Guest Post: Front Running the Fed

[Joanne98]

Served by Jesse from Le Café Américain

I had a friend from the old neighborhood who was the Comptroller of a major casino in Las Vegas in 1970-80s, where I also was married in 1981. Only lasting win from there, ever.

According to this dour son of Italy the way he could spot a problem, besides the more aggressive methods of observation and detection, would be to examine the returns on a table basis. In the short run they will vary, but in the longer term each game will provide a statistical return that rarely deviates from the forecast, unless someone is cheating. We would walk through the casino, and he would point to a table game and say “at the end of the month, this table will bring in xx percent.”

It was he who introduced me to Bill Friedman’s book, Casino Management, which is a useful read if you wish to learn more about that end of the speculative business from the house perspective.

Attached is some information from a reader. I cannot assess its validity, not being in the bond trading business. But it does sound like someone has tapped into the Fed’s buying plans to monetize the public debt and is front running those buys, essentially ’stealing’ money from the public. Its what they call ‘a sure thing.’

To try and figure out who might be doing it, I would look for some big player who is showing extraordinary returns on their trading, with consistent profit that is not statistically ‘normal,’ too consistently good. The problem with cheaters is that they sometimes get greedy and call attention to themselves.

In Las Vegas the bigger cheats were often taken out into the desert for further inquiry and final disposition. On Wall Street they are somewhat more arrogant and persistent, defying resolution with that ultimate defiance, “We’ll just find other ways to cheat again.”

Time for a trip to the desert?

Here are a reader’s observations from the bond market.

From a reader:

I used to work for a BB on a prop desk until the financial crisis took hold and they fired the less senior guys on the desk. I now trade US Treasuries, for a small prop firm in xxxxx, to scalp basis trades in mostly on the run securities. Occasionally, I will also take position in the repo markets for off the runs if I see something “mispriced.” Your recent article piqued my interest because we too have noticed “shenanigans,” of sort, in the QE program of USTs.

continued>>>
http://www.nakedcapitalism.com/2010/01/guest-post-front-running-the-fed.html

It amazing how the market and Las Vegas casinos are so similar. Maybe we should hire this guy for the SEC.

Bill Friedman’s book, Casino Management

There's a lot of casino books

http://www.amazon.com/s/ref=nb_sb_noss?url=search-alias%3Daps&field-keywords=Casino+Management%2C&x=15&y=16

[Po_d Mainiac]

1. Since there is little effort to conceal

Pretty safe to assume that SEC not only knows what's happening, it's condoning the acts.

Remember that goofy looking curly haired guy that didn't know nuttin about shit he was supposed to know shit about...Had some sort of tax "irregularity" that a bit of Maalox whited out? Maybe he don't want the pit boss to look at that table, cuzz maybe the guy with the private elevator told the curly haired dude to lay off the pit boss or he'd have to mess up a nice new shovel...I dunno. It could be like that, don'tchaknow
:shrug:
ymmv