I've had a couple of interesting and unique bosses and partners in the past. I've always tried to glean the good and leave the rest in an attempt to become a more successful trader.
I vividly remember watching the futility of my first boss because he wasn't part of the system. I never could understand why this large, former NFL'er, with a booming baritone voice was only given 5 lots when meek, little guys around him were getting fed 50s or 100s. He could physically beat anyone in that pit into a fine sawdust, but was a third (or fourth) tier trader. Why? The system, I later learned, was the act of "paying for information." You throw the broker's a bone or two in terms of a very easily filled trade and they reciprocate by upping your quantities on the juicy trades that they have control over.
Now that I've made the transistion from the pits to the screen, this game becomes ever more important. I need brokers to fill in the color that I was once able to see from the pit. I want them to show me ALL their players, not just the big 3. I require more than just an IM or an email: I require substance. And my weapon of choice to get it? I pass out brokerage checks to a small army of individuals in hopes that each one will add a little bit more to my market picture.
Tonight, as I'm enjoying a late dinner with friends, one of these brokers sent me a press release out of Barclays Capital. I had been game-planning for tomorrow's number while trying to take in some of the very unique circumstances that this number will encompass. The most striking of these is the mere 45 minutes that the market will have to digest it before the S&P 500 futures close down for the holiday weekend. This means that the move could have the potential to be violent!
- Per Barclays Capital Report Pg 1 & 3, Dated 1 April 2010
Employment report (8:30am): We expect a strong March employment report, with nonfarm payrolls up 250k and the unemployment rate down a tenth, to 9.6% (consensus: payrolls 184k, unemployment 9.7%). We and the consensus also expect the average workweek to edge higher to 33.9 from 33.8. Much of this sharp gain would be transitory, as it reflects the combination of a weather payback and Census 2010 hiring. On the former, we believe that the inclement weather in February subtracted about 75k from payrolls and pulled down the workweek, particularly in the construction and manufacturing sector. We expect this to be reversed in March. On the latter, we expect the Census Bureau to hire about 125k workers in March, which would show up as a boost to federal non-postal payrolls. This implies an "underlying" gain of roughly 50K jobs. Census hiring should continue to ramp up, likely peaking in May at more than 500k additional jobs. However, these jobs are temporary and will be removed from the statistics in the summer and translate to a net job loss.
If the scenario plays out as they suggest and we add 250K jobs, the credit markets will demand higher yields and the equities will blast off. I was roundly mocked in my office for suggesting that the one day , ATM straddle for the S&P should be 17.00-20.00 based on today's close. But, if there isn't a lot of time to finesse your bids throughout a trading day...LOOK OUT.
Barclays suggested one other very interesting tidbit.
Vols richened, probably due to rise in longer rates. 3m swaptions were marked ~4abpv higher. Have vols formed a bottom and now start rising? We think not: there is simply too much supply than what dealers can find a home for. In March, the option market digested roughly $30mn vega from new issuance in zero coupon and agency callable notes. This is more than what it had to deal with in the previous two months. Without realized vol and demand from mortgage hedgers, lower is probably still the path of least resistance for vols.
A massive amount of this Vega was sold via PIMCO and its cohorts for yield enhancement on their bond/mortgage portfolios. And though we've had a very nice pop in Vol over the last 2 weeks (TY June ATM straddles went from 2.03 to 2.23 representing a .5% rise in option vol) they are calling for this to be nothing more than a momentary blip. I can actually see their logic and have begun to change my thought process about getting long Bond Vols, even if I can buy them at sub 8% prices...
All this to say. I'm going to bed and looking forward to a whip-sawed, fast paced day with light volume and only one direction.
~LH
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