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Victoria’s Secret: Have the Angels Fallen from Grace? (Interesting article on how the Epstein saga has affected the VS Brand)

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Victoria’s Secret: Have the Angels Fallen from Grace?
by Dimitar Ganev | Oct 2, 2019

Victoria’s Secret, the largest lingerie retailer in the US, has been one of the most iconic apparel brands since the 1990s, not least because its sexually charged imaging set the industry’s standard for decades and exerted a strong influence on body image norms. But since 2015, the shares of its parent company L Brands have been dropping as sales keep taking hits from shifting consumer tastes, executive turnovers and emerging competition.
The Victoria’s Secret brand, built on skinny girls and scantily clad lingerie, is now largely perceived as inadequate for a time when consumers’ preferences have moved away from sex appeal and towards empowerment, inclusiveness and comfort. To many, the brand’s traditional marketing strategy, which bets on fashion shows where supermodels walk in stiletto heels and angel wings, seems tone-deaf in the era of #MeToo, which condemns all forms of objectifying women and imposing hard-to-achieve beauty standards.
The Victoria’s Secret Angels, once considered symbols of sexiness, have now started to alienate consumers: a recent study found that 68% of them like the brand “less than they used to” and 60% feel that Victoria’s Secret is “forced” or “fake.” Demand for its products has cooled as up-and-coming rival brands have become more attractive by promoting themselves through unedited images featuring women of more diverse shapes and sizes. The retail giant reported that it will close 53 stores in North America this year, citing a “decline in performance.”
The brand itself admitted that it relied on hypersexualised imaging for far too long and it needs to rethink its identity. At L Brands‘ recent investor day, John Mehas, head of Victoria’s Secret Lingerie, asserted that the company needs to evolve and to reconnect with consumers by launching new products, hiring new executives and using new marketing strategies.
An essential part of the narrative shift would be a more diverse group of models, improving the merchandise, replacing the brand’s marketing chief and “rethinking” its annual Victoria’s Secret fashion show, the only fashion show regularly broadcast around the world, whose ratings keep falling. The brand hinted that network television would no longer be the “right fit” for the event, which has been criticised for being focused on empowering the models who walk in it instead of trying to relate to consumers.
Inclusivity, Diversity and Epstein
Many specialised fashion publications and business outlets embarked on questioning how the once-beloved brand managed to garner such a bad reputation. Analysing the media conversation around Victoria’s Secret in the top-tier English language publications from October 2018 to September 2019, we found that the most often discussed topics were body inclusivity, the company’s ties with Jeffrey Epstein and gender diversity:
The strongest coverage drivers for both the “Body inclusivity” and “LGBTQ+ diversity” topics were the comments which 71-year-old chief marketing officer Ed Razek made in a 2018 interview with Vogue that quickly went viral. Razek, who reportedly has final say over who’s in the televised fashion show, said that he didn’t think Victoria’s Secret‘s fashion event should include transgender or plus-size models because it is supposed to be “a fantasy”.
“Shouldn’t you have transsexuals in the show? No. No, I don’t think we should,” he said. “Well, why not? Because the show is a fantasy. It’s a 42-minute entertainment special. That’s what it is. It is the only one of its kind in the world, and any other fashion brand in the world would take it in a minute, including the competitors that are carping at us. And they carp at us because we’re the leader.”
The remarks prompted a strong backlash from consumers. As with the most severe social media crises, Victoria’s Secret was embroiled in an outrage cascade — outbursts of moral judgment which start to drive the conversation around brands, their products and their corporate messages. In these cases, the virality of moral judgements is facilitated by the fact that most of the content on social media feeds and timelines is sorted according to its likelihood to generate engagement.
The fact that fashion brands in particular face a growing number of crises could be explained by the supposition that fashion items are often taken to be markers of cultural and social identity, and thus are susceptible to be perceived as controversial across social networks. For instance, designers often draw inspiration from other cultures’ traditions, which has recently given rise to accusations of “cultural appropriation”.
Razek later used the company’s Twitter account to issue a formal apology, saying that his remark “came across as insensitive.”
In August 2019, Razek retired just days after the lingerie brand hired its first openly transgender model for its teen label PINK: Brazilian Valentina Sampaio. The hire was generally welcomed by commentators – for instance, Kendall Jenner, daughter of trans icon Caitlyn Jenner, posted “celebrate trans women” to her 98 million Instagram followers.
Meanwhile, media monitoring organisation GLAAD, which deals with lesbian, gay, bisexual and transgender issues, said Sampaio’s move comes as transgender people are becoming more visible in advertising. Examples of the trend include recent campaigns by Calvin Klein, Gap and H&M, while Playboy’s first transgender Playmate appeared in 2017.
Another strong coverage driver within the ‘Body inclusivity‘ topic was the protest outside Victoria’s Secret‘s store on Oxford Street in London, in which protesters stripped to their underwear and held signs demanding more diversity in fashion. To address such concerns, the latest investor meeting saw Victoria’s Secret deciding it will no longer rely on a small group of supermodels to promote its sexy lingerie, in a bid to use more inclusive marketing.
An example of this new strategy was an Instagram post of model Barbara Palvin, which was celebrated for being more body-inclusive, as social media users perceived Palvin to be curvier than the other supermodels. The post received over 780,000 likes in two days, generating 4.2 times the average number of likes, with users commenting that the model looks “normal” and “healthy”.
But the brand wasn’t that successful in managing another crisis: the widely publicised ties between L Brands founder Les Wexner and financier Jeffrey Epstein, an accused child sex trafficker who committed suicide in jail. Although Epstein didn’t actually work for Victoria’s Secret or L Brands, he had control over Wexner’s finances and personal life, according to reporting by The New York Times, and used his connections with Victoria’s Secret to facilitate his alleged crimes.
L Brands tried to distance itself from Epstein, saying it had cut ties with him nearly 12 years ago and disclosing that it had hired outside counsel to review the case. Wexner said: “Being taken advantage of by someone who was so sick, so cunning, so depraved, is something that I’m embarrassed that I was even close to. But that is in the past.”
In many media reports, the ‘Epstein ties‘ topic was closely related to the ‘Sexual harassment‘ topic, which was dominated by a petition urging Victoria’s Secret to take a stand against sexual harassment and violence. The open letter was addressed to Victoria’s Secret CEO John Mehas and signed by more than 100 models, many of whom have worked with the brand in the past, and also by the Model Alliance, an advocacy organisation in the fashion industry, and the Time’s Up movement against sexual harassment which was founded in response to the Weinstein effect and #MeToo.
The petition cited “numerous allegations of sexual assault, alleged rape, and sex trafficking of models and aspiring models”. Several of the company’s photographers have been accused of misconduct, on top of the links with Jeffrey Epstein. A Victoria’s Secret spokesperson said the firm has been in conversations with the Model Alliance “for some time”: “We are always concerned about the welfare of our models and want to continue to have dialogue with the Model Alliance and others to accomplish meaningful progress in the industry.”
Crisis mode
Ed Razek‘s aforementioned controversial comments regarding transgender and plus-size models made him the most often quoted spokesperson in the discussion around Victoria’s Secret:
Razek’s dominance in the conversation underlined the crisis of perception the brand suffers: his remarks were taken by many media outlets as a sign that the brand is unwilling to adapt to the current sociocultural climate. Models who have previously worked with the brand and who had a relatively large share of voice in the media conversation were quick to criticise him. For example. Karlie Kloss and Lily Aldridge posted a photo reading “Trans and GNC [gender non-conforming] people are not a debate” to their Instagram stories.
Karlie Kloss was one of the most vocal critics: she recently told Vogue that she had decided to terminate her relationship with Victoria’s Secret because the image was not “truly reflective” of who she was and the “kind of message I want to send to young women around the world about what it means to be beautiful.” Model Tess Holliday was harsher, leaving a message to Razek on Twitter following his Vogue interview: “Who needs VS anyway? They never supported plus ladies & now they are trying to dis my trans sisters? Hell nah. Kiss my fat ass, [Victoria’s Secret].”
The majority of media reports on Razek’s retirement announcement cited these remarks as one of the key points in his career and highlighted that he was one of the main figures in the highly sexualised beauty ideal put forth by the brand. The crisis of perception was also emphasised by the fact that L Brands CEO Les Wexner, another major corporate spokesperson in the conversation, was quoted primarily in relation to the Epstein scandal.
However, some of the spokespeople portrayed Victoria’s Secret in a positive light. Adriana Lima, one of the best-known Angels, quit the label after two decades and 18 fashion shows with the brand, sharing the news on Instagram with a heartfelt caption: “Dear Victoria, Thank you for showing me the world, sharing your secrets, and most importantly not just giving me wings but teaching me to fly.”
And while she presented the brand positively, some media publications reminded their readers of a an interview she gave to Grazia in 2011 in which she outlined the physical challenges she went through in order to be in shape, especially after her pregnancy.
