Toomre Capital Markets LLC

Real-Time Capital Markets -- Analytics, Visualization, Event Processing, and Intelligence


Financial Data and The Semantic Web

When someone references the phrase 'financial data', most people immediately think of the many rows of numbers that are included in the financial reports of publicly traded companies. FASB and IASB control how this type of financial data is reported. They give guidance to an organization's financial professionals and accountants about how such terms as "revenue", "expenses", "inventory", "depreciation", "net income", and "earnings per share" should be calculated and then reported. This type of financial results data is then used by others, for instance, to evaluate the credit worthiness of the organization, to determine the size and terms of any extension of credit, and potentially whether the organization is worthy of investment. This data is certainly central to helping answer the key question is the potential investment return adequate relative to the perceived risk(s) and other investment alternatives.

Dealing with Aggressive Spiders and Bots on Drupal Websites

IP address maps to a spider computer hosted on the Yandex Enterprise Network. About every minute and a half or so, a spider process on that computer (still) attempts to retrieve yet another piece of content from the Toomre Capital Markets ("TCM") website. Many of the pages this spider requests either do not exist or are part of the no-follow rule section in the robots.txt file. This spider certainly is aggressive and ignores the rules that many other bots seem to respect.

A few months ago, after watching this particular malformed spider consume more five percent of the total hosting bandwidth used that month, we had had enough. Hence, some modifications were made to a custom Drupal module running on the TCM website concerning visitor information (including various bots) and what specific information was being sought. Now as a result, when this Yandex spider come looking for a page like "search/node/facebook", it somehow ends up redirected to a page from a third-party website.

One would think that the person(s) controlling the spider would get the message after some fifty thousand plus attempts to get information from the TCM website. Somehow a human user might wonder why attempts to retrieve information on structured finance products, risk management and/or MATLAB topics always results in a page full of "gay anal porn" or other similar material. Until then, the TCM website might well become a frequent referrer to certain pornographic websites.

Racial, Gender Quotas Coming via FinReg Bill?

Diana Furchtgott-Roth over at Real Clear Markets raises concerns about Section 342 of the pending Dodd-Frank financial regulation bill. This section has not been publicized much at all during the contentious reconciliation process.

Section 342 apparently "declares that race and gender employment ratios, if not quotas, must be observed by private financial institutions that do business with the government. In a major power grab, the new law inserts race and gender quotas into America's financial industry." Through the establishment of at least twenty Offices of Minority and Women Inclusion, this section aims to assure "to the maximum extent possible the fair inclusion" of women and minorities, individually and through businesses they own, in the activities of the agencies, including contracting.

Toomre Capital Markets LLC ("TCM") applauds the broad diversity goal that this section attempts to address. For far too long, the financial services industry and its service providers have been dominated by white males. It is reassuring to know that my teenage daughter, based solely on her capabilities, might have some possibility of obtaining employment in the investment banking sector should she desire so. In short, females and minorities will have a "fair" chance for opportunities and employment.

The devil is in the details of implementation, though: How does one define "fair"? As Ms. Furchtgott-Roth explains,

John Carney Joins CNBC

John Carney is headed to CNBC as a Senior Editor. The former editor and writer for Business Insider's financial news and gossip vertical, Clusterstock, will now be writing for the blogs section of the website as well as serving as an on-air commentator on the popular business news cable channel.

Toomre Capital Markets LLC ("TCM") has followed Mr. Carney's work since the beginning of the financial crisis when he at that time was writing for the Dealbreaker website, a Wall Street blog that covers the personalities and culture that shape the financial industry. Partly as a result of John Carney's insightful writing for his former employers, both of these Wall Street blogs became among the most popular. Perhaps the CNBC website will also soon become more popular because of John's work? TCM wishes John success with his new position.

Joe Gregory and His Helicopter

Around 5 PM on Monday May 10th 2010, visitor traffic to the Toomre Capital Markets LLC ("TCM") website noticeably spiked. Many of the visitors first came to the post Possible Bankruptcy for Joe Gregory of Lehman Brothers before often continuing to other postings. The source of much of this increased traffic was tied to the micro blogging service twitter.

