SERVING THE QUANTITATIVE FINANCE COMMUNITY

 
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JohnJohnSmith
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To DominicConnor...

November 26th, 2008, 4:42 pm

Dear Dominic,In your capacity as a headhunter, how do I get my CV to you, and how may I contact you by phone?Regards,K.P.S. I sent my CV to Dominic@PaulDominic.com some time ago but didn't receive a response.
 
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DominicConnor
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November 26th, 2008, 5:30 pm

PM me with yuor email, and I'll check
 
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KennyMing
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November 27th, 2008, 5:10 am

HiHi Dominic,How is the current job market for quantitative positions like Quant, Risk Analyst, Arbitrageour, Asset analyst in Europe zone? Look forward to your reply. Thx a lot.
 
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DominicConnor
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November 27th, 2008, 8:50 am

Euroland has entirely gone to sleep for the winter as far as we can tell. Our very rough model is that that European labour laws will slow down the rate at which people lose jobs, but make it very much harder to get your first job, or replace a job if you do lose it.London is not much better, though the greater diversity of employers means there is still some activity in some HFs, prop shops and insurers.
 
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mit
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November 27th, 2008, 1:39 pm

hi domincconnorhow do you reckon the labour market of the beer sector will change in the eurozone? i would very much like to become a quantitative brewer.
 
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KennyMing
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November 27th, 2008, 3:17 pm

How about at the end of 2010 or the beginning of 2011? based on your model.
 
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DominicConnor
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November 28th, 2008, 9:32 am