Angel Behati Prinsloo tried to defend the Victoria’s Secret Fashion Show against the criticism for its lack of transgender models and diverse body types. In an interview with Elle, she explained what the show stands for: ‘There’s a lot of talk about everything but I think people need to also understand that it’s a show. It’s not saying negative or positive about any body type, it’s ‘this is who they are’.”
In the meantime, Barbara Palvin was named as a Victoria’s Secret Angel after the successful Instagram post which customers perceived to be more body-inclusive. She announced the news to fans also via Instagram and her hire was generally interpreted by the media as a sign that the label is finally starting to listen to its critics.
CEO John Mehas‘ comments about the brand’s marketing shift were met with similar enthusiasm, especially his plans to include messaging that responds to the #MeToo movement. But the most warmly welcomed move was the hire of Valentina Sampaio: although some publications suggested that the brand’s first openly transgender model came too late, most commentators said that the retailer has finally moved in the right direction.
Lingerie wars
While Victoria’s Secret is caught up in a fierce discussion, L Brands‘ other flagship label, Bath & Body Works, a personal-goods retailer, continues to report strong earnings, supporting its struggling parent. Many reports on Victoria’s Secret‘s controversial reputation outlined this development, making Bath & Body Works the most frequently mentioned brand in the conversation:
While L Brands is firmly focused on the Victoria’s Secret turnaround story, Bath & Body Work is perceived as staying relevant with updated stores and new product tests, maintaining a wholesome image as “America’s sweetheart of beauty brands.” Its loyal core consumer base of millennial women is boosted by fan blogs and YouTube accounts dedicated to sharing new products. The brand also plans to ramp up volume by having a digital makeover for the first time in India.
Investors have even started pressuring L Brands to make Bath & Body Works a standalone company which would not be associated with Victoria’s Secret. Hedge fund Barington Capital, whose CEO James A. Mitarotonda was one of the few corporate spokespeople in the conversation, sent a lengthy letter to L Brands CEO Les Wexner arguing for a spinoff.
But after Bath & Body Works posted its first unchanged quarter of store traffic in five years during 2019’s second quarter, Jefferies analyst Randal Konik suggested that the best days for the bath and candle retailer may be over. Konik also said that the teen brand PINK is the next sore spot for L Brands, with sales falling by low double digits in the fourth quarter, as the label is “without fans and rudderless.”
ThirdLove, American Eagle Outfitters and Savage X Fenty were identified as the main competitors which have capitalised on Victoria’s Secret’s reputational struggles. ThirdLove, an online bra startup which was launched in 2013, was perceived as coming head to head with Victoria’s Secret as it focuses on inclusive sizing and marketing, which have helped its annual sales to grow at a rate of 180% for the past four years.
The brand opened its first pop-up store in New York in July 2019, putting itself in direct competition with Victoria’s Secret as the lingerie giant had a store less than a 10 minutes’ walk away. ThirdLove also joined the discussion around Razek’s comments, taking out a full-page ad in The New York Times, in which co-founder and co-CEO Heidi Zak said she was appalled when she read them: “I’ve read and re-read the interview at least 20 times, and each time I read it I’m even angrier. How in 2018 can the CMO of any public company — let alone one that claims to be for women — make such shocking, derogatory statements?”
When asked whether Victoria’s Secret was worried its customers might now be looking for something different, Razek mentioned ThirdLove: “We’re nobody’s ThirdLove,” Razek said. “We’re their first love. And Victoria’s Secret has been women’s first love from the beginning.”
American Eagle Outfitters was also viewed as one of the main companies to break Victoria’s Secret‘s grip on the apparel industry by offering fitting bras and using messaging which pitches inclusiveness and comfort over sex appeal. Its activewear and lingerie brand Aerie has built an image of an “anti-Victoria’s Secret” label with untouched ads featuring models of all shapes and sizes. Kyle Andrew, American Eagle’s CMO, said the company’s success is due to its willingness to experiment and find ways to better listen to its teen customer base.
Rihanna’s Savage X Fenty recent show, streamed on Amazon Prime, has been making headlines everywhere, with commentators saying it was everything that Victoria’s Secret’s annual runway show wishes it could be by featuring models of all shapes, sizes, and ethnic backgrounds, with a clear focus on body inclusivity and acceptance.
Meanwhile, retail corporation Target also tried to capitalise on Victoria’s Secret’s struggles with a strategy similar to ThirdLove, American Eagle Outfitters and Savage X Fenty: it launched a new bra and underwear brand called Auden with a campaign featuring women “in all different shapes and sizes.”
Nike was mentioned as one of the brands which have gotten ahead of the curve with their socially-conscious marketing efforts featuring ex-NFL quarterback Colin Kaepernick, who had participated in racial justice demonstrations during national anthem ceremonies. Fast-fashion brand H&M got involved in the discussion for selling a $199 bra similar to Victoria’s Secret’s $1 million Fantasy Bra as part of its collaboration with Moschino.
Victoria’s Secret‘s reputational woos come at a time when the fashion and apparel industries occupy a central place in the extensively covered #MeToo movement and play a major role in ongoing media discussions around gender and identity. Since such issues naturally polarise consumers, brands which are dealing with products directly related to them are regularly caught up in fierce debates.
The growing importance of the debates around gender in the fashion industry has also been highlighted in the accelerating gender-neutral trend. The latest seasons have seen luxury brands like Gucci, Saint Laurent and Haider Ackerman combining menswear and womenswear runway shows, Others, such as Proenza Schouler and Rodarte, have started showing women’s pre-collections or women’s ready-to-wear during the back-to-back menswear and couture calendar. Meanwhile, fast-fashion labels such as Zara started releasing ungendered collections with models of both sexes dressed in the same clothes.
There are also a growing number of new brands like the Phluid Project, Agender and Rebrand which are built around the concept of non-binary dressing. Beyond fashion houses, the trend has also been recently reinforced by the Council of Fashion Designers of America (CFDA), which added a unisex/non-binary option for New York Fashion Week. Spokespeople for the CFDA explained that this decision came as a response to “a growing number of designers whose collections are not delineated by gender”, which “reflects the cultural momentum.”
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Old Fortune article on Jeffrey Gundlach. It’s a fun read.

Firing the $70 billion man: Full version
By Mina Kimes, writerMarch 10, 2010: 10:10 AM ET NEW YORK (Fortune) -- On November 19, 2009 Jeffrey Gundlach was named a finalist for Morningstar's award for bond fund manager of the decade. For Gundlach, the nomination recognized 10 years of stellar results, exceeding even the returns of the legendary king of bonds, Bill Gross.
Two weeks later Gundlach was confronted, fired, and then pursued on foot out of a Los Angeles skyscraper by two lawyers working for TCW, the money management firm with $110 billion in assets where Gundlach had worked for 24 years.
Not only did TCW oust Gundlach, but the firm also announced that it was acquiring an entire company -- crosstown rival Metropolitan West Asset Management -- to replace him. That in turn set off a wave of defections from TCW, as 45 of the 60 staffers who had worked for Gundlach streamed out the door to join him at a new firm that he had opened within days of leaving.
Then things really turned nasty. TCW filed an incendiary lawsuit in January accusing Gundlach of conspiring with confederates at TCW to steal proprietary information as part of a long-running plot to form their own competing firm. The suit added a salacious twist of the knife, perfectly calibrated for maximum media interest -- Gundlach had allegedly stashed a trove of illicit material in his office: 70 pornographic magazines and videos, 12 "sexual devices," and several bags of marijuana.
Gundlach has countered with his own lawsuit. He charges TCW and its owner, the French bank Société Générale, with pushing him out so that they can get their hands on his lucrative fees. In addition to his mutual funds, Gundlach had managed what were effectively two hedge funds for TCW, each of which commanded the amped-up fees typical of those vehicles. Gundlach calculates that he would have personally reaped $600 million to $1.2 billion over the next few years.
What in the name of Peter Lynch is going on here? Sure, we've come to expect shenanigans from Wall Street. But even if the mutual fund world hasn't been exactly pristine (remember the market-timing scandals a few years ago?), more often than not its managers and executives have been well-behaved schoolboys compared with the leather-clad (in spirit, anyway) rock stars among the investment bankers and hedge funders.
But unlike most mutual fund companies, TCW has always aspired to a Wall Street culture. In particular, it cultivated a star system. The company grew by importing ambitious money managers and granting them autonomy. They could invest as they liked; TCW would handle sales and marketing. The two sides would then split the fees, with each manager cutting an individual deal. The result could be huge rewards for managers -- Gundlach made $134 million over the past five years -- but some came to view themselves essentially as sole proprietors.
TCW seemed content with the arrangement and did little to tie its managers' fates to the company as a whole. Few of them, for example, received significant stakes in TCW. That bred frustration in multiple generations of standout performers, who viewed corporate executives (some of whom did receive ownership shares) as getting rich off their toil.
