SINO-BOND TRADING

“The only sure way of making money is through insider trading! That’s why most traders are insider traders, real or imagined. The trick of the game is to differentiate an insider tip from a malevolent rumor and from a stupid rumor.” Basil Venitis, venitis@gmail.com, https://venitism.wordpress.com


DIIE_Begley_482x242 v3

Tradeweb Markets is the first offshore trading platform to connect with China Foreign Exchange Trade System (CFETS), to become the main trading interface for offshore investors to access Bond Connect. The People’s Bank of China and the Hong Kong Monetary Authority (HKMA)  announced Bond Connect, which will enable investors in Mainland China and overseas to trade bonds in each other’s markets through connection between the financial infrastructure institutions of Mainland China and Hong Kong in respect of trading, custody and settlement. Northbound Trading will commence first in the initial phase, i.e. overseas investors will be able to invest in the China Interbank Bond Market (CIBM). Tradeweb is the first trading platform to offer a gateway for this initiative, which looks to help further open China’s domestic bond market, the third largest bond market in the world.

The only sure way of making money is through insider trading!  That’s why most traders are insider traders, real or imagined.  The trick of the game is to differentiate an insider tip from a malevolent rumor and from a stupid rumor.  That’s where experience comes in.  I have been trading the markets for forty years, and I can smell the bullshit instantly. Insider trading is very healthy, because it helps the markets reach the equilibrium point soon.  All insider trading legislation is stupid.  You just cannot put all people in jail!

The permanent political class enriches itself at the expense of the rest of us. Insider trading is illegal, yet it is routine among kleptocrats. Normal individuals cannot get in on IPOs at the asking price, but kleptocrats do so routinely. Kleptocrats also get many hot issues, bypassing all fair procedures of distribution.  By funneling hundreds of millions of dollars or euros to supporters, even more campaign donations are ensured. An entire class of investors now makes all of its profits based on influence and access to kleptocrats.

“We are pleased to be the first trading platform to link to Bond Connect, an offering leveraging the familiar practices already used by foreign investors through Tradeweb across other market places,” said Lee Olesky,  CEO of Tradeweb Markets. “We believe the liberalization of the Chinese bond market is a landmark event, and Tradeweb is excited to be acting as the first access link for this initiative.  Given the strength of our investor network of over 2,000 clients globally, we are well positioned to help the evolution of this market.”

“The Bond Connect program leverages the expertise HKEX has had as a global exchange leader and Tradeweb’s experience as the global industry leader in driving flexible, electronic solutions for fixed income trading,” HKEX Chief Executive Charles Li said. “The extension of the Connect family furthers the goal to connect China’s financial market with the world. Tradeweb’s deep fixed income experience and global client network are key to helping meet the Bond Connect objectives.”

Eligible overseas institutional investors will be able to trade directly with Mainland Chinese liquidity providers in the CFETS market by utilizing Tradeweb’s user interface to connect to the CFETS trading system. Bond Connect will allow Eligible Offshore investors to discover prices, submit orders and trade permissible onshore debt instruments. Via the connection established in Tradeweb’s fully disclosed request for quote system, investors will be able to send requests to the market for all CIBM cash bonds, removing the need to execute though an agent bank.

“We are pleased that Tradeweb, as an international trading platform, will connect with CFETS under the Bond Connect project, building a bridge for the global investor community to participate in the China Interbank Bond Market,” said Pei Chuanzhi, President of CFETS. “We hope this arrangement will create value to both markets.”

Furthermore, investors executing Bond Connect trades through the Tradeweb interface will benefit from an improved settlement process, where they can use global custodians to settle thanks to the nominee holding arrangement provided by HKMA’s Central Moneymarkets Unit (CMU). This crucial trading link will therefore offer an easier and more convenient way of accessing onshore liquidity providers, and allow for greater pre-trade price transparency. 

Kleptocrats have transformed politics to trade. They are traders who use their power, access, and privileged information to generate wealth. And at the same time well-connected financiers and corporate leaders have made a business of politics. They come together to form a kleptocratic caste.

Political intelligence consultants are hired guns who dig for closely held information to be used to trade stocks. Many work for hedge funds and securities firms, who just happen to be some of the biggest political campaign contributors.

While everyone has the same right to be a constituent and the same right to be part of a political discussion, the opportunity just isn’t always there. There’s limited time and resources for everyone to be involved in every discussion. This incentivizes brokerages to cultivate or simply purchase political connections in order to preserve privileged access to profitable information. This flow of information is more difficult to regulate than lobbying, which is regulated, because it is traveling in the opposite direction, that is, from politicians to their constituents.

Trading without inside information is a handicap!  Inside trading is the normal thing to do. Otherwise, the odds are stack against you, as almost everybody else is insider trader. Handicapped traders eventually lose all their money, throwing it in the black hole of ignorance.  Be an insider trader, or do not trade at all.  Technical analysis is ridiculous, and fundamental analysis is yesterday’s news.  Inside trading is the only way to trade!

Insider traders can escape prosecution by publishing a sponsored post with the inside information before they trade it.   If the trade ticket shows a time stamp after the publication of a sponsored post, nobody can touch them, because it’s considered public information, not insider information anymore! 

Legislators do not understand that the objective of insider trading laws is counter-intuitive, to prevent people from using and markets from adjusting to the most accurate and timely information. The rules target non-public information, a legal, not economic concept. As a result, we are supposed to make today’s trades based on yesterday’s information. Unfortunately, keeping people ignorant is economic folly. We make more bad decisions, and markets take longer to adjust.

Insider trading laws imbalance markets by regulating only one-half of the trading equation. A good investor makes money by knowing when not to buy or sell as well as when to buy or sell. Many insider tips alert owners to hold their shares or not to buy other ones. The sooner people act on accurate information the sooner the market will reach the equilibrium price. Interfering with the adjustment process by prosecuting people for insider trading will take the market longer to adjust.