In my posts I try to help people make better decisions, and thus I'd frame how you make your personal decisions on where to work, what sector to work in, and what to study based upon what how you estimate your skills will compete in different sorts of markets.Currently there is no real structural difference between London, NY, Chicago, Tokyo, Paris and even Frankfurt. Scale varies of course, and some products are quite local, such as government debt, but if you're good at your job in Paris, you'd be good in NY. That I feel is going to change.My model is a lot of factors few of which I have accurate numbers for.The outcome depends not upon absolute changes but how the changes interact.My assumption is that London will keep to having as little regulation as possible and that Germany & France will go for it big time. Switzerland's elite feels deeply embarassed about what has happened around its banks, so I guess will go the same way. French staff are particularly exposed because they are more involved in the "smarter" stuffe. That is the sector in worst decline, but this may be balanced by the fact that a good education helps in a tough market. Outside Paris they ar more likely to be fired, but more likely to get hired again.So I think on balance French quants will do slightly better than average, just so long as they leave Paris for London, Dubai, SG and HK. From our database we see that many French quants have names that imply N.African origins. They will possibly be the most frequent movers towards Dubai, Kuwait et al.Frankfurt is a marginal player, only kept in the game by the great strength of the German economy. For years it was heaviliy rumoured that Deutsche was going to move HQ to London, but of course that is a lost dream now.Political interference will mean that Frankfurt becomes more focused on local work like corporate finance, debt issues, and local IPOs. Political ownerships will mean that "anglo saxon" style hostile takeovers which always produced such good money for banks will disappear. High regulation will mean a tougher time for quants, even more than bankers in general. France in particular produces far more quants than its local economy could possibly consume, even when times were good.If they can't go to London or NY, that will be very tough for a couple of years since Paris markets will be more regulated and reducing in size. But since French DEA's etc can legally work icross Europe I expect to see them adding to the competition all over. In the short term Paris will be the worst financial centre to seek work. Frankfurt has never really been all that quanty. Many of you will have seen the activities of our new expanded research team, and one effect has been to confirm to me the surprisingly small % of people from Germany or in Germany who do this line of work. The German economy will probably contract less than the British so that endogenous financial activity will keep going, but regulation will mean that quants benefit the least from this. German manufacturing will no doubt absorb some quants who decide to quit finance altogether.So Paris and Frankfurt will contract less but recover slower.Apart from Dublin, I expect the smaller centres to decline a lot. Some may drop below critical mass in various types of financial activity. Dublin I don't see growing in absolute terms, but increasing market share as others shrink faster.However, if one assumes that regulation will follow the models used in aviation and medical products, the amount of testing and checking can be expected to increase big time.Only a small % of a drug companies money goes on looking at new molecules, and rarely do engineers at Boeing get to see if they can build a jet powered seaplane. (The Russians have them just sooo coool).Most work is checking, testing, and checking that the testing is right. Drinking with the CIO of one top tier drug company I was told that their new Lotus Notes document tracking system cost far more than all reseach at the company put together.Paper trails are big things in drugs and aircraft parts since failure is seen as so bad.You see where I'm going here ?Model validation, quantitative risk and provably correct procedures are going to be a larger % of this kind of work.You can do source code control on mathematical models. Yes you can. No really, it is possible, using stuff you can buy today. The reason you don't is that it is sooo painful.It is possible to formally prove that a program exactly implements a given model.I suspect I am the only person in this topic who can do this, it is a very rare skill indeed. Not that hard to learn, just that few of you have learned it, and I expect a good % of readers could learn to do it better than me.I cover some of the basics on the CQF, but there is a lot more to learn.It's shitty tricky stuff though. For instance one must learn that x+1 can equal x, after that it gets really tough. Any one here know de Morgan's law ? That's the trivial end.So heavier regulation will increase the work per unit of output.This is where my 2nd rate economics shows its flaws clearly.It may be the case that the increased regulation means more jobs, OK, not such good jobs, but more jobs nevertheless.Or...It may be that increased costs means that some kinds of "product" simply is not viable to produce at all. That's already the case, has happened in light aviation, and regularly happens in drugs and weapon systems.Or... regulatory arbitrage may mean this stuff moves to places where the manpower costs are lower and the regulators screw with you less.India is thus getting a lot of medical research now, partly because of cost, and partly because Creationists in the US government are "not comfortable" with advanced medical technology.Or...Some locations have made good money out of having tighter regulation because they are trustworthy in times of great trouble.Switzerland has a large % of several areas of finance because it is very protective of the interests of people who put their wealth there.HK & Sg got a lot of the Far Eastern financial markets through having a decent relatively uncorrupt legal system where government cronies rarely got to steal much.With all its flaws, the US legal system doesn't get in the way of banks much.Some countries like Sweden and Switzerland are able to sell premium manufactured good because of perceived high safety standards.Maybe that will happen with banks. Maybe "anglo saxon" banks find it hard to survive in the long term because their looser regulation means that they are not seen as outfits you should trust ?I think that is the less probable path, but it's far from impossible, since a problem with selling yourself on "high ethical standards" is that it is far easier to screw them up. Swiss banks still enjoy a popular image as "trustworthy", which is worth real money to them.After the Iceland screwup, the quality of the government giving a guarantee or doing regulation is certain to be a major issue in large scale decision making.There is no useful answer to be derived from doctrinaire free marketeers, faith based economics, neo socialism, or the medieval protectionism of French politicans. My only reason for believing British politicians will screw up less is that they dare not upset the banks too much. Of course a regulator that is scared of those it is supposed to regulate, carries the downside risk we have all seen...My call is that someone will get it right, more likely London than Frankfurt, but that's not exactly rock solid.Britain has no real alternative but to be nice to bankers, and bonuses are not likely to be screwed with much after the current wave has passed.But German and French politicians have centuries of hostility towards "anglo saxon" money lenders and I expect a combination of regulation and taxation to try and kill the "bonus culture".Hard to see them not succeeding at least in part, which sets the scene for what will happen in the recovery...There are "anglo saxons" all over the world plotting to profit from the huge levels of mispricing that the last year has caused.Their motives are some mix of greed, ambition and wanting to look cool to the people they work with.This will of course be risky, and some will screw up.Would you want to do this if your bonus was capped so that the screwup cost you dear, but you got almost none of the upside ?So people doing this must choose a location, and it ain't gonna be Paris or Frankfurt. Might be London, might be HK, Dubai, Dublin or Sg, more likely some combination.If I were given the job of driving a 3rd tier finance centre to the top tier, I'd spend real money creating a solid regulatory and legal system. Headhunt British judges, French administrators, American lawyers and "anglo saxon" bankers to build a provably sound system. So you have to guess which level of regulation will come out best and which maps to your personal talents and skills and go there.
 
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pgeek
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To DominicConnor...

November 28th, 2008, 10:33 am

Dominic, Why do you think regulation will be bad news for quants and wannabe quants? Is it because it will reduce the earnings (profits due to reduction in leverage) or the reduction in the size of the business due to lesser number of transactions happening? Would more regulation not mean need for more modeling and so more demand for quants?
 