Zero Days of Trading Loss in Goldman Sachs 2010 Q1

The market making results of Goldman Sachs are simply amazing!! According to its recently filed documents with the Securities and Exchange Commission for the first quarter of 2010, Goldman Sachs had zero trading days where it lost money from its trading activities!! Toomre Capital Markets LLC ("TCM") is stunned by this news.

Chart of Goldman Sachs 2010 Q1 Daily Net Trading RevenuesAccording to the filing, on more than half of the 63 trading days in the quarter, it recorded more than a hundred million dollars in net revenues for that day!! Further, with the understanding that 76% of the firm's $9.7 billion in revenues came from trading activities, the average net revenue for each day was approximately $117 million — and on at least twelve of those days, the net revenues were north of $160 million!!

The chart to the left is from the Zero Hedge blog and their post Unfuckingbelievable: Goldman Has Zero Trading Loss Days In Last Quarter. As that post states, "The statistic probability of this event is itself statistically undefined." TCM whole-heartedly agrees that these results are unbelievable. Utilizing classic risk management measures, one could even argue that Goldman Sachs was not taking enough risk since it never experienced a penny of loss!!

Future of Derivatives Debated

The week of April 26th 2010 will be important for the future of derivatives and where those type of instruments may be legally transacted in the financial services industry. At the start of the week, it appears that the Senate bill will force commercial and investment banks to spin off those divisions that transact in derivatives into separate companies that will not have access to either FDIC deposit insurance or emergency borrowings from the Federal Reserve.

If passed into law, this proposal will dramatically change the securities industry in several ways. Derivatives have long been one of the most profitable areas of the securities business. Hence, by definition, the remaining portion of the securities firms will be less profitable. It is an open question about how much the valuation of financial institutions with securities businesses should be adjusted downward.

Second, derivatives are critical risk management tool(s), particularly in the management of physical commodities where both future supply and demand are uncertain. Apparently, there will be a narrow exception for "end users" — producers, manufacturers, and other companies that are not financial players who used derivatives to hedge. The proposed legislation will require exchange trading, with margining, with clearing and a number of other provisions that provide reasonable safeguards. However, whether it makes sense to restrict a major source of capital liquidity to the derivatives markets remains open.

Third, one of the main reasons credit default swaps ("CDS") first caught on in the interest rate markets was the ability for the first time to effectively 'short' a particular credit. Previously, it was virtually impossible to short a bond and then to borrow it to cover the 'short sale'. The introduction of CDS led to much better price transparency in the credit markets. CDS contracts also became an effective tool in the management of credit portfolios, both on the investor 'buy-side' and dealer 'sell-side' of the credit interest rate markets. Preventing security dealers from using CDS will likely lead to reduced liquidity, profitability and size of the credit trading businesses at major securities firms.

Toomre Capital Markets LLC ("TCM") hopes that the provision to spin-off derivatives units of securities firms fails to pass in the legislative process. There is an open question about what to do about the many derivatives contracts that are outstanding. Should they be moved to clearing houses where collateral will need to be posted or should just new contracts going forward be subject to the clearing house and collateral posting requirements? Good arguments can be made on both sides.

However, artificially separating derivatives from a major source of liquidity capital does not make sense. The forthcoming tussles over derivatives in the U.S. Congress will be well worth watching and understanding. Clearly the derivatives playing field will be changing. The question is how and what will the consequences be.

Goldman Sachs Charged with Structured Finance Fraud

Goldman Sachs and one of its Structured Finance Vice Presidents, Fabrice Tourre, were sued in civil court by the SEC for fraud on Friday, April 16, 2009 regarding representations that they made in the marketing and offering materials for what is known as a synthetic CDO named Abacus 2007-AC1. This news has sent the Goldman Sachs common stock lower by more than ten percent. It is also significant implications as the investigation is said to be still open and on-going.

Toomre Capital Markets LLC ("TCM") has received several messages looking for more insight on this latest questionable activity in the mortgage and structured finance markets. We have been busy on a detailed review of the detailed Exhibits related to the Examiner's review of the Lehman Brothers bankruptcy. We will shift our focus and hope to shortly have some further insights posted here.

