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Global Macro Trading Journal
- Thread starter Daal
- Start date
One thing I don't understand is why IB swaps the futures cash from its clients to the securities account(Therefore putting the SPIC protection on it) and other brokers don't. Because the way IB brags about it seems that its almost costless for them yet I don't see other brokers doing that
In the case of IB, from what I understand about SPIC, if they pulled a Corzine we would be protected on the $250K/$500K even if IB was completely insolvent and was running a ponzi
In the case of IB, from what I understand about SPIC, if they pulled a Corzine we would be protected on the $250K/$500K even if IB was completely insolvent and was running a ponzi
The EU people were all about talking having 'controlled' defaults and gave their best to make that happen yet it looks like they failed. It looks like there is no one at the driver seat
The only joker card that I see that they have right now that can prevent a LEH meltdown to the 10th power is the 20% guarantees on the debt of the PIGS they agreed on the new bailout
This is essentially a 'eurobond' for Italy and Spain given that the haircuts estimates I've seen suggest a need of less than 20% for the countries to be on a sustainable path. Any solution that involves the ECB pretty much won't happen anytime soon. So in order to prevent a run on those countries it seem to me that they will have to use the eurobond light.
But it has to be approved by all countries and that might take a while
The only joker card that I see that they have right now that can prevent a LEH meltdown to the 10th power is the 20% guarantees on the debt of the PIGS they agreed on the new bailout
This is essentially a 'eurobond' for Italy and Spain given that the haircuts estimates I've seen suggest a need of less than 20% for the countries to be on a sustainable path. Any solution that involves the ECB pretty much won't happen anytime soon. So in order to prevent a run on those countries it seem to me that they will have to use the eurobond light.
But it has to be approved by all countries and that might take a while
Quote from Daal:
If the Greek government collapses it looks to me they will go full default within days. I'm assuming its quite unlikely the new government will keep the same policies given that even the current government doesn't want it/can't anymore
Stock market might get really ugly over the next few days
I'll take the contrary view and say a government collapse will be far better for markets than a referendum. A government collapse just means new elections and a new government that will tweak the bailout deal and tweak reforms but won't rock the EU boat too much (a la the Kenny gov't in Ireland). A referendum on the euro however, could lose, leading to serious ugliness.
Gideon Rachman has a great piece in the FT today. The EU is only kept afloat because it is never put to popular vote. There isn't a populace that likes it - from creditor Germany all the way to debtor Greece and everything in between. If it gets put to a vote, it will lose. And if Greece gets a vote, why won't Germans demand a vote. No, the real ugliness in markets will occur when democracy gets to function again in the EU. This will, of course, set the stage for a golden era soon to follow in Europe.
Quote from Butterball:
Any politician who says he's done with the bailouts and policy of applying patch and glue quick-fixes signs his political death sentence.
I'll take the contrary on that as well. Let's look at the list of bailout champs and their elective future (make it clear, I'm talking about POLITICAL CAREERS, not their lives):
BO - dead
Geithner - dead
Bernanke - dead
Merkel - dead
Sarkozy - dead
the dude in Ireland - dead
the other dude in Ireland (Kenny) - dead
the dude in Greece - dead
the dude in Spain - dead
the dude in Portugal - already gone
Paulson, Rubin, Greenspan - hiding on a remote island somewhere to avoid a lynch mob
Quote from Ghost of Cutten:
The problem is that the more brokers you use, the worse your overall credit risk, and the higher probability you find one of your brokers blowing up. If broker A is the safest by far, broker B 2nd safest, and brokers C though N are a bit iffy, and brokers O-Z are awful, then the safest strategy is have the majority of assets with broker A, and some with broker B.
There's also the execution problem - you really want to have to log in to 2 or 3 systems at once during a fast market, placing several orders each time you want to trade?
The best way to reduce broker risk is to do proper research into the risk policies and culture of each firm, look at the strength of their balance sheet, and look at the stock price of the broker or parent, as well as any potential 'put' from a corporate parent (e.g. Newedge is owned by Socgen - unlikely to go bust as they are TBTF for the French government). Pick your 'best' overall broker and keep maybe 70% of your account there, and then a second broker (also safe) for 30%. Any time the stock gets to distressed levels, wire out most or all your funds, and definitely do so if the rumour mill starts. Any more than that is probably counterproductive.
You should not have 100% of your net worth in brokerage accounts anyway, I would say about 30-60% (depending on your trading strategy and its need for collateral) should be in a low risk portfolio of cash, bonds, stocks etc, held in your own name in a cash account, not a nominee/'street name'/margin account.
Note that in Lehman, Refco, and MF, you had ample warning each time - the stock price chart warned you to get out long before your cash was at risk.
Thanks for your suggestions.
I agree that it's not wise to diversify into a large number of brokers. However I think we're in agreement that two brokers is better than one. I also agree that it's fine to keep a significant majority in the one "main" broker and a smaller amount at (an) alternative broker(s). I agree with you about Lehman being well-known in advance. Refco and MF were slightly different - they happened quickly over the space of days based on a specific event.
You are arguing their political careers are flushed down the drain with the bailouts. I am wondering how much worse would their approval numbers look had they allowed capitalism to do its job.Quote from ralph00:
I'll take the contrary on that as well. Let's look at the list of bailout champs and their elective future (make it clear, I'm talking about POLITICAL CAREERS, not their lives):
BO - dead
Geithner - dead
Bernanke - dead
Merkel - dead
How would Geithner, Bernanke and Merkel be doing approval-wise had they done the right thing in 2008-2010 and let half the financial system in the US and Europe go bankrupt and allow unemployment to shoot to 25% without wasting a cent on stimulus programs. They would have allowed the EURO to fail, let the PIGS go back to their own currencies and allow a modern day depression to clean the system. That'd have been the right thing. But it was politically unpalatable. Unthinkable.
People would be in the streets in Berlin, Washington and Paris demanding heads to roll, Athens style, just much worse. Voters are uneducated idiots who love bailout quick fixes and teleprompter speeches by Obama and Merkozy more than the truth; because the truth hurts. That's why voters will keep voting for the next snake-oil salesman politician in line who promises them a painless future full of milk and honey who then continues the bailout bonanza because they do not want to hurt the feelings of their voters.
Democracy can be a bitch.
I don't know. It's really tough to argue a negative, which is what these bailout jokers rely on. They can always say things would have been much worse, and the argument ends. All I can do in the current epoch is point to Iceland, which bailed out its people, not its (and others') banks, and is doing just fine thank you.