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Annie F. - Freshman Equities Trader

Farewell Blog

I decided to email this farewell blog to the firm for those who don’t check the blogs on a regular basis. I figure it would be smart to also email it to all employees—Jerry Maguire style—t o give everyone a nice opportunity to read what may be my last blog on the site. I use “maybe” because perhaps I’ll be asked to guest blog every once in a while, which I would happily accept. I’m thinking of picking up comics per inspiration from Sammy F.

I never thought my last day on the desk would be one of the most stressful. It wasn’t that I had that much work to get done on this quiet Friday in August, but I feel an emotional weight on my shoulders as I reflect on my time here over the past six months. By now everyone most probably knows how I ended up working here but I’ll refresh everyone’s memory. I figure the story can never be told enough as it’s not your most typical entrée to employment.  I was training at the yoga studio downstairs to become certified to teach yoga as a part-time endeavor and I ran into Zach, probably the one friend I would least expect to see in a yoga class. He told me he was working upstairs at a hedge fund and went on to say they’re always looking for more trainees. At that time, I was 6 months out of college, a part-time student and part working for a family startup, and was eager to get a job where I’d gain skills in the financial markets and business in general. I went on an interview where I was told I would gain a knowledge base equivalent to that of an MBA degree. I took the job as a trainee where I would earn next to nothing of an income and I never looked back. Essentially, I took a job with “zero risk and infinite upside” to quote some of the trading lingo I’ve picked up on.

Rather than focus on the reasons for my departure I’d like to take the opportunity to address some of the things I’ve learned and thank everyone on the desk for making this work experience probably the most rewarding, fun and challenging jobs I will ever have in my life (although I hope not) . One of the first blogs I wrote was listing the things I hoped to learn as a trader at TFG and I can say without a single double that I can check off every item on my list. I am very proud of the work I did for the desk and of the skills I’ve acquired here, but one of the things I learned on the desk is how to make decisions when they need to be made. I can’t say I won’t have any regrets leaving (especially if HFL makes it big), but I do know that this is what feels right for me at this point in my life both personally and professionally.

If my lifetime membership to Hedge Fund Live is honored, you can bet that I will tune into the broadcast and contribute to the member community. Lastly I thought it was appropo to list some kernals of wisdom, advice and idiosyncrasies I’ve picked up along the way at HFL that I hope to carry with me on the rest of my lifelong journey.

Zach:  how to be as blunt as possible

Betty: extensive excel knowledge

Tynik: most intense work ethic I’ve ever encountered

Judah: how to be easygoing in a stressful environment and to always answer “yes got it under control boss”

Saad: never try walking over a frozen pond

Sam: how to not be so awkward in front of the camera

Dean:  Wam Bam Thank You Mam. Adding skepticisms into my life in EVERY aspect.

Mosk: How to read charts, how to fill air time with banter, and how to love the great RUSH

Schwartz: how to figure things out yourself and how quote really bad movies

JF: How to make decisions and how to not include the weeds in communication. Also, NO AMBIGUITY

Alan: Pride is Permanent

Patience in a Volatile or Quiet Market

Yesterday we covered our short FXE in the financials book when it was down about 80 bps. Right now, the FXE is down 2.12%. Lesson learned: sit on  your hands when you have a gut feeling and don’t leave the trade just to book some profit.

Below is a drawing, or should I say doodle I did when the market was quiet yesterday. Typically, the saying is to sit on your hands when you’re in a trade with your risk parameters planned  or simply when the market is dead. When this is the case, why not release some stress and take a ball-point pen in hand and draw freely. I come from a family of doodlers, as my mom’s artistic background has influenced us to subconsciously draw in our free time.  While not quite Picasso, I find my doodlings to be pretty wild. I’ll be taking bids through tomorrow on the below picture. Thank you Zach for snooping around my desk and leaking the art to show the meaning of patience in a dull or stupid market.

“Quantitative Neutrality”

A lot of talk on the street is about the Fed’s FOMC conclusion made this afternoon. Commentary is mostly centered around the idea that the quantitative easing report did niltch. To help support the economic recovery in a context of price stability, “the Committee will keep constant the Federal Reserve’s holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.” So while the Fed’s decision to ease the Fed’s control over the US money supply, it seems as though the only effect the easing will do it “ease the stock market”. We saw a nice bounce off the lows in the market after the 2:15 meeting.

The financials book certainly didn’t respond well to the news as we sorely underperformed the market returning -1.32% compared to the SPX and XLF closing down 60 bps and 87 bps respectiely. AGM was our biggest loser at it lost 14.6% in value after poor earnings this morning; our two top five positions in the book didn’t perform well either with JPM and BAC both down about 2%. We covered our FXE short as we made the biggest gain in the position in over a month; we were up over $2,000 in PNL before the Fed meeting and after we only took away $926 in profit as the FXE jumped on the news. We also sold our position in FITB and a third of our position in Goldman Sachs.

