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🧠 The Big Brain
Still Don’t Trust The Data

Yesterday’s job openings data was staggering. The JOLTS survey points to another 690,000 jobs becoming available in the US economy.

But is it a little too good to be true…?

Between the very low response rate and the questionable methodology, there’s plenty to raise doubts about accuracy.

Crucially though, what isn’t the data showing?

According to Richmond Fed Chief Thomas Barkin, too much labour-hoarding, not enough layoffs:

In his mind, there’s still a long way to go. But can anyone really trust the data?

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⚡ The Spark
Know Your Counterparty

David sat down for a chat with Albie Burgess recently. Among the many topics covered is knowing your counterparty…

Essentially, who’s on the other side of your trade?

For retail traders, the answer is often ‘your broker’.

For many, the business model is to internalise almost all trades.

Because the majority of traders lose, we can simplify this model down to chuck all the trades in a mixer - the losers pay the winners and what’s left over is for the broker.

Ask again, who’s your counterparty…

The broker, or a pool of retail traders?

Technically, it’s both. And as long as you’re not with some bucket shop in Belize, your broker has a competitive reputation to uphold, so trading conditions should be pretty fair.

A lot of brokers publish sentiment data too.

When retail crowds are too heavily on one side of the boat, it can be a good time to take the other side of the trade…

As far as execution goes, that’s your counterparties covered.

But there’s way more to markets than just retail punting, so who are those counterparties…?

See, if your strategy is ‘trade against dumb retail traders’, you should probably just open a brokerage. You don’t have to figure out what they’re doing, they’ll just send in their orders.

If you don’t want to do that (& nobody would blame you), then maybe turn your eye towards the wider industry.

Understand the incentives of financial professionals and the inefficiencies their actions create.

Things like price-insensitive flows, carry trades, risk premium, arbitrage and so on…

Just because they’re professionals, that doesn’t mean they’re any good at generating profits…

Whichever approach you take, having some idea of your counterparty and how they think is always good business.

💡 The Lightbulb
Not Guilty

This isn’t about Sam Bankman Fried. He’s clearly as guilty as they come.

It’s about those other financial criminals.

The Japanese Ministry of Finance (MoF)

150 wasn’t a line in the sand, except it was…

USDJPY fell from a smidge above 150 to 147.250 in just two minutes yesterday.

There’s little doubt that Japanese officials intervened. The only question is if they did it verbally (e.g. a ‘rate check’ when they call around and ask for prices, spooking traders into thinking they’re about to get involved) or if they actually sold dollars…

Money market data shows no signs of intervention, although a Reuters source says we’ll have to wait one or two business days to find out for sure.

The question then is whether traders will want to keep pushing their luck against Japanese officials who are clearly trying to draw a line in the sand…

And just like that, we’re back to counterparties…

Here’s David explaining it this morning on TikTok.

@fink.tok

Replying to @Banzsai why did the #yen have a #flashcrash yesterday? #fxmarket #centralbanking