So it went for Gundlach, a bona fide investing star who, by the end, oversaw about 70% of TCW's assets, some $70 billion, putting him in charge of one of the biggest pots of money in the country. Gundlach didn't just generate steady returns; he avoided the blowup of the century. A specialist in mortgage-backed securities, he publicly warned in 2007 that "the subprime mortgage market is a total, unmitigated disaster, and it's going to get worse." He invested accordingly, not only delivering positive returns in the blighted year of 2008 but also earning himself a growing role as a media sage. His ego grew along with it.
There are few people like Jeffrey Gundlach in the mutual fund world -- or in any world. A former rock-and-roll drummer, Gundlach, 50, is a math whiz (but not a quant). He views everything in binary terms: Either you perform to his standards or you don't, and he won't hesitate to let you know which category you fall into. Nor is he shy in articulating his view of himself. "I was by far the biggest revenue generator at TCW, by far the biggest performer," he says. "I created $4 billion in value for clients in '09. If telling you that is self-promotion, so be it. It's just a fact."
With Gundlach, it's hard to tell which is largest: his brain, his self-regard -- or his resentment of TCW. He claims that his recent firing was actually the third time the company tried to get rid of him. "All three of them were an attempt to just steal the economics," Gundlach contends. "And this time they did it. Except they didn't steal the economics. They blew it up. They blew it up. They tried to steal the economics, but they didn't understand. They never understood."
TCW customers, meanwhile, have been watching the blood feud in disbelief. Investors have fled, with assets shrinking $25 billion since Gundlach was fired. For those who have remained, it seems that their patience is limited. "I'm aware of the investment prowess of both [Gundlach and the new TCW team]," says Mansco Perry III, CIO of the Maryland State Retirement and Pension System, which has $50 million invested in TCW. "But right now I don't believe they're acting in the best interest of their clients."
frey Gundlach is the sort of boss who inspires sharply divided opinion. He fostered loyalty among the members of his60-person team at TCW, handing out generous bonuses to his group. He also openly mocked the company's other divisions, especially its stock team.
Many outside Gundlach's orbit viewed him as an ill-tempered bully. He subjected subordinates to withering cross examinations and relished pointing out errors. Some in TCW's New York offices celebrated his dethroning by posting printouts of his scathing e-mails in the halls.
By contrast, loyalists valued his directness. Some would preserve his occasional written compliments as treasured mementos. "You don't have to guess where you stand with him," says Bonnie Baha, a portfolio manager who followed Gundlach to his new firm, called DoubleLine.
An interview with Jeffrey Gundlach is less like conversation than like listening to a manic stream-of-consciousness monologue. Consider Gundlach's description of his aborted stint in a math Ph.D. program at Yale (after getting an undergraduate degree in the same subject at Dartmouth): "It was a four-year Ph.D. deal. And they gave me a full scholarship, and it was very hard to get into. There were only seven people accepted, and they had hundreds of applicants. And one of the guys, he was Korean, he had come in via Toronto. I was the only American left. The other American had flunked out. There was a Chinese guy who had polio. That guy was smart. That guy was something else. He had crutches. He had horrible dandruff. He never took a shower, but he was one smart motherf----r, let me tell you. That guy is probably the smartest guy I ever met in my life. And he was my friend. I was the only guy he would be friends with, and there was this other guy, this Korean guy out of Korea, out of Toronto, and I didn't like him very much, and I was walking down the street, and there he was. It was like, 'Hey, Jeff!' They called me Jeff in the day. 'Hey!' You know, good to see you. I was Ike -- I had this really heebie-jeebie feeling, and he goes, 'Let's go to the bookstore and get our books.' And I was like, 'Uh, I don't know.' And he was like, 'What do you mean?' I said, 'Uh, I don't know.' And it hit me right then. I said, 'I'm not going back. I'm not doing it. I can't do it. This is pointless.' "
Gundlach's mind combines that feverish quality with a near-total recall of endless minutiae. But somehow, when it comes to investing, he's able to process huge quantities of details and extract a big-picture message. The result has been superb performance: His flagship $12 billion TCW Total Return Bond Fund returned nearly 8% annually over the past decade. Those results beat 99% of competitors, and his nonpublic funds have done even better.
For all Gundlach's prowess with numbers, it was anything but obvious that he'd go into finance. He grew up outside Buffalo in a family of modest means. Their only savings, he says, consisted of some Xerox stock, courtesy of their uncle, Robert Gundlach, the inventor of the modern photocopier. "We owned Xerox, and it went way, way up, and for the first time it actually felt like we had a little money. And then it crashed," Gundlach says. He was 12 or 13 at the time. "It was my first experience with a bear market, and I remember it really well. The rallies are pennies, and the selloffs are dollars, and that's always the way bear markets behave."
In his mid-twenties Gundlach played drums in a variety of rock bands that performed in L.A. clubs but never made the big time. Meanwhile he was holding down a dreary day job in the actuarial department at Transamerica. One night in 1985 he was watching an episode of "Lifestyles of the Rich and Famous," that described the most lucrative careers. Gundlach decided he would, as he told one interviewer, "figure out my life."
The program identified investment banking as the richest occupation. Gundlach didn't know what investment bankers did, but he contacted 23 firms. Impressed by his math credentials, TCW invited him in and offered him a $30,000-a-year job as a research assistant in the firm's bond department. (This despite the fact that, according to Gundlach, he didn't even know what a bond was at the time.)
Gundlach was thrilled. He loved wearing a suit and tie to TCW's elegant offices. He became fascinated by bonds. "I felt like I was in the middle of something that was important and exciting," he says. "I loved it! When I would walk into a meeting and be able to say, 'I'm from TCW and here's my business card,' I was proud."
As a young analyst, Gundlach zeroed in on the mortgage market. By age 27, he says, he had developed a reputation in his niche as a "young hotshot." After four years at TCW, he was promoted to co-chair of a new division -- mortgage Bonds -- and then made a managing director in 1991. "That doesn't happen," he says. "You don't go from a trainee to managing director in seven years. I was running the most important department at the firm, but the firm didn't like the fact that I was growing so much." Gundlach is getting ahead of the story, but it appears he would later be right.
When Gundlach arrived -- and still to a large extent today -- TCW seemed like a museum version of a Wall Street firm. Even in ultra-casual Southern California, for example, the firm had a suit-and-tie dress code. Gracious meals were served in its white-linen dining room.
TCW was founded in 1971 as Trust Co. of the West by Robert Day, who inherited millions as the heir to the Superior Oil fortune and hobnobbed with the Martha's Vineyard elite. Day was a hard-nosed boss who used to smack errant employees on the head with his cigar, Gundlach says. (Day says he doesn't remember doing so.) In those days 80% of TCW's assets were in stocks, the rest in bonds. By the end of Gundlach's tenure, the ratio would almost flip.
Day built the firm by luring in Wall Street talent. One prominent star, who joined in 1985, was Howard Marks, a junk bond manager who came over from Citicorp. Marks thrived, accumulating $7 billion in assets, about 15% of TCW's total at the time. But he grew increasingly dissatisfied with having to fork over half his fees to TCW. And he resented the fact that TCW would give him no more than a nominal stake in the company. In 1995 he announced that he was leaving and taking his team with him.
Marks' departure was a less lurid, but still bitter, harbinger of what would occur with Gundlach almost 15 years later. Day sent a furious letter to clients blasting Marks' exit as "disloyal at the very least," according to press accounts at the time. TCW then quickly replaced Marks' team by purchasing Crescent Capital, a small high yield bond firm in West Los Angeles.
The equity issue took on new importance when TCW decided to sell itself. In 2001, Société Générale bought 51% of TCW for $880 million. The deal, former employees say, meant lucrative paydays for a cadre of executives, including the founders of Crescent, who had received large chunks of the company. Some longtime TCW employees were embittered by the newcomers' windfall.
Management tried to mend the problems that led to Marks' departure, but the lack of equity for many managers remained a sore point. SocGen announced it would escalate its ownership to 70% and leave 30% for TCW employees. But that 30% turned out to consist of SocGen stock options rather than TCW shares. By 2007 the French bank owned 100% of the company.
Meanwhile Gundlach was accruing more and more influence and renown. In 2005 he was promoted to chief investment officer of TCW. And he was named Morningstar fund manager of the year in 2006. His decision to pull his mutual funds out of riskier debt and his accurate forecast of a looming recession brought him favorable publicity and a steady presence in the press. (Another division of TCW, also under Gundlach's umbrella but not his main focus, was a giant issuer of CDOs, many of which imploded.)
It was Gundlach's time. His reputation was growing, and bonds were beginning to enjoy their moment in the sun. The result: Investments in his funds swelled. So, too, did his ego, according to former co-workers. "He started to think of himself as a god," says one who worked with Gundlach during that period.
Gundlach remained mostly satisfied until January 2009, when SocGen announced that it intended to take TCW public in five years. The uncertainty, he says, made it harder to drum up new business. And he grew even more vexed a few months later when he was passed over for the job of TCW's new CEO. Instead, the position went to the company's former president Marc Stern, who came out of retirement to assume the position.