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DominicConnor
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November 28th, 2008, 10:57 am

pgeek, yes I see all those things being true, the question is in what ratio ?Decreased leverage inevitably means some things will not be allowed to work.Fewer and smaller transactions decreased the size of the pool.Regulation means that costs will go up in a time when revenues go down, and inevitably that means less money for us.Also the regulation will have significant political bias, and will be inherently unpredictable.But the real burden will be that accountants and compliance people will be more directly involved in things that they simply don't have the education to understand. Its' not always because they're dumb, they just specialised in a different way.Mrs. DCFC is a serious lawyer, and some of the things she reads causes my eyes to simply to fail to recognize as English, let alone understand.But I'm not a partner in a huge law firm, the idea that I'd be in their decision making loop is just silly.What do you think an accountant will do when presented with 20 pages of maths, many are outwitted by VBA, how would they cope with C++, F# or Haskell ?Thus there will be a dumbing down so as to present it as comprehensible to bean counters. Being "too clever" will be seen as black mark against you or some power.Years back I worked on a risk management system of Price Waterhouse, and this happened to me. It was written in really quite complex C++, and they consisted I documented it to a level that a "non programmer" could modify it. Not one person in their team had any postgrad qualification in finance, though as I recall one arts graduate had done a "conversion course" MSc in IT.Imagine explaining your work to someone whose maths were so poor they did not even try to do a MFE let alone a PhD.Then imagine they can veto anything they don't understand.
Last edited by DominicConnor on November 27th, 2008, 11:00 pm, edited 1 time in total.
 
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KennyMing
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November 28th, 2008, 3:55 pm

Very detailed!!!! On the other hand, what do you think about the prospect of real estate finance in quantitative side like MBS, REIT, real estate derivatives in future?Some practitioners told me that there should be more restrictions on derivatives and structural products market, but less restrictions on real estate financial market. When the economics become recovered again, the real estate fund should outperform the structural products market provided that the demand of real estate property will be going keen in future. What do you think on the prospect of real estate finance? or it is too specialised? Look forward to your kindly reply again. Thx a lot.
 
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DominicConnor
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November 28th, 2008, 4:25 pm

I think that some smart people will create transparent liquid successors to MBS etc and make truly huge amounts of money.They are are essential to a functioning property market as steel to the car industry.But that will be hard and slow.The widespread mispricing I mention before applies to property, and my forecast is that this will get much worse before it gets better. Thus it is pretty much the perfect example of a business line that will make serious returnsat some point. I don't know when.Established banks seem to be getting as far away from property as they possibly can, which fuels mispricing, and it may be that governments get so concerned about it that not only is the regulation light, but you may get serious tax breaks or other incentives. Is it too specialised ?We all are specialistss, the question is it a good specialisation ?As well as the market itself, you need to take a good hard look at the skills you have, and those you can get with moderate effort, and see if they match the form of the market you expect to emerge in 2-5 years time.I am not an expert on real estate finance, but my view is you will need to gain legal skills and understanding of the development process.One idea I would like to share, which never made it into real estate (as far as I know) comes from my earliest education in bonds. Commodity suppliers, typically mines, once used to sometimes issue "affordability bonds".They had a two part coupon, a normal one, and a payment linked to the cost of their product.By tying repayment roughly to the revenue of the producer, default was less likely, and the bond holder gained the upside if prices went up.There exist indexes of various types of property and one could hedge positions in a more flexible way. It is for instance really quite hard to get a short position in property.Thus one could issue a bond, secured on the development where you can trade part of the upside for a lower interest rate, which is important given the way LIBOR has been behaving.That idea could fly when some investors feel the property market is turning.Or not...But I claim all rights on this idea
 
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penguina
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November 29th, 2008, 5:36 pm