Individuals and companies are entitled to keep proprietary information and punish those who violate that trust. But the offense should be civil, not criminal. And the punishment should fit the charge. In no case is the government justified in using intrusive enforcement measures developed to combat violent crime. The government should stop punishing investors seeking to act on the most accurate and timely information. After all, that’s what the financial markets are all about.

Insider trading creates an arcane distinction between non-public and public information.  It presumes that investors should possess equal information and never know more than anyone else. It punishes traders for seeking to gain information known to some people but not to everyone.  It inhibits people from acting on and markets from reacting to the latest information. Enforcing insider trading laws does more to advance prosecutors’ careers than protect investors’ portfolios.  Information will never be perfect or equal.

Bond Connect Company Limited, a joint venture between CFETS and HKEX, will support and assist admission and registration for Northbound investors for the new scheme, offering a more efficient and easier process for offshore investors to connect and trade with related Hong Kong and Mainland financial infrastructure institutions.


Tradeweb Markets builds and operates many of the world’s most efficient financial marketplaces, providing market participants with greater transparency and efficiency in fixed income and derivatives. Focused on applying technology to enhance efficiency throughout the trade lifecycle, Tradeweb pioneered straight-through-processing in fixed income and now supports marketplaces for more than 20 asset classes with electronic execution, processing, post-trade analysis and market data in an integrated workflow. Tradeweb Markets serves the dealer-to-customer markets through the Tradeweb institutional platform, inter-dealer trading through Dealerweb, and the US-based retail fixed income community on Tradeweb Direct. Customers rely on Tradeweb to drive the evolution of fixed income and derivatives through flexible trading architecture and more efficient, transparent markets.

Warren Buffett borrows to finance stocks that have low volatility, low price-to-book ratios, high profits, and high dividends. Donald Trump might have been even richer if, instead of dabbling in skyscrapers and casinos, he’d simply taken his eight-figure inheritance and sunk it into the stock market.

Fundamentally, stock markets are driven by popular narratives, which don’t need basis in solid fact. Such stories are thought viruses. They spread by contagion. Theories that seem to explain the stock market’s direction often work like this: First, they cause investors to take action that propels prices even further in the same direction. These narratives can affect people’s spending behavior, too, in turn affecting corporate profit margins, and so on. Sometimes such feedback loops continue for years.

The most prominent story seems to be one of a global slowdown with associated deflation. Underlying this tale are deeper, longer-term fears. There is a name for these concerns too. It is secular stagnation—the idea that there is disturbing evidence that the world economy may languish for a very long time, even for generations.

The current secular-stagnation story is less dramatic than that of the debt crisis. But because it’s so vague, the negative feedback loop can’t be resolved as neatly. The question may be whether this thought virus mutates into a more psychologically powerful version, one with enough narrative force to create a major bear market.

The main legal theory behind insider trading prosecutions is that corporate information belongs to the corporation, so employees shouldn’t be allowed to go around selling it. That makes some sense. It also makes one wonder why it isn’t left up to the corporation to discipline leakers and decide whether to press charges, but you could argue that most corporations would opt just to cover up the wrongdoing and move on.

When it comes to those who receive this information, though, it gets a lot harder to understand what public purpose is served by aggressively prosecuting them. This isn’t hubcaps or Old Master paintings, it’s information. And in general, the more information that gets out about a corporation, the better a job financial markets can do in pricing its securities.

There shouldn’t be any prohibitions on insider trading at all. Insider trading, it’s against the law, but not because the U.S. Congress ever explicitly set out to ban it. Today’s prosecutions are based on an ambitious 1961 Securities and Exchange Commission administrative order and a lot of federal court rulings since. Now the courts may have begun to turn back the tide. That seems like a positive development — especially if it causes smart, ambitious prosecutors to begin looking elsewhere for cases to win.

My financial strategies are based on inside information, libertarian economics, and chaos theory. My objective is to identify the significant undiscounted aspects of economy and industries. This is where the true opportunities for investors lie and where business can get the jump on competitors. My approach is top down, emphasizing the major themes, which will influence business and financial markets.

Precious metals, gold coins, and silver coins are very bad investments, because there are sales taxes on them in USA and value added taxes in EU and many other countries.  Derivatives of precious metals are very bad speculations, because they are very volatile and churned like hell in trading commissions, making your broker very rich and you very poor.

Mass-market products such as exchange-traded funds are being concocted using the same flawed statistical techniques you find in scholarly journals. Most of the empirical research in finance is likely false. This implies that half the financial products promising outperformance that companies are selling to clients are false. Investors are being ripped off by investment firms that charge hefty fees while producing results that are no better than you’d get throwing darts at a page of stock listings.

The core of the problem is that it’s hard to beat the market, but people keep trying anyway. An abundance of computing power makes it possible to test thousands, even millions, of trading strategies. The standard method is to see how the strategy would have done if it had been used during the ups and downs of the market over, say, the past 20 years. This is called backtesting. As a quality check, the technique is then tested on a separate set of out-of-sample data, i.e., market history that wasn’t used to create the technique.

Torturing the data until it confesses is p-hacking, a reference to the p-value, a measure of statistical significance. P-hacking is also known as overfitting, data-mining—or data-snooping. The more you search over the past, the more likely it is you are going to find exotic patterns that you happen to like or focus on. Those patterns are least likely to repeat.

Index funds are cheap because their sponsors don’t need to hire expensive stockpickers. The old adage applies: If asset managers and finance professors are super-smart, why ain’t they super-rich? The big money is being made by firms that ignore finance theory. 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s