What I Learned from Losing $200 Million


That was one hell of a trade. Boy, what a wild ride.

The Sunday after Lehman fell, pacing my empty trading floor, I realized once and for all that my models and reports could no longer tell me what to do. The one unmistakable fact was that my risks would increase if oil continued its decline. I decided that when I came in on Monday, I’d place a big bet that WTI would do just that.

And on a Saturday morning bike ride up the Hudson, it occurred to me that Mexico might be willing to restructure its deal—selling us back the option it owned, and buying a new one—in a way that would lock in billions of profits for the country, while giving me a much needed windfall too. I dropped my bike in a bush and texted our salesperson about the idea.

There were many other decisions and guesses, some made alone, others with help from my team, and still others made by my boss. All were guesswork, none could I have anticipated in stress testing, and all involved abandoning my original strategy along with the illusion of control it gave me.

→ Nautilus

That Time I Tried to Buy an Actual Barrel of Crude Oil


On how to buy, store and trade an actual pint of oil. Hilarious :

If gold is the equivalent of a pet rock, then I can confidently say that oil is the equivalent of playing host to a herd of feral cats; it demands constant vigilance and maintenance. If gathered in sufficient quantities, it will probably try to kill you, or at least severely harm your health.

• • •

The ideal oil storage trade works something like this: Buy the crude and immediately agree to deliver it at a later date, thereby locking in the difference between the spot and futures prices for what is, in theory, a riskless profit. In 2008, when the forward price of oil vastly eclipsed the spot price, this kind of arbitrage could net a hefty return.

A true oil storage trade therefore required an early buyer. The usual suspects—think Glencore and Trafigura—wouldn’t dream of touching my puny amount oil, of course. So I looked further afield, all the way to my ex-colleagues, who I thought surely must still harbor those long-ago dreams of owning Black Gold.

→ Bloomberg

The Fall Of King Coal

Even as Massey polluted the environment and exploited its employees, Blankenship cast himself as the true savior of West Virginia workers, who he claimed were being stifled by radical environmentalists perpetuating the hoax of climate change and by government bureaucrats imposing job-killing regulations. Increasingly he entered the political fray, spending millions to promote his anti-government philosophy.

Above is the one-time mountaintop estate of this gangster.

→ Mother Jones

Is It Time To Get Serious About Electric Cars ?

Following VW’ scandal, here is Jean-Louis Gassée on a necessary transition :

Filling up the cars as described represents 1.3 terawatts pulsing through the grid to the electric filling stations. The Syracuse University page pegs the entire US electric supply at about 1 terawatt. Again, I’m not vouching for exact numbers, just the orders of magnitude. Now, add an uncomfortable twist to those numbers: Transmission loss in the electric grid is more than 7%; compare this to the less than .1% for the transportation and evaporation of gasoline.

The result is that we have more than just the science problem of replacing gasoline with electric energy storage. We also face an infrastructure challenge to, first, generate the electricity and, second, transport it to the filling stations at home or on roadsides. It will take a very long time, huge amounts of money, and interesting politics to solve these two problems. And, while I’m not a diehard GM fan, it should (but won’t) kill the “General Motors killed the electric car” myth.

→ Monday Note

Blaming China for Black Monday is Like Blaming a Bartender For Your Hangover

IMG_3028Pubonomics :

What is happening? Why is China—the country that people once thought was the engine of the world economy—tottering so badly ?

To answer these questions it is necessary to recognize that China was never the engine of the world’s growth. To be such an engine you have to import more than you export. Then you would create a demand that is filled by other countries, which as a result export more than they import. Importers are the engines in the supply trains of the international markets. Exporters are the wagons, pulled by the demand created by the profligates. Think of what drives liquor markets: barmen or drinkers?

→ Quartz

Credit: Michael Lomax, Impossible Bottle

Black Monday, Kinda

Monday, August 24th brought you one of the weirdest trading day ever seen in the past several years.  

So to sum up what happened today, here are a few charts, courtesy of Bloomberg, ZeroHedge and NANEX — time of the events may vary :

  • It all started sometimes in China, when it’s business as usual these days :

 

  • S&P Futures followed, kissing the dirt :

 

  • Which then started a major liquidity squeeze on the US market, as seen on the following charts by NANEX :

 

  • Causing buy-sell orders to never quiet match — courtesy of ZeroHedge :

 

  • Shortly after the opening bell, something like this on the Dow Jones : 

 

  • And an impressive rise on the VIX :

 

  • In the meantime, major (mini) crashes : 

 

  • To prevent further deterioration, just press the “HALT” button across major indices, including 3 consecutive press on the NASDAQ and 1’200 times during that day :

  

  • Then the master of markets, Tim Cook, dropped an email to Jim Cramer stating the following :

I get updates on our performance in China every day, including this morning, and I can tell you that we have continued to experience strong growth for our business in China through July and August. Growth in iPhone activations has actually accelerated over the past few weeks, and we have had the best performance of the year for the App Store in China during the last 2 weeks.

  • Which caused this :

 

  • Then, all of a sudden, while unrelated from the previous event — well, who knows : 

IMG_3010

  • Oups…

 

  • …While European markets will stay stucked for a little longer :

 
There’s more to it for sure, but here are some events, mostly correlated, to show the newcomer what’s up for today on the trading side. 

Finally here’s a fun tweet from Josh  Brown :

@ReformedBroker: Look, it doesn’t matter what you bought or what you sold. The important thing is that you panicked.

Who Is Saudi Arabia Really Targeting In Its Price War?

Follow-up on the previous article, this one from Arthur Berman for Naked Capitalism :

Prolonged low oil prices will prove that tight oil plays need at least $75 per barrel to break even. When oil prices recover to that level, only the best parts of the tight oil core areas will be competitive in the global market. As production declines from expensive tight oil, oil sand and ultra-deep-water plays, inexpensive Saudi oil will gain market share.

Saudi Arabia is not trying to crush tight oil plays, just the stupid money that funded the over-production of tight oil. Too much supply combined with weak demand created the present oil-price collapse. Saudi Arabia hopes to prolong low prices to benefit their long-term needs for market share and higher demand.

→ Naked Capitalism