No Reason For PC at Home??

During his M.I.T. undergraduate days around 1980, Lars Toomre worked as a junior engineer for an iconic computer firm, Digital Equipment Corporation ("DEC"), in what then was its main engineering facility known as The Old Mill in Maynard, Massachusetts. Lars worked in a central engineering group then called Electrical Interconnect Engineering which was a firm-wide central resource for all mechanical issues involved in getting electricity from the power grid to the chip.

Although we did some work on the effectiveness of various connectors and contacts, most of our work centered on how to get heat away from the chips and printed circuit boards. This thermo-dynamics modeling work required extensive calculations on several PDP 11/70 mini-computers which were dedicated to the engineering group. In comparison to today's personal computers, those mini-computers were very rudimentary. However, in due time using the FORTRAN programming language, they did produce useful results. One wonders just how fast those same computer simulation models might run on today's laptops.

Shortly before Lars started working at DEC, Ken Olsen, the founder and President of DEC, pronounced at the 1977 World Future Society Convention, "There is no reason for any individual to have a computer in their home." Partly as a result of Ken Olsen's view on the value of personal computers, DEC was slow to adapt to the personal computer era and the firm slowly withered thereafter before it eventually was sold to Compaq Computer.

Ken Olsen was somewhat blind to the transformational change that was about to over-take the computer industry in the early 1980s. Toomre Capital Markets LLC ("TCM") likewise wonders whether the senior managements of today's very large financial institutions fully understand the popular anger that is likely to change the way their firm's operate for a generation or more to come.

Typing Technique as a Means of Identity Detection??

The UK Telegraph has a fascinating technology article on Friday March 26th 2009 entitled Typing Technique 'Could Trap Paedophiles'. This article highlights some recent research by Professor Roy Maxion, an associate professor at Newcastle University, now working at Carnegie Mellon's Computer Science Department. Apparently "researchers believe technology could be used to determine a computer typist's age, sex and culture within 10 keystrokes by monitoring their speed and rhythm."

This newspaper article goes on to explain how this technology could be useful in tracking down on-line fraudsters and pedophiles. Professor Maxion's recent paper with Professor Kevin S. Killourhy entitled Comparing Anomaly-Detection Algorithms for Keystroke Dynamics provides more details on the basic research.

Toomre Capital Markets LLC ("TCM") is particularly fascinated by this research. If one truly could identify a computer user's age, sex and culture in as few as ten keystrokes, imagine how much more secure the Internet might become simply by requiring say passwords of at least a dozen characters. Imagine also what might happen if one of the search engines were to incorporate such technology into the place where one enters a query. Another possibility might include incorporating the technology into instant messaging software and/or the dialog boxes that users are frequently required to fill out in order to access some specific content.

The US Dollar Soars

The Euro fell to a ten month low as the US Dollar soared in value on Wednesday March 24th 2010. In late New York trading, the Euro was at $1.3324, down from $1.3501 late Tuesday. While it does seem like that big a move, it represents a 1.31% change in value.

As The Money Game blog notes, "If you live in the world of stocks and commodities you might not completely appreciate the magnitude of the 1% move in the dollar index today. But when you consider that many forex traders trade at leverage of 50x-200x just so that they can actually get some action on a typical, today's dollar move is epic."

Toomre Capital Markets LLC ("TCM") could not agree more. What an epic move for one day!!! TCM also wonders how many institutions and investors were hurt today by their "bets" against the value of the US Dollar.

Big UK Insider-Trading Case Revealed

BNP Paribas, Deutsche Bank and Moore Capital all are connected to the biggest-ever, "insider trading" raid ever conducted in the United Kingdom. On Tuesday March 23rd 2010, British regulators and the UK Serious Organized Crime Agency used more than 140 personnel to raid sixteen locations and initially arrest six people.