Gundlach was infuriated by Stern's return. He was offered the job of president but turned it down. Always outspoken, Gundlach grew openly critical of TCW's management, even deriding executives while they sat a few feet away in the company dining room.
Rumors began to circulate that Gundlach would be fired. By the summer of 2009, he says, it had become difficult to work under that stress, as well as to face TCW's uncertain future. In September, Gundlach met with Stern and offered to purchase the firm at a valuation of $700 million. TCW says Stern passed the offer onto SocGen, which rejected it.
TCW and Gundlach disagree about exactly what was said at the meeting. What's clear is that Gundlach at least broached the possibility of taking his team and leaving. TCW interpreted the statement as a threat and prepared for combat: The company hired investigators to look into the affairs of Gundlach and his closest lieutenants, tapping their office phones and monitoring their e-mails. At the same time they initiated clandestine talks with MetWest, the $30 billion bond house that would eventually replace Gundlach's team.
Gundlach was preparing too. He and his "co- conspirators" began e-mailing one another in September about their plot to steal information, according to TCW's complaint. The suit alleges that the group referred to Gundlach as "the Pope" and "the Godfather" and swiped 9 million pages' worth of client contacts, trade tickets, and software routines used to process the complex data that go into analyzing mortgages. They retained a realtor to find an office space with 50 trading desks.
Gundlach acknowledges that his team looked at commercial real estate. It made him feel better, he says, to be making plans when he knew he was going to be fired. "I felt powerless," he says. He insists, however, that he had no knowledge of the downloading, his e-mails prove otherwise. Gundlach says he hired a third party to expunge his employees' computers of TCW data and returned all their hardware to the company.
The crescendo of rumors -- of his ouster, of a sale -- was wearing on Gundlach. Still, he had no inkling of what was in store for him on Dec. 4, 2009. At 1 p.m. that day, when the markets closed on the East Coast, he was summoned to the 17th floor of TCW's headquarters. Michael Cahill, the company's general counsel, was waiting for him in a conference room with John Quinn, one of Los Angeles' top litigators.
Cahill told Gundlach that TCW was putting him on administrative leave. Gundlach argued that the move would cause a disastrous customer exodus unless they negotiated a settlement that resolved various fee and management issues. The lawyers asked him to read a draft of the complaint TCW was planning to file against him. When Quinn tried to place the papers in his hands, Gundlach got angry.
He stormed out of the room and began walking down the stairs. Quinn and Cahill trailed him, thinking he was headed for the trading floor one level down, but Gundlach kept going. It was a surreal procession, says Quinn; they marched down 17 stories in total silence. The lawyers followed Gundlach out of the building and onto the street until Gundlach finally turned around and told them he wasn't planning on stopping anytime soon.
While all this was happening, chaos had erupted on TCW's trading floor. CEO Stern sent out a companywide e-mail announcing Gundlach's termination and the acquisition of MetWest. Then Stern appeared to reiterate the news in person. Analysts watched in shock as a team of private detectives and attorneys descended. Gundlach's suspected conspirators were herded into offices and conference rooms, where the investigators interrogated them and seized laptops and records. Some company-owned BlackBerrys went dark without warning. Nervous employees scurried around the floor, trying to figure out who had been terminated. By the end of the day, the tally was five.
TCW proved inept in its efforts to stanch the turmoil caused by Gundlach's departure. On the rainy Monday morning after he was fired, TCW employees gathered in conference rooms for a companywide conference call. CEO Stern told his troops that the downpour was a sign of renewal, and that TCW would emerge as "a firm that has respect for everyone within the firm."
But Day, TCW's founder and chairman, was less temperate in his remarks. He told the employees that he had been through this before -- i.e., with Marks -- and that there was no other choice. "It sort of reminds me a bit of General Washington crossing the Delaware," he said. "The general was in the back of the boat. It would be like a soldier getting up, trying to rock the boat, expecting to sink the boat. His choices are very simple. You shoot the soldier. You throw him off the boat."
After a pause, nervous laughter emanated over the speakers. Some of Gundlach's former colleagues were horrified. A few started crying. Others walked out. "Whatever people may say about [Gundlach], here's a guy that has been working for his company for over 20 years and has made a lot of money for investors," says Luz Padilla, a fund manager at the company. "After that call, I was just incensed."
Padilla hadn't been set on leaving TCW, she says, until she realized the current imbroglio bore an uncanny resemblance to the Howard Marks controversy -- a talented manager leaves after a fight over money, and a new team takes control. "It was a different set of players," she says, "but almost the same movie." There was also the fear that the arrival of the MetWest group would make the current bond team redundant. Dozens more followed Padilla out.
Then came the surge of customer defections. By late February TCW's assets had dropped by some $25 billion. The most prominent deserter was the U.S. Treasury, which pulled out of the $4.1 billion Public Private Investment Fund it had started with Gundlach.
Less than two weeks after he was fired, Gundlach announced that his new firm, DoubleLine, was partnering with a respected L.A. money manager: none other than Howard Marks. The onetime TCW star has thrived on his own, building a firm called Oaktree Capital with $70 billion in assets. Marks is buying 22% of DoubleLine and in exchange will provide the administrative backbone for Gundlach's new operation. Needless to say, an alliance between two of its former stars is also a not-so-subtle poke in the eye to TCW.
After weeks of relative silence, TCW struck back. On Jan. 7 the company filed its explosive complaint. It emphasized the alleged plot to steal information. It also tarred Gundlach personally, referring to the pornography, sexual devices, and marijuana retrieved from his office. TCW justified the inclusion of the prurient material in the suit under the whisper- thin pretext that it constituted a breach of company policy. Asked about the contents of his office, Gundlach offers only the mildest of quibbles: "Not all of the items are mine." In a letter to investors, he noted, "I had every expectation of privacy in these spaces, which stored vestiges of closed chapters of my life."
On a recent Thursday afternoon, Marc Stern sits in one of TCW's dining rooms with Jacques Ripoll, the head of SocGen's asset management division. The two couldn't look more different. Stern, 65, is barrel-chested with white hair and a loud, raspy laugh. Ripoll, 43, has a slick, dark coiffure and a heavy French accent. As Stern talks about growing up on a vegetable farm in New Jersey, one can't help but notice that his story resembles Gundlach's. Both were gifted kids who came from working-class families, and both share a love of art (Gundlach has an extensive collection of contemporary paintings; Stern is the chairman of the L.A. Opera, a passion he developed while riding on his father's tractor and listening to opera on the radio).
Despite the controversy, Stern insists that TCW is better positioned than ever, and its new team, he pointedly adds, is "delighted to be here." Stern predicts that TCW will double its assets in three years. He stresses the importance of having "mechanisms where people share information and are willing to help each other." While not specifically naming Gundlach, the message is clear: The star manager didn't play well with others. TCW's new head of fixed income is MetWest founder Tad Rivelle, a self-effacing, professorial type -- the anti- Gundlach -- and no slouch as a manager. His Total Return bond fund has beaten 94% of its peers over the past decade.
"TCW is ready for growth," Ripoll says. "To be transparent -- this was not possible before." And what of Gundlach's long-desired equity stake? TCW is giving shares to the new team from MetWest (as it did with the Crescent group) but is less definite about handing it to others. "When you have a company like TCW, it is very important that you have equity held by the employees," Ripoll says. "That is what we are putting in place."
TCW's basic business model -- a collection of autonomous managers -- seems unlikely to change. In a separate interview, the founder and chairman defends the approach. "I started the company with $2 million, and it has $115 billion today," says Day. "The formula that has worked for 40 years is going to continue to work." (Day also insists Gundlach really didn't care about an equity stake; when given the choice, he always opted for more fees.)
Gundlach, meanwhile, is still setting up shop. He has been through a lot of late. He showed up at meetings in January with a black eye and cuts on his face, which he says came from tripping and colliding with his desk at home. On Feb. 1, his wife of more than 20 years, Nancy, filed for divorce. And Bill Gross was named fixed-income fund manager of the decade; Gundlach thinks he would have taken the prize if he hadn't been fired. That said, Morningstar clearly still views him as legitimate: The organization invited Gundlach to deliver the keynote address at its annual investors conference this summer.
DoubleLine has registered three mutual funds with the SEC, and it expects $10 billion in new accounts this spring. Gundlach says the most gratifying thing about the firing and its aftermath is that 45 people followed him from TCW -- proof, he says, that he isn't such a difficult guy to work with. As Gundlach walks through his new firm's offices, he looks happy. To reign there, it seems, is better than to serve at TCW. To top of page
First Published: March 10, 2010: 4:46 AM ET
submitted by FunctionOfLife to investing [link] [comments]

Futures Slide After US-China APEC Clash, Apple Production Cuts

After a dramatic end to the APEC summit in Papua New Guniea which concluded in disarray, without agreement on a joint communique for the first time in its history amid the escalating rivalry between the United States and China, U.S. index futures initially traded sharply lower as investors digested signs that America-China trade tensions are set to persist, however they staged a modest rebound around the time Europe opened, and have traded mixed since amid subdued volumes as a holiday-shortened week begins in the US.

