“The human brain, these researchers say, responds to high-stakes trading just as it does to the lure of sex. And the riskier the trades get, the more the brain craves them,” Jenny Anderson of the New York Times reports. According to one study, the “brain images of drug addicts who are about to take another hit are indistinguishable from those of traders who are making money and about to place another trade.”
Craving the High That Risky Trading Can Bring [New York Times]
traders
Trader Monthly’s annual Trade of the Year issue is out, and as you might expect the words “short” and “mortgages” are all over the top trades. The top short equity trade goes to Bill Ackman’s shorting MBIA while the top overall trade goes to John Paulson of Paulson Credit Opportunities for his subprime play, which Trader Monthly says may be the “greatest trade of all time.” (If you don’t have a subscription to Trader Monthly, you can read excerpts of the issue at FT Alphaville.)
It’s got some good detail on how Paulson achieved his 590% return by taking position shorting the ABX and shorting individual CDOs. According to Trader Monthly, Paulson bought credit default swaps that required the seller to post cash collateral if the protection premiums hit a certain threshold.
Two sources close to the action describe how, at one point last summer, Paulson put the touch on a major bulge-bracket brokerage for $500 million — a reverse margin call, as it were. A 24-hour tension-filled tussle ensued over whether the brokerage would pony up. Paulson prevailed.
This tale of the hedge funder wrestling down a bulge-bracket brokerage is pretty amazing but we’re disappointed that Trader Monthly plays all coy with the name of the brokerage. Does anyone seriously doubt that we’re talking about Bear Stearns here?
Best of 2007 : The Fourth Annual Trades of the Year [Trader Monthly]
The man picture at left is, purportedly, Jerome Kerviel, the Société Générale employee who executed a bunch of “elaborate, fictitious transactions” that cost the bank a bunch of money. Not to treat him like an object because obviously he’s a person with feelings, but we’re a bit taken a back by how good looking he is. And not like “rogue trader hot,” like “hot, hot” without qualifiers (direct quote from Ron Blarney: “I’m don’t even like Two and A Half Men and I still fuck him”). This attractiveness will serve him well in the event of a nationally televised trial, and even better in prison.
Almost lost among the widespread relief that JP Morgan Chase didn’t suffer a Citigroup or Bank of America like third quarter was the poor performance of the bank’s commodities trading operations.
It’s hard to believe, but it was just last year that Jamie Dimon was telling analysts that bulking up its commodities and asset-backed securities trading would diversify the banks trading business and smooth out volatility. In March of this year, JP Morgan’s co-head of investment banking, William Winters, was telling investors that the bank expected energy trading to add somewhere between $100 million and $160 million in annual earnings in 2007. As late as June, JP Morgan was announcing plans the expand its commodity-trading staff by more than 30 percent, or 40 more people.
The plan hasn’t quite worked out, and now might be a good time to ask what happened. Last year, the plan seemed to be working. The bank scored a windfall by scooping up the assets of Amaranth and then flipping them to Citadel. But shortly afterwards it lost several top commodities traders.
Parker Drew, who was recruited in 2005 to run the gas trading business after his own hedge fund folded, left the bank at the end of 2006. George Taylor, who ran the bank’s energy business, left in May 2007, and shortly after words Trevor Woods, who had replaced Drew, left. Three others also followed Taylor out the door.
At the time of these high level departures, there was a lot of speculation that they were connected to the bank’s role in the collapse of Amaranth. JP Morgan’s was the clearing firm for energy traders at Amaranth, and it’s margin calls reportedly helped bring the hedge fund down. When the bank then bought Amaranth’s positions as it struggled to meet margin calls and return money to investors, many raised an eyebrow at how the bank seemed to be profiting from the troubles of its client. There was speculation that the bank may have decided that some of its traders were on too many sides of Amaranth’s collapse.
This was hardly an undisputed position, however. The bank said the departures had nothing to do with Amaranth. Others say the traders left because they were unhappy with their compensation following the massive profits the desk made for the bank in 2006.
