Paul Tudor Jones Calls on Quants to Revamp Firm Hurt by Losses
Things have changed in the trading world with banks and hedge funds hampered by new rules and regulations. Big bank trading desks are being shut down, or cannibalized, and some of the best and the brightest can’t make money. When George Soros recently said he was getting back into trading the only thing I could think was how much the trading world has changed over the last 20 years.
While my perspective may not be exact, I was there. I remember when my S&P desk started losing business to electronic trading. I remember how we stayed there and continued to lose market share and I remember when the open outcry orders I did disappeared. And I remember Paul Tudor Jones (Trader: A Paul Tudor Jones Documentary) doing business through our S&P 500 futures desk on the CME floor. He made quite a name for himself in the 1987 Crash. A lot has changed since then, and by all accounts, things are not getting any easier, they are getting harder.
Shuffle Your Feet
One of the things the Pit Bull and I talk about is how the big funds that were so famous in the late 1980s and 1990s do not make money anymore. That most of what they make are on the 2% management fee they charge. It’s not hard to do the math. On a $10 billion fund they make almost $17 million a month. Many of the investors were around when the funds made big money and have been sticking around waiting for a big score that never comes.
When Tudor used to do business in the S&P 500 futures pit he was smart. He had his own desk and he had a guy in the pit watching the brokers fill his orders. The guys name was Peter Harrison. Tudor also would use other desk operations to hide his buying and selling, but most of the smarter desk guys knew who the orders were coming from. He was smart, he knew about front running and fought hard to fight execution slippage. In the months leading up to the 1987 Crash everyone in the S&P knew Tudor was calling for a crash and we watched as he sold thousands of the S&Ps in the weeks leading up to the crash.
Jones was already known as an upstart but that was about to change. On that fatal Friday in October 1987, when the S&P started to tumble, Tudor’s fame increased 100 fold. Many of his peers thought his 87 crash call was a one time wonder, that he would never regain the fame he gained, but he went on to build a large fund that was more based on stock trading. He moved away from the traditional futures trading he was known for.
The Transition
Over the last 10 to 15 years many of the well known hedge fund managers that were known for their big futures trading profits started losing. Finding talented futures traders became very hard to do, and the fast money the funds were known for started to disappear. Like many well known floor traders, when the pits closed and electronic trading took over, the markets got harder to trade. There was a gigantic transition from open outcry to trading on a screen. If the investment firm or hedge fund did not transition to some form of algorithmic or HTF trading they would find themselves fighting an uphill battle.
While this story was released over 6 months ago the poor returns of 2015 are not shaping up very well in 2016. The Fortune article released in March of 2016 paints a very dim picture of the industry.
‘Why Big Investors Are Finally Pulling Their Money Out of Hedge Funds’
Many of the big funds like Ackerman will never get back to their high water mark. It’s all become a big game of fees, and investors are pulling out in droves.
While Tudor may now be moving in the right direction, many think the day of the big hedge funds are over. Sure there are some shining stars, but like the patterns we notice in the markets, they don’t last ever long. According to Bloomberg, in 2015 more hedge funds closed than opened.
‘More Hedge Funds Shuttered Than Opened During 2015 Turmoil’
The news for 2016 is not very promising either.
As we all know there is no way to stay in the trading business without updating or revamping your trading tools. As we have said many times over the years, tools that we used to use to make money don’t work anymore, and the tools that do work don’t last very long. We live in an ever changing world, and that is never going to change. Paul Jones is a smart guy, he knows that if he doesn’t ‘shuffle his feet,’ then it won’t be long until his funds are out of business. Moving in the ‘quants’ may work, but what happens when the ‘quants’ fall out of favor? The story below is a great example of a big, well known firm ‘shuffling its feet.’ The question is, is it too late?
‘Paul Tudor Jones Calls on Quants to Revamp Firm Hurt by Losses’
In Asia, 11 out of 11 markets closed higher (Nikkei +1.07%), and in Europe 11 out of 12 markets are trading higher this morning (DAX +0.88%). Today’s economic calendar includes the Weekly Bill Settlement, Chain Store Sales, Rob Kaplan Speaks, Challenger Job-Cut Report, Jobless Claims, Gallup Good Jobs Rate, Bloomberg Consumer Comfort Index, Factory Orders, EIA Natural Gas Report, a 3-Month Bill Announcement, a 6-Month Bill Announcement, Fed Balance Sheet, and Money Supply.
BOE Lowers Rates for the First Times Since 2009
Our view: Well the S&P rallied but it didn’t go too far. For the most part, my call to buy weakness was right on, but the overall trade and volume was way lower. We attribute this to the upcoming jobs report on Friday. I also think that crude oil futures (CLQ16:NYM) may have put in a bottom. I still think the next $3.00 from $40.00 is up.
Late in the day the guys with the ‘better seats’ showed up with $520 million to buy pushing the ES up to new daily highs at 2158.25. The volume was over 1.9 million contracts on Tuesday, and it was only 1.36 million yesterday. All the jobs & Fed talk scared traders away. Our view is to sell the early rallies and buy weaknees.
As always, please use protective buy and sell stops when trading futures and options.
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- In Asia 11 out of 11 markets closed higher: Shanghai Comp +0.13%, Hang Seng +0.43%, Nikkei +1.07%
- In Europe 11 out of 12 markets are trading higher : CAC +0.63%, DAX +0.88%, FTSE +1.46% at 6:30am ET
- Fair Value: S&P -4.78, NASDAQ -3.04, Dow -74.04
- Total Volume: 1.36m ESU and 1.5k SPU traded
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