Today’s news was neutral, but clearly the financials are misbehaving as they’re now the weakest sector over the week down 1.1%.

FOMC Ruling

The finacials book performed as it should. Up slightly on the day, lagging the SPX by 25 bps. Or should it have? There is no market direction because of the uncertainty in our economy. The market is already cheap and, there’s been no really good substantial news and volumes have teetered to its lowest levels of the summer. Therefore, it’s a gamble that the market will go down when that’s all it’s really wanted to do lately. Tomorrow is a big day as Zach described the FOMC will have its quarterly interest-setting meeting. Interest rates can’t go any lower so the only news the street is waiting on is what type of quantitative easing strategy the Fed will take in order to stimulate the slow job recovery and poor consumer sentiment. One QE method is open market operations which is primarily done through purchases of financial assets such as bonds and corporate bonds from other banks or financial institutions. By engaging in open market operations, the Fed is essentially electronically adding money to their account. Tomorrow we will hopefully review the Fed’s latest balance sheet to analyze QE scenarios.


Dean put it simply at the end of the day and said it’s a NICE FRIDAY in AUGUST. In addition to the poor nonfarm payroll employment number coming in at negative 131,000 for July and unchanged unemployment rate of 9.5%, the quiet summer friday provided for a perfect bear move in the market. The whole day we watched sellers come in and sell off market 1.5% until 3:30 when the buy programs came in to lift the market  back up to only down .37%. Economic recovery isn’t occuring in line with the market and it’s really confusing the heck out of traders and PM’s alike. We’re running into a shortage of data to look at. The increase in volume off the number and the decrease in volitility in the market was a typical Friday move. Over and out.

Earnings Season Nearly Behind Us

As we enter the slow weeks of August, there’s less news and earnings to chew on especially for financials which report earlier in the season and Congress going on break doesn’t add an juice to the market either. The only lurking piece of data out there is how companies will perform amongst all the new financial reform rules. Now that most of earnings are behind us, executives of big banks and financials institutions will have to seriously take into consideration bottom line impact. J.P. Morgan Chase & Co., which unofficially kicked off the season July 15 with a better-than-expected bottom line, raised questions about the near future for itself and the rest of the industry because of lower revenue, fee income and net interest income. Where will cost-cutting come into play and what strategies will banks take? GS, MS and C are already in talks to spin off their trading groups. According to CNBC GS could announce GSPS spin out as early as tomorrow. If this is the case we should see some action in financials even if the unemployment numbers don’t shake things up.

 Over the last few days I’ve read some of Ace Greenberg’s “Memos from the Chairman”, a book we have in our library. The memos are written by CEO and Chairman of Bear Stearns addressed to company personnel throughout Greenberg’s tenure at the firm. I find the memos quite entertaining and appropo to today’s financial climate. Greenberg creates a fictional character named Haimchinkel Malintz Anaynikal, who is the dean of economic philisophy in his mind that give out words of wisdom pertaining to how a company can achieve success. Most of the memos discuss the company’s progress as it tries to grow and compete amongst the bigger trading groups on Wall Street. Haimchinkel Malintz Anaynikal speaks most of cutting expenses to improve the bottom line. Most of the advice surrounds the notion of cutting costs, specifically office expenses. So all of Bear Sterns follows the advice and limits their use of paper clips, reuses envelopes and switches from FedEx Mail to US Mail among many other cost-cutting tactics. Financial companies affected by the new regulatory environment will need to start considering the wise words of Haimchinkel Malintz Anayniakl if they strive for continued growth.

Two quotes I particularly like from the Memos: ”thou will do well in commerce as long as thou does not believe thing own odor is purfume”

“when you’re working in a large group, there is bound to be a person or two who is not your exact cup of yogurt”