The identities of the six arrested are a bit sketchy still. One is said to be Clive Roberts, head of European sales trading at Exaine, in which BNP Paribas owns a fifty percent stake. At least one of those arrested was also employed at Moore Capital in London – supposedly a Mr. Julian Rifat. Another individual is said to be a junior employee at Deutsche Bank. The identities and affiliations of the other three arrested were not initially known.

According to a subsequent FSA press conference, Exaine, Moore Capital and Deutsche Bank employees apparently used inside information to trade for their firms and/or themselves, and have made significant profits as a result. This again apparently was a 'sophisticated and long running insider trading ring. The UK investigation began back in 2007 and is continuing.

AIG Hires Peter Hancock to Oversee Risk, Financial Products

American International Group Inc. named Peter Hancock, described by former employer JPMorgan as an “architect” of the derivatives business, to oversee finance and risk, including the insurer’s money-losing credit-default swap unit on Monday, February 11th 2010. Mr. Hancock spent 20 years at one of the predecessor banks that now make up JPMorgan Chase & Co and eventually rose to be CFO and head of risk management before stepping down in 2000.

Bundling Hardware and Software to Tackle Big Compute Problems

The New York Times highlights a big trend in data center computing: the move to bundled solutions rather than the acquisition of individual building blocks and then assembly of solutions by corporations and governments. In the February 8th 2010 article entitled Bundling Hardware and Software to Do Big Jobs, reporter Steve Lohr highlights how "Suppliers are offering customers assembled bundles of hardware and software to make it easier and less expensive for customers to cope with the Internet-era surge in data."

However, the real challenge is not just selling the software and hardware together. It is getting these large compute problems broken down so that subtasks can be processed simultaneously – a concept known as parallel computing – and hence available resources can more effectively reach at least a partial solution. As Kunle Olukotun, a computer scientist at Stanford says, "The huge challenge is to take all this data and generate useful knowledge from it. It is an enormous opportunity in science and business, but it also presents a massive computing problem."

Toomre Capital Markets LLC ("TCM") believes that the capital markets divisions of the financial world have been on the leading edge of this push to transform (on a real-time basis) data first into information and then into knowledge, simply because of the massive profits made in that sector. Wall Street has been able to throw tremendous resources at its data and compute problems. Note the many scientific and engineering graduate types who have left academia for the lure of Wall Street and high pay.

Morgan Stanley Plans Expansion in Fixed-Income

During 2009, Morgan Stanley dramatically underperformed both Goldman Sachs and JPMorgan in the performance of its securities business, particularly in the area known as FICC (fixed-income, currencies and commodities). The Financial Times article from February 1st 2010 entitled Morgan Stanley In Hiring Push has more details.

According to Morgan Stanley's new chief executive, James Gorman, Morgan Stanley plans to hire several hundred new traders over the next several years to hopefully close the gap with Wall Street trading rivals. Rather interestingly, he stated "We are not showing clients enough. We don't have people on the ground. We are not sufficiently penetrated with large clients and there are some smaller clients we are missing out on." He continued: "We need to seriously grow our footprint in products like currencies, equity derivatives and commodities. We could easily be 25 percent bigger than we are. [Investor's] bias is to do more business with [Morgan Stanley], the burden is on us to deliver."

What Toomre Capital Markets LLC ("TCM") finds so interesting with the article is the degree to which Morgan Stanley under-performed. Apparently, in 2009 Morgan Stanley had revenues of $5bn in fixed income trading (or $8.8bn excluding an accounting loss) compared with $17.6bn at JPMorgan and $23.3 recorded by Goldman Sachs. Put another way, Morgan Stanley's FICC unit only generated revenues one half of JPMorgan's revenues and thirty-eight percent of what Goldman Sachs recorded. WOW!! Clearly Morgan Stanley is not even close to its two rivals in this business area, which is counter to what many market participants perceive.

The article concludes with the thought that the need to add more traders and sales people to better staff the basic product areas of this business unit is an admission that at least one of former CEO John Mack's decisions was wrong. His decision to focus on various complex derivatives and associated products popular before the credit crisis left Morgan Stanley ill equipped to benefit from the pick-up in the trading of simpler fixed-income products.