Last Friday, US stocks jumped after President Trump said that he might not impose more tariffs on Chinese goods after Beijing sent a list of measures it was willing to take to resolve trade tensions. However, tensions between the two superpowers were clearly on display at the APEC meeting over the weekend where Vice President Mike Pence said in a blunt speech that there would be no end to U.S. tariffs on $250 billion of Chinese goods until China changed its ways.
“The comments from Trump were seen as offering a glimmer of hope that further tariff action could be held in abeyance,” said NAB’s head of FX strategy, Ray Attrill. “The exchange of barbs between Pence and Chinese President Xi Jinping in PNG on the weekend continues to suggest this is unlikely.”
US Futures were also pressured following a report by the WSJ that Apple has cut iPhone production, creating turmoil for suppliers and sending AAPL stock 1.6% lower and pressuring Nasdaq futures.
Yet while early sentiment was downbeat following the APEC fiasco, US futures staged a rebound as shares in both Europe and Asia rose while Treasuries declined, the dollar faded an initial move higher as traders focused on the Fed’s new-found concerns over the global economy, and the pound advanced amid speculation that the worst may be over for Theresa May, since the potential for a vote of no confidence in May may be losing traction: the Sun reported that 42 lawmakers have sent letters of no confidence to Graham Brady, 6 more are needed to trigger a leadership challenge

Asia took a while to warm up but made a strong finish, with the Shanghai Composite closing 0.9% and Japan's Nikkei 0.7% higher, helping Europe start the week off strong too as a 1 percent jump in mining, tech and bank stocks helped traders shrug off last week’s Brexit woes. At the same time, stocks fell in Australia and New Zealand, where the Aussie and kiwi currencies dropped after U.S. Vice President Mike Pence attacked China at the weekend APEC summit.
Telecommunications and construction shares pushed Europe's Stoxx 600 Index higher, along with stocks in Italy, where Deputy Premier Luigi Di Maio said the government is ready for dialog with the European Commission over the country’s budget, which however seems just more semantics as Italy refused to concede to European budget demands.
Meanwhile, in addition to confusion over trade, the outlook for U.S. interest rates was also uncertain. While Federal Reserve policymakers are still signaling rate increases ahead, they also sounded more concerned about a potential global slowdown, leading markets to suspect the tightening cycle may not have much further to run and Morgan Stanley to write that "We Sense A Shift In Tone From The Fed."
Goldman Sachs also chimed in, saying it expected the pace of U.S. economic growth to slow toward the global average next year. The bank now sees a broad dollar decline next year, and revised its long-standing bearish view on the Japanese yen and tipped Latin American currencies, the Swedish krona, the Canadian, Australian and New Zealand dollars and the Israeli shekel to rise.
“We see several changes to the global economic backdrop which, combined with a few negative medium-run factors, point to more downside than upside to the broad dollar in 2019,” Goldman economists said in an outlook report. Goldman's bearish tilt will focus attention on an appearance by New York Fed President John Williams later on Monday to see if he echoes the same theme. As Reuters notes, investors have already cut odds of further hikes, with a December move now priced at 73%, down from over 90%. Futures imply rates around 2.74% for the end of next year, compared to 2.93% early this month.
As a result, yields on 10-year Treasurys declined to 3.08 percent, from a recent top of 3.25 percent while the currency market saw the dollar fade early gains while the pound rebounded from sharp losses last week as Theresa May prepared to appeal to business leaders to help deliver her Brexit deal as the premier fights almost insurmountable Parliamentary opposition.
May said on Sunday that toppling her would risk delaying Brexit as she faces the possibility of a leadership challenge from within her own party. With both pro-EU and pro-Brexit lawmakers unhappy with the draft agreement, it is not clear that she will be able to win the backing of parliament, increasing the risk that Britain will leave the EU without a deal.
Elsewhere, the Australian and New Zealand dollars held on to their declines after Mike Pence's attack on China this weekend fueled concern Sino-U.S. trade tensions will worsen; the yen neared a month-to-date high on the risk-aversion, onshore yuan weakened for the first time in five days.
Treasuries slipped while European bonds were mixed, with core notes slipping and peripherals rising led by Italy. In the U.S., trading activity may be thinned before the Thanksgiving holiday later this week.
In commodity markets, gold found support from the drop in the dollar and held at $1,1220.19. Oil prices suffered their sixth straight week of losses last week, but climbed toward $57 a barrel in New York on Monday. Bitcoin dropped further below $6,000, at one point touching a one-year intraday low.

Market Snapshot
Top Overnight News from Bloomberg:
Asian equity markets began the week somewhat cautious on lingering trade concerns and after disunity at the APEC summit over the weekend which failed to agree on a joint communique for the first time in history due to US-China tensions. ASX 200 (-0.6%) and Nikkei 225 (+0.6%) traded mixed in which nearly all of Australia’s sectors were in the red aside from miners, while Nikkei 225 was positive as participants digested mixed trade data which showed a jump in imports. Elsewhere, Hang Seng (+0.7%) and Shanghai Comp (+0.9%) were choppy amid trade-related uncertainty following the verbal jabs between US and China in which Chinese President Xi warned that countries which embraced protectionism were doomed to fail and US Vice President Pence later commented the US could more than double the tariffs imposed on Chinese goods. Finally, 10yr JGBs futures rose to match the YTD high as they tracked the recent upside in T-notes and with the BoJ also present in the market for JPY 800bln of JGBs in the belly to the short-end of the curve. APEC summit ended without an agreement on a joint communique for the first time in its history after China refused to sign amid US-China tensions, while there had been comments from Chinese President Xi Jinping that countries which embraced protectionism were "doomed to failure" and US Vice President Pence later commented that he was prepared to "more than double" the tariffs imposed on Chinese goods.
Top Asian News - China’s Ping An Buys Stake in German Fintech Incubator Finleap - Japan Bank Shares Fall Most in Month After U.S. Yields Drop - Asian Markets Come out of Their Torpor as Stock Gains Accelerate - An Accountant Stirs Debate as India Central Bank Board Meets
Major European indices are in the green, with the outperforming FTSE MIB (+1.1%) bolstered by news that Luigi Gubitosi has been appointed as the new CEO of Telecom Italia (+4.3%). The SMI (-0.2%) gave up initial gains and is lagging its peers, weighed on Swatch (-4.0%) and Richemont (-1.4%) following unfavourable price outlook for both by Bank of America Merill Lynch. Sectors are mostly all in the green, with outperformance in telecom names, while energy names are lower given pullback in oil prices in recent trade and consumer discretionary names are weighed on by Renault (-7.0%), with the company shares extending losses following reports that Nissan’s boss has been arrested in Japan regarding allegations of financial violations. Renault shares are hit given the Renault-Nissan-Mitsubishi alliance. Elsewhere, BPost (-5.7%) shares are hit following a downgrade at HSBC, while Tele2 (+1.8%), are near the top of the Stoxx 600 after being upgraded at Berenberg.
Top European News
In FX, the Greenback has regained some composure following its downturn at the end of last week amidst soft US data and cautious if not concerned or outright dovish Fed rhetoric (Clarida conscious about contagion from slower global growth, Kaplan envisaging headwinds from rising debt and Harker opposed to a December rate hike), but the DXY remains capped below a key Fib level (96.590) and the Dollar overall is mixed vs major counterparts.
In commodities, Brent (+0.5%) and WTI (+0.1%) are in positive territory, albeit off highs, following market expectations that Saudi Arabia will steer OPEC and Russia to cut oil supply. Meanwhile, Russian Energy Minister Novak said the country is planning to sign an output agreement with OPEC at their December 6th meeting in Vienna. Overnight gains in the complex were driven by reports that Saudi is said to want oil prices around USD 80.00/bbl. Elsewhere, Iranian President Rouhani emerged on state TV and stated that the US has failed to reduce Iran’s oil exports to zero and Iran will continue to sell their crude. Conversely, Gold (-0.2%) prices fell this morning, with traders citing profit taking from last week’s gains, while Palladium is nearing parity with gold as an all-time high of USD 1185.4/oz was hit on Friday. Separately, copper is lower following tension between the US and China at the APEC summit which ended without an agreement on a joint communique for the first time in its history.
It's a fairly quiet start to the week on Monday with the only data of note being the Euro Area and the November NAHB housing market index reading in the US. Away from that, the Fed's Williams is due to speak in the afternoon, while BoJ Governor Kuroda, Bank of France Governor Villeroy de Galhau and his predecessor, Noyer, will all speak at the Europlace Financial Forum. Euro Area finance ministers are also due to gather in Brussels to seek to make progress on Franco-German plans to shore up the currency union.