In June, the bank hired Foster Smith from Deutsche Bank to head U.S. power and natural-gas trading. Deutsche was tied with JP Morgan as the fifth largest energy trading bank in 2006. It’s clear that the energy trading operation’s performance has been a huge disappointment for the bank, and that Smith seems to have stepped into a mess. We haven’t found solid numbers on the energy trading performance, but JP Morgan describes it’s commodities trading performance—a broader category—as “weak.” That’s still not much solid guidance about what went wrong but it’s a starting place.
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Derivatives Trader Lets His Watch Talk For Him. But What Is It Saying?
By Bess Levin
Today’s “Look Book,” a New York Magazine feature that displays the island’s residents at their sartorial best and (most often, statistically-speaking) worst, is about pre-schoolers. You know—kids. But since small ones don’t really give a rat’s A about this sort of stuff, and old people don’t really have much left to live for, almost all of the shots are of kids looking away or running from or glaring at the camera, with the parents being all “take that one again, you didn’t get my good side, if it’s important, I’ll make the time.”
First up are Andrew Mitchell, a derivatives trader, and his daughter, Hannah (pictured at left). Actually look like a pretty cute couple, and maybe the most normal of the bunch. Hannah’s wearing white after Labor Day, but her red Jellies are a perfect take on this season’s Wizard of Oz theme and she’s two, so we’ll issue a pass, this time. Kind of seems like Amy Larocca, LB editor, was asleep at the wheel on this one (she’s better known for featuring subjects dressing in the parlance of boho-freak).
But look closer, and Larocca’s buried a question mark within an enigma inside of a mystery, that only people like you can solve—Andrew’s watch. It appears to be plastic, possibly an Ironman. It may even be, as one Dealbreaker commenter suggested, “a $17 Casio.” Not Breitling, or Panerai, or Piaget, or Rolex, for god’s sake. Not even Rolex. Certainly not the limited edition version of Hermès’s “Cape Cod 1928” watch (the “Cape Cod Wall Street”).
What does Andrew’s choice of piece say about him, not as a man, but as a trader? We’re told he works at Barclays, so perhaps he took himself, and his accessories, off the fast track a long time ago? That after he drops off Hannah, he’s going to the gym? New York notes that it is 9 a.m. Is Andrew’s timepiece indicative of the fact that his presence at the office is fast becoming unnecessary? Or is he—to use that horrible phrase—a “big hitter,” who can come and go as he pleases, and is, as another commenter posits, “Above such flashy displays of wealth”? Does Andrew’s plastic say, “I have nothing to prove”? Or “This was all I could afford”? One friend of Dealbreaker is inclined to go with the former, pointing out that “You need only look parallel to Hannah’s left foot. Andrew wears an Ironman because he, quite visibly, has no need to overcompensate via watch.” But that’s just one slut’s opinion. Tell us what you think.
Preschool Drop-off [New York Magazine]
[Nice to see Eddie Lampert supplementing last month's losses with some choice endorsement work, isn't it?]
Trading IS Sex, Baby [copyranter]
A representative from the “Trader Monthly” community just called to let us know that Tim Sykes was disinvited from the mag’s Tuesday night party for reasons greater than “the pink bathrobe.” They include the fact that:
a. Tim doesn’t behave like a responsible member of the financial community.
b. He showed no remorse for losing other people’s money (TM cited an e-mail from Cilantro in which the fund’s manager noted, “At least I didn’t lose double digits this month,” which Global Alpha only wishes it could say to investors).
c. Other traders didn’t want Tim at the party.
d. On this episode of Wall Street Warriors, Sykes refers to himself as a “cheap Jew.”
If Tim promises to atone for his self-loathing comments tomorrow, TM will consider allowing him to attend next year’s celebration. In other news, we’re told that Zach Michaelson was also banned from the party, and resorted similarly unsuccessful begging tactics, as well. E-mail exchanges (should they exist) TK.
