution of your sensitive financial information.Generally you will name Jack A. Bass as a person allowed to trade your portfolio – BUT without any authority to remove funds from your account.

Due Diligence. Once our company is engaged, we undertake the required due diligence to confirm and verify the necessary information required to execute your request.

Evaluation. After due diligence we evaluate your / your  company’s current value and estimate future value based on recent market and other comparable data.

Fees. Engagement Fees are  NOT based on the number of hours and direct costs required to complete due diligence, perform an evaluation, and prepare the necessary information to support your request that we act for you.Our initial review: this includes performing financial analysis, conduct competitive comparisons, in- depth financial reviews, and validating the necessary information to prepare the most compelling portfolio related to your needs.

We earn our fees by performance :

1 % per year as administration

20 % of annual portfolio gains calculated twice a year

There is no cost or obligation to contact us at info@jackbassteam.com ( or call Jack directly at 604-858-3202 – same time zone as Los Angeles)

Main website http://www.jackbassteam.com

Portfolio Management : Engagement Process for Jack A. Bass Managed Accounts

The Engagement Agreement authorizes us to officially act on your  behalf and also provides for protection of confidentiality in regards to the dissemination and distribution of your sensitive financial information.Generally you will name Jack A. Bass as a person allowed to trade your portfolio – BUT without any authority to remove funds from your account.

Due Diligence. Once our company is engaged, we undertake the required due diligence to confirm and verify the necessary information required to execute your request.

Evaluation. After due diligence we evaluate your / your  company’s current value and estimate future value based on recent market and other comparable data.

Fees. Engagement Fees are  NOT based on the number of hours and direct costs required to complete due diligence, perform an evaluation, and prepare the necessary information to support your request that we act for you.Our initial review: this includes performing financial analysis, conduct competitive comparisons, in- depth financial reviews, and validating the necessary information to prepare the most compelling portfolio related to your needs.

We earn our fees by performance :

1 % per year as administration

20 % of annual portfolio gains calculated twice a year

There is no cost or obligation to contact us at info@jackbassteam.com ( or call Jack directly at 604-858-3202 – same time zone as Los Angeles)

Main website http://www.jackbassteam.com

Which Tax Haven Should You Use

You can view more articles on tax savings at another of my blog sites ( The Tax Haven Guru) but in answer to a number of requests:

The new nations seeking to add ” tax haven ” as a financial resource to their country increased as the publicity of U.S. crackdowns became front page news.

Too many of the most recent – like The Gambia lack the infrastructure – at least at the present time. You need a competent number of fiduciaries and intermediaries to effectively establish a center ( centre for the English)  for International Business Corporations ( IBC).

We recommend using the larger established centers such as Seychelles – and this may vary – but use a centre that does not have a reciprocal tax treaty with  your country – wherever possible.

When setting up a trading account you get to name yourself and Jack A. Bass as portfolio mangers .This allows you access to the account – yet your name does not appear as the holder or owner of the account. We charge only 1 % to set up the account and earn our fees through performance.There are fees to incorporate , open a bank account and a trading account – these run to approximately $ 5,000 dollars.

For more information email info@jackbassteam.com or call me direct at 604-858-3202

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