Slow Market

Did summer just start? According to the stock market is did. Today was the 2nd lowest volume in the EMINIS (S&P Futures) in three weeks, which is a fairly good indicator of overall market volatility. On days like today, I tried to get some side work and reading done in addition to light trading. I spent a little time today reading how banks fail. That’s right how banks fail. My focus these days is financials as I both execute and trade on names such as DB, JPM, BAC, GNW etc. Once a week I’ll read a report about how X number of banks failed last week and the count for 2010 is up to 108. Through my research I was brought to the FDIC’s failed bank list over the last ten years. I compiled the data and created the below pie chart. So far in 2010 there have been 108 failures and in 2009 there were 139 failures. At this pace in the new financial regulatory environment, 2010 might see more failures than 2009. To keep it simple, there are three primary ways a bank can fail. First, there is a bank run where depositers panic and withraw money like crazy. Second, a bank can’t sufficiently barrow money from other banks on an overnight basis-this can happen when a bank’s rating is drastically lowered. Third, regulators can become concerned that a bank’s reserve levels are too low, specifically with Tier-1 capital ratio (the minimum acceptable is 6% and the strongest banks have ratios of 13-20%). The stress tests that have been taking place starting in Europe and most recently China tests the ability of bank’s to survive too much risk with a specific reserve level. Many banks are finding it hard to lend at when they must keep their reserve levels at a minimum. While all stress tests have seen a majority of their banks pass, a serious air of uncertainty remains. Financials institutions, such as GS, are wavering as to whether they can keep all aspects of their businesses running under the new regulation. Most institutions, in fact, are willing to forgoe a piece of their business to appease both regulators and customers. The question remains as to whether this tight regulation can act as a double edged sword, purging the system of bad banks and requiring the existing banks become stronger and resistent to shock.

Financials Grind Higher

So my prediction this morning was wrong. Scratch that. The WSJ staff must be working their reverse psychology magic.  The financials performed exceptional today with the XLFs closing up 2.55%, outperforming the SPX by 30 basis points. As you can see in the chart below the Financials have performed the strongest out of all the sectors over the last week, up 3.4%, beating the following sector by almost 100 basis points. Our financial book underformed the market returning 0.96% due to our short position on FXE. Our biggest winners were JPM and BAC, which are also the biggest positions in the book right now. I made some money trading DB and GNW, trading around them on the R4 buy signal. Today’s quiet market allowed for a slow grind higher, however I didn’t take enough of a shot on the long side. I missed out on a couple trades in JPM as my bids were never hit. If tomorrow’s action is similar to today, I know I will get a position earlier on and be more aggresive on the pull ins.

Weak News Across the Board

As I read the WSJ cover page front to bottom I can’t help but think that the market will go lower today. The headlines read pure negativity with “Deadly Floods in Pakistan”, “Ethical Woes”, “Stressed States” “Americans are getting frugal” “Blackberry Banned”. The only positive piece of news is from the anecdotal story at the bottom discussing an incerase in the housing rental market.   The newspaper screams apprehension and uncertainty in the state of the US Economy. Economic news reports continue to express concern over falling prices and wages and the potential move toward deflation. Albiet the relativeley weak news, it has been quiet. And the markets like quietness. Premarket futures are up big near the R4 breakout buy signal but I remain ambivalent in regard to market direction, so I will pay attention to the pivots point in my trading today.

The Ongoing Debate: Long or Short Gaiam (Gaia)?

Being that we held onto Gaiam, Inc. (GAIA) for over six months and sufferred a hefty loss in the stock whose business revolves around the rather disputed and popular topic on the desk known as yoga, I thought it was about  time to offer some sympathy for the poor guy.  For a while, there was a saying on the desk that “Gaia is going Highah”. Not so. Even though we no longer have a position, we have scheduled a formal talk on the insecure beast tomorrow when the market is quiet.

Gaia is in the business of lifestyle media and offers many products in the LOHAS market. LOHAS stands for Lifestyles of Health and Sustainability and it targets the emerging Concsious Media market. Their biggest revenue generating item is Fitness and Wellness DVD sales, of which they control 42.5% of  US market share. Gaiam caters to yoga enthusiasts with products such as yoga mats, dvds, apparel and accessories. In terms of profitability, GAIA’s income increased five-fold from 2005 to 2007, then posted a loss in 2008 and has since picked up business in 2009. The growth of Gaiam’s business is very in line with the yoga industry as spending and participation increased 134% in yoga from the years 2001 to 2007 (there has yet to be statistics published from 2008 on). If the yoga industry continues on its trend post the economic recovery than GAIA may have a change to continue on a profitable path. As a business located right above a yoga studio, we tend to bring up the subject of yoga quite often (too often for a trading desk , if you ask me) and there is much debate as to wether yoga is the latest fitness fad or if it’s the real deal. Currently you can find doctors recommending it, insurance companies paying for it, fortune 500 companies offering lunch hour yoga and you can find CEOs of major companies hooked on it. I’ve compiled a factsheet on the yoga industry that includes spending trends, demographics and an industry outlook, which will be posted to the website.  Even if I wasn’t so into yoga and new of only the basics, I think yoga is here to stay. GAIA, on the hand, might not be around much longer if it sticks to its core business model of fitness DVD sales. For starters, if GAIA wants to compete, it’s got to buy out the company JADE YOGA  for probably a large sum of money and it also has to start competing with LULU apparel.