US Event Calendar
DB's Jim Reid concludes the overnight wrap
Brexit was left in a bit of phoney war this weekend. We’re no closer to a leadership contest for Mrs May but it could still happen at any point. The Sun -citing their “extensive investigation” - has concluded that 42 lawmakers have sent letters of no-confidence in the PM (48 needed). Overall though more Conservative MPs are disliking the deal - and will vote against it - than will ask for a leadership battle in our opinion. The consensus that is forming amongst the Conservative MPs who dislike the Withdrawal Agreement is that it can be improved upon. This time next week we will have just had the Sunday EU summit to sign off their side of the deal but its not clear how meaningful tweaks could be made before this and before the agreement goes before UK Parliament in the next 2-3 weeks. The only thing that could be fleshed out is more on the future relationship between the UK and Europe as Mrs May travels to Brussels this week to try to progress on this. That might appease some MPs but likely not enough to help the vote pass. As such my personal view is that May stays on as leader, the EU offer no concession, the vote doesn’t get through Parliament and then the fun and games start. The UK may go back to Europe and ask for specific concessions at this point or we may end up with a path towards a hard Brexit or a second referendum. Quite binary options. For the EU maybe the gamble is to offer nothing and assume the UK Parliament eventually offers a second referendum and voters eventually decide to stay. This increases the risk of a cliff-edge hard Brexit but also one where no Brexit happens at all. This story has a lot of legs left in it.
There was lots in the press this weekend about Brexit but interestingly for me as a credit strategist by day, there was also a fair bit of negative press about credit with some of the more sensational articles suggesting that credit could soon blow up financial markets due to (amongst other things) the weight of US BBBs about to swamp the HY market, record levels of Cov-lite issuance and due to record high US corporate leverage. For us there needs to some perspective. We have been on the underweight side of credit all year, more weighted to a US underweight of late but that’s been more of a valuation play than over too much concerns about immediate credit quality. The US economy remains strong and credit deterioration is likely to remain idiosyncratic until it rolls over. At that point we will have big problems though and last week’s activity made us more confident liquidity will be bad when the cycle turns as we moved a fairly large amount on nervousness as much as anything else. GE, PG&E, plunging oil and the factors discussed above provided a jolt but we don’t think this is enough for now to impact the economy so credit will probably stabilise. However once there is actual broad economic weakness, this last week will be a dress rehearsal for the problems ahead and there will be little two-way activity with spreads gapping wider. However that’s for further down the cycle. For now credit’s main problem
has been it hadn’t responded enough to the pick up in vol. The good news is that this is starting to catch-up and correct. Last week, EU non-fin. IG spread widened by 13bps and HY by 45bps while those on US IG by 14bps and HY by 49bps. Big moves relative to a small down week in equities.
Looking ahead to the highlights for this week, I’d imagine if you’re in the US this will revolve around family, friends and perhaps Turkey as you sit down for Thanksgiving on Thursday. Outside of that we get the flash PMIs around the globe on Friday which in a period of nervousness about the global growth outlook will be scrutinised in thin post holiday trading. Black Friday will also mark the start of Xmas shopping season for retailers. Also worth noting is the European Commission's opinions on the budget plans of the Euro Area countries on Wednesday. While the EC formally has three weeks to provide an opinion on Italy's new fiscal plan following their budget resubmission last week, it's possible that they will issue this for Italy alongside this and thus kick starting the EDP process.
This morning in Asia, markets have kicked off the week on a positive note with the Nikkei (+0.48%), Hang Seng (+0.40%) and Shanghai Comp (+0.22%) all up along with most Asian markets. Elsewhere, futures on S&P 500 (-0.33%) are pointing towards a weaker start. In terms of overnight data releases, the UK Rightmove house prices index fell -0.2% yoy (-1.7% mom), first dip since 2011, led by declines in London (-2.4% yoy). Japan’s October adjusted trade balance stood at –JPY 302.7bn (vs. –JPY 48.3bn) as growth in imports (+19.9% yoy vs. +14.1% yoy expected) outpaced the growth in exports (+8.2% yoy vs. +8.9% yoy expected).
In other news, the US Vice President Pence delivered some sharp rhetoric on China over the weekend where he called upon countries to avoid taking debt from China as that would leave them indebted to China. He also added that the US wasn’t in a rush to end the trade war and would “not change course until China changes its ways.” Elsewhere, the APEC summit ended in disarray on Sunday after the US and China failed to agree on a joint statement, reflecting tensions due to the ongoing trade war. This is the first time since the summit began in 1993 that no joint statement was issued.
Looking back briefly now to last week before we focus on the full day-byday week ahead. Friday was an eventful day for market-moving rhetoric from policymakers, highlighted by Fed Vice Chair Clarida and President Trump. First, the dollar shed -0.52% after Clarida discussed the global economy and said there “is some evidence it’s slowing.” Two-year treasury yields rallied -3.8bps (-11.0bps on the week) and the market removed 6bps of Fed hikes through the end of next year (priced out a total of 16bps on the week). This came despite Clarida’s other remarks, which emphasised the strong US economy and his support for moving policy to a “neutral” level, consistent with the FOMC’s projections. Later in the session, Chicago Fed President Evans said that he too wants to move policy to neutral, and then another 50bps or so beyond that level.
Later on Friday, President Trump injected optimism on the trade policy front by telling reporters that China wants to make a deal and that he may not institute further tariffs. China has apparently offered a list of potential concessions, which could prove to be the basis of a trade deal at the 30 November G20 summit. Even though unnamed White House sources subsequently tried to soften expectations, the market rallied with the S&P 500 up +0.22% (-1.31% on the week). The DOW and Russell 2000 closed -2.22% and -1.42% on the week, though they both rallied on the President’s comments as well (+0.22% and +0.49% on Friday, respectively). After Pence’s weekend comments we should probably discount some of the above optimism.
Other markets were already closed when President Trump’s comments boosted sentiment. The STOXX 600 closed the week -2.20% (-0.20% on Friday), while UK equities outperformed marginally, with the FTSE 100 shedding only -1.29% on the week (-0.34% Friday). This reflected the weaker pound, which retreated -1.13% versus the dollar (+0.41% Friday) and -1.83% versus the euro (its worst such week since July 2017, and -0.38% on Friday). Asian equities were mixed, with the Shanghai Composite advancing +3.09% (+0.41% Friday) on trade optimism and the Nikkei down -2.56% (-0.57% Friday). German Bunds rallied -4.0bps last week, while peripheral spreads widened slightly with Italy leading the way. BTPs sold off +8.8bps (flat on Friday) as the government continued to escalate its confrontation with the European Commission.
It's a fairly quiet start to the week on Monday with the only data of note being September construction output data for the Euro Area and the November NAHB housing market index reading in the US. Away from that, the Fed's Williams is due to speak in the afternoon, while BoJ Governor Kuroda, Bank of France Governor Villeroy de Galhau and his predecessor, Noyer, will all speak at the Europlace Financial Forum. Euro Area finance ministers are also due to gather in Brussels to seek to make progress on Franco-German plans to shore up the currency union.
submitted by rotoreuters to zerohedge [link] [comments]

[Table] IAmA full-time Bitcoin day-trader, blogger, and explainer. I was a pro TCG player. Here until Midnight EST. AMA!

Verified? (This bot cannot verify AMAs just yet)
Date: 2014-02-20
Link to submission (Has self-text)
Questions Answers
Let's say someone was looking for a stay at home computer job, would you recommend doing what you do? Is it something you can hop into, or is it something a lot of time must be put into before considerable income comes? You handle risk and pressure well, and you don't let your emotions guide your decision-making. Professional Poker and TCG players often develop this skillset.
You have experience working with stocks, bonds, derivatives, foreign exchange, or other financial instruments. If you have a strong mathematical background, that would also likely fulfill this.
You can invest significant capital into trading while remaining financially secure if it all suddenly vanishes.
You are capable of constantly monitoring a situation, waking up in the middle of the night if an alarm goes off, etc. It requires serious dedication.
You are good at keeping up with news, understanding market psychology, and "feeling" shifts in attitude and perception among other market participants.
Of those, I'd be most cautious if you don't meet no. 3. Going bust is a real possibility--day-trading a volatile commodity is inherently extremely high-risk. Nos. 2 and 4 are the easiest to learn or force through routine. No. 1 requires a person who approaches things in an emotionally detached manner. No. 5 is something that comes with investing enough time.
Second question: I'm answering this after that big block of text because this answer will come off like a get-rich-quick scheme. Yes, you can hop into it very quickly, and you can start making very high profits very quickly. I put in a small initial investment to test the waters, and made 10% on it in a few days. If you have the right skillset, composure, and resources, yes. It is a potentially very lucrative and exciting stay-at-home job. It is not for everyone, though.