Earlier: ‘Trader Monthly’ Will Not Have Its Reputation Tainted By Tim Sykes (Zach Michaelson, Sure)
…of obesity (since food manufacturers may be forced to start using a cheaper and almost by default healthier substitute for corn syrup), and comedy, as judged by the following joke, courtesy of Freakonomics:
One night, a trader gets home from work, late as usual. As he’s getting undressed in the bedroom, for some reason he is overcome by curiosity and decides to go snooping in his wife’s dresser. In the very first drawer he opens, he discovers something truly strange: $12 in cash and three loose kernels of corn.
Downstairs, he admits to his wife that he went snooping.
“Oh, so you found it,” she says.
“Yes,” he says, “but what is it?”
The husband and wife have not been close for years, and now the wife admits that she has had affairs, and that in remembrance of each affair, she stashed a kernel of corn in her drawer. The husband is taken aback, but also relieved. He, too, has had affairs — and so he says, quite slickly: “Well, look, I’m willing to forget about all this if you are.” After all, he has had far more than three lovers on the side.
“Fine,” she says.
There is an awkward silence. Then he asks: “But what about the $12 in the drawer along with the corn?”
“Oh, that,” she says. “When corn hit $4 a bushel a month ago, I decided to cash in.”
This joke would have been much funnier with pork bellies. If anyone has any rising commodity price jokes, please share.
What’s That Have to Do With the Price of Corn? [Freakonomics Blog]
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Poll Shows Traders Like Money, Stevie Cohen; Jail, Beards Not So Much
By Keith Hahn
The results of a recent poll conducted by Trader Monthly on 2,500 of the trading kind shocks and offends us. More than half the traders questioned said that they would gladly trade on illegal insider information, provided the deal would score them a $10 million profit, and there was zero chance of getting caught. Do we give a rat’s a about the fact that Wall Street’s finest are cool—breezy, even—with committing felonies? No we do not. (We’re more offended by the fact that they’d do it for a mere ten mill. What is this, amateur hour?) No, what really rubs us the wrong way is the notion that approximately 1,250 traders—trā’dərs—, the guys who are supposed to be taking the most risks (and intravenous drugs), said they would only take a risk on going to jail provided no risk of going to jail at all.
Look, when I shoplift gum from Duane Reade, I don’t do it for the payoff—big whoop, a pack of Bubblicious—I do it because you can’t beat that thirty second adrenaline rush, wondering, will I get caught? Will I get taken downtown? Will I get booked? Will they make me spit out my gum or swallow it, where it will remain in my body for seven years? And I’m a generally risk-averse human being. If we can’t count on our traders to live for that “will using this information increase my odds of having a roommate named Bubba?” moment of uncertainty, what can we count on them for?
Other results revealed that 62 percent of the pussies surveyed hate Eliot Spitzer, 52 percent think “Grasso got a bad rap” and earned every penny of his $100+ million compensation, and only 6 percent would swap lives with James Simons for a year, versus the 42 percent who would gladly inhabit the body of dead shark aficionado Stevie Cohen.
When asked what super power the traders desired to have so as to get ahead in the game but without posing a risk of jail time, 68 percent said the ability to mind read, 19 percent said invisibility, and 13 percent said “superhuman speed, so I could click my mouse faster.”
Traders Will Commit Felony For Profit [NYP]
We haven’t yet read Confession$ of a Wall Street Shoeshine Boy, the latest piece of Wall Street “fact-based fiction” from Doug Stumpf, but since we’ve always wanted to know what 3 pounds of partially digested lasagna looks like, we’ll have to get on that (narrator Shoeshine Boy Gil apparently “sees into traders souls”). Michael Wolff calls the book “extraordinary” and we’re inclined to believe him, but one of these lines from today’s CNBC interview with Wolff and Stumpf, re: floor traders seems…off:
“Trading floor culture is the wildest thing in America.”
“Testosterone-driven pressure cooker”
“Such great frat boy humor”
“So uninhibited”
“A lot of them [floor traders] are reading the book right now.”
Bonfire of the Wingtips [CNBC]
Trader Monthly (a long-term investing publication) submits that Chicago, and not New York, is the “greatest trading city in the world.” Discuss. (And see related).
Chicago is “greatest trading city” [Reuters]