As much as it would be beneficial for me (being in the industry and all), to tell everyone it's easy and that it will help them provide for themselves I feel that people need to know the real risks that are involved. Regardless, that's all a little irrelevant. We're not playing the house, and we're not flipping coins. We're playing other investors, and we're making actual decisions. You keep saying things like "98% lose money" and "Go onto any FOREX forum, and you will see from the users posts that they pretty much all lose money" but you don't back it up. Cool, yeah, it's a zero-sum game with a rake: a little more than half of the players will lose. That's expected. They'll probably complain about it, too, huh?
Retrospect can have a very positive effect. Got any real account trading statements I can have a look at? Let's see how fast you can come up with excuses not to show me ;) I only have and need one: I have chosen not to disclose my personal valuation for privacy reasons. Same reason I've had all along. I instead publicly disclose my trades, as they happen, on my website. The posts are timestamped, and the ones that are the start of a position contain the price I entered at. Go check the posts, then go check the charts, then go check my archive. But feel free to continue to arbitrarily call my credibility into question--that makes your argument better!
What leverage do you use? In Australia the leverage is typically 100:1, perhaps that's why your not seeing how risky I deem it to be. First, our argument so far has had nothing to do with risk. Second, I told you I am leveraged 2.5:1, two posts ago. Third, you realize I'm trading Bitcoin, not ForEx, correct? And that no one in their right mind would offer 100:1 leverage on Bitcoin due to its volatility?
What's your last year's hourly salary? A year ago I was finishing up college and extricating myself from the TCG business I'd co-founded. I took very little in take-home pay over that period, but kept part ownership of the continuing business. Money isn't just about the number on your bank account--it's also about residual future income.
How many hours a week are you typically on a computer? On a computer, probably 50-55, if you add in time I spend on my phone, I'd say 65-70. Day trading takes constant watchfulness. I imagine it's like an easier version of taking care of a baby.
What are your favorite to sources of news besides waiting for it to get to the front/hot page of /Bitcoin when it's several hours old? I have an IFTTT for /BitcoinMarkets and /Bitcoin that notifies me early on about some posts.
What's the weirdest thing about your mom? She started a bookselling business online in her 50s and makes more money than me.
Or.
She's a little old lady who loves gadgets and technology.
What are your thoughts on Dogecoin and other bitcoin competitors? Do you think any have staying value? LTC.
DOGE.
NXT.
VTC.
Coins that offer something different or that have a strong community to them can be valuable prospects.
LTC is the first-mover scrypt coin - DOGE has the most non-techies interested in its success and is spreading quickly as a result - NXT is a cool generation two coin that has a lot of features BTC doesn't have - VTC is ASIC-resistant
Ok, let me spell it out to you. The retail forex market only makes up 5% of the total forex markets liquidity. The other 95% is from hedge funds and institutions. Therefore, 99% of the retail market losing their money is very possible, as that only makes up 4.95% of the whole market. Is it possible that 4.95% of the market generally loses? Yes. How is that infeasible? Nope. That's a false equivalence. It is possible that 4.95% of the market loses. It is not feasible, that, say, 99% of people with blue eyes lose. What, exactly, in empirical terms, is the difference between retail investors and hedge/institutions that causes this INCREDIBLE disparity? Would you care to respond to my above empirical argument that demonstrates that a zero-decision system is flipping a losing coin? Do you consider it feasible for 99% of people playing a 45-55 game to lose?
Are there options and/or futures markets for Bitcoin? Not really yet, but there will be more prominent ones soon. I hear about a new one pretty regularly, it seems, but nothing that seems truly legitimate has come out. I'm certainly excited for them, though.
Eventually, once Mr. Lawsky and co. get things sorted out, I'm certain we'll see a big-name investment bank start offering them.
From the time you started trading until today, what is your overall percentage return? In USD, my percentage return calculated from investment to current valuation is about 300% over a little more than 2 months.
In BTC, my percentage return calculated from investment to current valuation is about 425% over a little more than 2 months.
Using my average per-coin buy-in price, if I had just bought-and-held, I would have lost about 27% of my initial investment value.
Ben, i told you I'd be here and asking about Hearthstone first. If there's one class that needs a bit of tuning, up or down, which is it and why? I think Mage needs basic, class-level tuning. I'm not sure what needs to be done exactly, but I don't like what the Mage class power does to gameplay. I've thought some about how different it would be if it could only hit minions, and I'd want to know if Blizzard had tried that out. The Mage power is too versatile, and over the long-term I think it will prove to be problematic.
What's your favorite card? Lord Jaraxxus is my favorite card. He has a truly legendary feel to him when you play him, but your opponent can still win, even though he's very powerful.
So, where do you think we go from here? I'm currently short, but I don't expect to be so for a lot longer. I don't think we'll get past 550. I also don't expect this drop to hold on for a really long time.
I haven't seen a good, substantive rationale for what the MtGox situation really has to do with Bitcoin price. Yes, it looks bad, it certainly doesn't help with our legitimacy, but is it really worth the incredible price declines we continue to see? I don't think so. I think we are seeing these impressive declines because the price on MtGox (which is a reflection of trust in MtGox relative to Bitcoin price, not just Bitcoin price) has been declining heavily. I don't expect it to continue forever, especially not with things like the Winkdex and the accompanying ETF launching.
MtGox is basically dead to me, for now at least. The sooner everyone stops paying attention to it, the sooner we can all get back on track, which I, for one, will be quite happy about.
Do you think that it's a good thing for a game when the developers of that game discourage certain playing styles (e.g. mill decks or decks that try to win in unconventional manners) whether in hearthstone, MTG, or other TCGs? It can be. I don't want the developers metaphorically over my shoulder outlawing strategies, but I don't mind if the strategies that are "less fun" for your opponent (Draw/Go, Mill, or Hard Combo from MTG, for example) are also less powerful. Most players prefer a game where the best decks are also among the most fun, because it means that they are playing against fun decks more often. Clearly the 2-cost 3/3 will be played most often. If you fix this by making both 2-cost guys 2/2s or 3/3s, or by making one a 2/3 and the other a 3/2, then you've done something--but it's not that interesting. If you instead make the 2-cost 2/2 have text that says "While you control the 3-cost 3/3, this gets +2/+2" and you give the 3 cost 3/3 text that says "While you control the 2-cost 2/2, it has Taunt" you now have more complex cards that reward players for doing something other than just playing the best stand-alone card.
Which do you think is a better option to encourage diversity in TCGs; improving/buffing cards/decks that hardly see any play versus weakening/nerfing cards that are overwhelmingly played? This is obviously a very simplistic example, but I hope it makes the point. Games are more fun when you give players more relevant choices: buffing and nerfing cards tends not to do that as well as promoting synergies does.
Where/what is the actual money behind bitcoin? If it does exist. You might need to rephrase your question for me to understand what you're asking. If you're asking why a Bitcoin has value, the answer is the same as any other good: because someone is willing to pay it.
If you're asking why someone is willing to pay that amount, my answer would be utility.
I just got started on Bitfinex (using your referral link) and am a little intimidated. What types of trades would I recommend I try as a beginner? From there, just keep careful watch, and see what happens. Be neutral and objective toward your own hypothesis, just like in science. Don't be biased by your hopes, be focused on the reality.
So far I've only done a liquidity swap offer to try it since it seemed (nearly) risk free. Have you done any liquidity swap or is it too low in profit? If I'm not going to be able to check my computer for a day or two, or I'm uncertain of what's going to happen the next few days, I do use the liquidity swap function. It's actually very profitable, relative to traditional investments. And you're right, it is low-risk. I'm a fan. Good job selecting it if you were intimidated--that's a good place to start. As far as actually starting trading, do science. Start with a hypothesis. If you were up at 5 AM today when MtGox published their announcement, a good hypothesis might have been something like: "This announcement is going to be a blow to their credibility, and might panic the markets. We'll probably drop by some amount as a result." Invest based on it, figure out around what price you want to take profits, and at what price you'll cut your losses and get out. Stick to those determinations unless something substantive changes. The time you tell yourself you can afford to not close your position because it will "rebound" back to where you want is also the time you lose your shirt.
Is it true that you like Balloons? No, I <3 them.
Lol to the question about your mom... Ben, from my understanding Bitcoin is anonymous, does this mean that you can avoid taxation when receiving payment? Bitcoin isn't anonymous. That's actually a common misconception. It's actually pseudonymous, like Reddit. You end up with an online identity--a wallet address--that you use with Bitcoin.
If I walk up to you on a street corner and buy Bitcoin with cash, then I'm pretty much anonymous. If I buy it from a large institution like Coinbase or some other company, they will have records of the address my Bitcoin was bought for. As a result, you can trace them down, generally speaking.
As for avoiding taxation, that's a general no.
What do you think Bitcoin's biggest hurdle is and how do you think it can be overcome? Are there any misconceptions about Bitcoin that you think people have? The biggest hurdle for Bitcoin to overcome is governments. Governments have a variety of reasons not to want an alternative currency. We seem to have done pretty well on that front here in the US, but for other countries (China) that is not the case. Past that, the other major hurdle is something I consider an inevitability: consumer adoption. Business adoption has begun in earnest, consumer adoption hasn't. It will when enough businesses take Bitcoin to give it sufficient utility for the average customer.
What trading platform do you use to daytrade Bitcoin? What is the standard margin that Bitcoin brokers offer? what's the typical ask/bid spread? I primarily use Bitfinex.
Very few Bitcoin brokers currently offer leverage, Bitfinex offers 2.5:1. Over time, I anticipate it will become more like current Forex, where 10:1 or greater leverage is common.
It varies by exchange depending on their fees. Huobi charges 0% fees, so their spread is generally tiny. Some exchanges can be as wide as 1.5%. Typically, I see spreads between .5 and .7%.
Do you invest in any other type of cryptocurrency? if so, which is your favorite besides bitcoin? I currently have no other holdings, but I've held DOGE and LTC at points and am considering VTC and NXT. DOGE is probably my favorite, because if the community can keep this up for a little longer it will snowball into amaze.
Can you trade me a Jace? TMS WWK, TMS FTV, Beleren, MA, or AoT?
Beleren. M10, M11, LOR, JVC, JVCJPN, or Book Promo?
M10 and if not possible then M11. Sure.
I've been reading your blog for quite some time and especially like your summaries for recent events. Keep up the good work! Do you use strict stop-loss orders for your trades? When do you decide to close a trade? Especially in situations where you can basically see you profit/loss grow by the minute. When is enough? Do you have a longterm bitcoin investment you don't touch or do you use everything you have for trading? I do use relatively strict stop losses, but they're not stop loss orders. My conditions usually aren't just the price hitting a certain point, but instead it sustaining for a brief period, or hitting it with a certain volume, or with a certain amount of resistance to retreat. I don't want my stop loss to be triggered by some idiot who dumps 300 BTC and temporarily drops the price 15, but only ends up really dropping it 3. I am very strict with myself about this, though, generally speaking--if I can't trust promises I make to myself, what good am I?
Let's say for example you have a sum x dollar and a sum y bitcoin on your trading account. How much % of x or y do you risk at every trade? I've seen a formula for the max. amount of investment and read numerous times that traders shouldn't risk more than one or two percent of their "bankroll". Do you generally have dollar and btc or just one of them at any given time? 100% of funds in every trade, so long as all funds are easily moved into the position. Common exceptions are lack of liquidity and funds being on other exchanges. My reasoning for being all-in all-the-time is that it's a profit-maximizing move. It is also risk-maximizing. My risk tolerance is infinite; most people's isn't. Only ever one. Generally BTC if I'm long, dollar if I'm short. I prefer to double-dip, as otherwise it would be in contradiction to the 100% plan. I use everything I have for trading. Again, profit-maximization, infinite risk tolerance.
I decide a closing price when I'm near either my stop loss or my profit aim. I place a limit order or multiple limit orders wherever I need to. I avoid market orders whenever possible. Enough is when I hit my goals or my loss tolerance. I decide these at the start, but I frequently re-evaluate them as news and market conditions develop.
What is a typical bid/ask spread for Bitcoin? It depends what exchange you're looking at, but generally .5-.7%.
What's the best way to popularize Bitcoin among the masses? Add your own but would love your thoughts on: -microtransactions developing nations -gift economy (tipping) I would suggest just running around shouting "You get to be your own bank" is probably the best way.
In all seriousness, though--we don't need to try. It's going to happen on its own from now on, as the news media slowly starts to pick up the story. People will start appearing on TV talking about it with more and more frequency. Things like the Dogelympic teams are great PR and help boost it up, as well, of course, but in general it's just going to follow the adoption curve of every other technology.
If it picks up in a few developing nations that have stable internet, it will be a massive revolution for them. Self-banking can do a huge amount of good for an economy like theirs. We might see reports on that. If a major newspaper decides to run a permanent paywall like what the Sun-Times tested recently, that could be big as well. The slow PR from tipping on Reddit is another way, to be honest. Every bit helps, but the cryptocurrency community is now large enough that we're going to do a significant amount of organic, word-of-mouth style growth.
Do you think that a magic game could beat harthstone? If they do a good job, absolutely. They have to focus on the right things. It needs to be mobile-available, easy to pick up and play, and fun.
Is there a good crypto currency to get in on now, before it explodes like bitcoin did? There are plenty of options. Check out coinmarketcap.com. Fair warning, there are plenty of horrible things there--treat it kind of like penny stocks. I like BTC, LTC, DOGE, NXT, and VTC.
Also, why is it such a pain in the ass to buy them with actual money? Like you have to have bitcoins to buy other crypto currency. It's such a pain to buy them with USD because no one has made a good system to do it on, like Coinbase. If you think there's a desire, go do it!
Well the way I look at it, is how the hell else would you be able to buy them? Not everyone has piles of bitcoins lying around and I really don't want to spend $600+ on a single bitcoin just to buy some other currencies. Ah, I see the problem! You can buy fractions of a Bitcoin using Coinbase--I think .01BTC (~$6) is their minimum.
The March 2013 appreciation was from American and European investors and November 2013 was mainly from Chinese investors. Which group of people do you think will be the next to buy (I hate using the word invest when talking about bitcoin) bitcoin for investment purposes? American institutional and hobby investors. That is, Wall Street and people who pay attention to Wall Street.
Which do you think will be a better long term (~5 years) investment, Bitcoins, Litecoins, Dogecoins, Fetch Lands, Shock Lands, or Original Dual Lands? Does it change for ~10 years? Either Bitcoin or Fetch lands for 5 years. For 10 years, Bitcoin. I'd be worried about the 10-year view for paper MTG.
Ive been mining Bitcoins for years now, i have a good sum im my wallet but i never plan to use them. Does this make me a bad person? Approximately yes.
Ben, I should've simultaneously copied and pasted all of my questions from the Spreecast over to here but here are a few... It seems like the conspiracy crowd has really latched onto the idea of Bitcoin as being a discreet form of currency. If Bitcoin is backed up by the internet why would people choose having a currency that's being tracked over say cash, gold, different commodities? Having a currency be tracked has negatives and positives, but it's overwhelmingly positive for the average consumer. Because it's tracked, you don't need to pay someone to move your money for you. There also are no chargebacks, which means merchants aren't getting scammed and passing those costs onto consumers. Theft costs everyone money. It's also very fast--transactions confirm in just 10 minutes, regardless of size or where it's going. Transferring dollars from here to China is very difficult--transferring Bitcoin? Just as easy as from anywhere else to anywhere.
My job is a mix of voodoo, intuition, science, and news. In USD, my percentage return calculated from investment to current valuation is about 300% over a little more than 2 months.
No, just gambling. In BTC, my percentage return calculated from investment to current valuation is about 425% over a little more than 2 months.
Anyway, how have the profits been from start to finish compared to the market? Using my average per-coin buy-in price, if I had just bought-and-held, I would have lost about 27% of my initial investment value.
Are you willing to disclose how much you have in your trading portfolio/what kind of profit you turn both % and $ wise? In USD, my percentage return calculated from investment to current valuation is about 300% over a little more than 2 months.
In BTC, my percentage return calculated from investment to current valuation is about 425% over a little more than 2 months.
Using my average per-coin buy-in price, if I had just bought-and-held, I would have lost about 27% of my initial investment value.
What would you say is the easiest method of shorting bitcoin or any other coin? For shorting Bitcoin or Litecoin, check here.
For other coins, there isn't really a good way yet, to the best of my knowledge. A few exchanges have plans to add short-selling, but Bitfinex is really the only one I know of that has.
What did you have for breakfast today. Didn't breakfast, was delicious.
Hey Ben, I know next to nothing about Bitcoin. I went to /bitcoin after seeing this AMA on your FB, and I noticed that everyone is going apeshit over "Gox". I have no idea what that means or why everyone is so sad/angry/suicidal. MtGox (which originally stood for Magic the Gathering Online eXchange) was the first prominent Bitcoin exchange. They've been going through some rather rough times lately, some of which I was an early cataloguer of here. In short, everyone is freaking out because the exchange may be insolvent. It's not really a big deal to Bitcoin as a whole, but it's certainly an obvious blow to credibility. In my view, people are primarily upset because MtGox has been a part of Bitcoin for a very long time, and it can be hard to let go of what we're used to. I expect that they will either fix the issues or will go out of business officially very soon.
Please explain what happened.
Tell me every artist in your iTunes. Daft Punk, detektivbyrån, Kid Cudi, Matisyahu, The White Panda.
Spotify for life, yo.
Follow up question, what % are you in BTC vs Fiat and when you are on the losing side of a trade do you find your self dumping in more to get right or do you pull the cord Unless my positions are on different exchanges or in different coins, they're all always 100% of what I'll put into that trade at entrance and exit. As a result, I end up with a binary choice: stay or reduce/close. I very rarely reduce position size, nearly always preferring to just end the position instead.
Last updated: 2014-02-25 04:57 UTC
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