QuoteOriginally posted by: DominicConnorMy only reason for believing British politicians will screw up less is that they dare not upset the banks too much. Of course a regulator that is scared of those it is supposed to regulate, carries the downside risk we have all seen...My call is that someone will get it right, more likely London than Frankfurt, but that's not exactly rock solid.Britain has no real alternative but to be nice to bankers, and bonuses are not likely to be screwed with much after the current wave has passed.But German and French politicians have centuries of hostility towards "anglo saxon" money lenders and I expect a combination of regulation and taxation to try and kill the "bonus culture".Hard to see them not succeeding at least in part, which sets the scene for what will happen in the recovery...There are "anglo saxons" all over the world plotting to profit from the huge levels of mispricing that the last year has caused.Their motives are some mix of greed, ambition and wanting to look cool to the people they work with.The implication seems to be that being a large financial center has been beneficial for the UK, that the good times will return to the City and that assets are under priced.What if the financial sector only became so large and dominant due a one time unsustainable boom in leverage in the US and UK (and others)? What if assets are not mispriced at all as we are entering a deflationary slump and extremely severe recession and possible depression? The US and UK have been running unsustainable trade deficits for a very long time but the credit bubble enabled them to carry on consuming more than they produced. A lot of this debt is never going to be repaid.These seem much more likely explanations for what is coming. I do not believe we will return to the financial madness of the past 20 years for a very long time if ever. The financial services sector needs to shrink a lot in order to adapt to the new circumstances. Carrying on along the same trajectory by restarting the Ponzi scheme will lead to complete catastrophe.
 
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penguina
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November 29th, 2008, 5:41 pm

QuoteOriginally posted by: DominicConnorI think that some smart people will create transparent liquid successors to MBS etc and make truly huge amounts of money.They are are essential to a functioning property market as steel to the car industry.But that will be hard and slow.The widespread mispricing I mention before applies to property, and my forecast is that this will get much worse before it gets better. Thus it is pretty much the perfect example of a business line that will make serious returnsat some point. I don't know when.completely delusional nonsense.On all indicators of property prices (such as price to income ratios, yield, etc) it has been obvious there has been a bubble there for many years. That was the mispricing.We are now returning to normal ranges of property prices.
 
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KennyMing
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November 30th, 2008, 4:54 am

Well, the affordability ratio (Median Price of Property to Median Annual Income) of some cities in UK and US is over the highly severed status as stated by the "World Bank". Such as California and London, the affordability ratio in 2007 is around 10 and 8 respectively. While the highly severed affordability ratio is just around 5 to 6. In most cases, the affordability should not be more than 5.....otherwise, it may lead to a bubble in property market. I think the blooming of property market was due to emergence of MBS securtization and lower credit lending assessment in the past few years....the easy lending practice further encourage the low income group to borrow money from sub prime lender and the high demand of housing also pump up the property price........But I think the property price will be risen up again after few years.....
 
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DominicConnor
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November 30th, 2008, 8:24 am

My model is independant of the various property markets, especiallly the resedential one which I believe has a long painful way down.Given where I personally live, I believe that in the last year I've lost more money on the spot price of my home, than the average person reading this made in the last year.I don't really care. I don't care about the spot price for my home, aside from the time that I read that an A list Hollywood celebrity's home cost less than mine, which caused me to smile Not that I am richer than Brad Pitt, but it was an example of the extreme bubble we were in, and the volatility of the dollar.I see no floor for the spot price of residential property. None.But...My stated model says mispricing I was quite careful to not to say underpriced. I believe the true situation is although some things are grotesquely below a price derived from net present value of returns, or in some cases simple cash flow, some things have a long way down. I did not say that making money from all this would be easy or low risk.The implication seems to be that being a large financial center has been beneficial for the UK, that the good times will return to the City and that assets are under priced.Pretty much, though exactly when the good times come back, and how good "good" might be are variables I lack the wisdom to specify.What if the financial sector only became so large and dominant due a one time unsustainable boom in leverage in the US and UK (and others)?All industries are unsustainable, the variable is when they hit a state change, and how they deal with it.The core of my model is that everyone in the financial industry makes money through providing a service either directly or indirectly. Directly by doing something a customer pays you for, or indirectly by some anonymous 3rd part benefitting from the liquidty or price discovery that activitiies like prop trading provide.So what will the rest of the economy pay for ?FX : People need exchange and protection against changes rate changes.Selling Shares : This sector is not exactly booming at present, but it will come back.Market Making : A lot of the mess we are in is due to the way that many instruments are traded OTC "peer to peer", with consequent crippling problems with price discovery, liquidity, counterparty risk and transparency.3 years from now, some of you will be making real money as market makers in whatever "Credit" instruments get re-branded as.Liquidity provision and management will be bigger.Risk Management : It seems bizarre to type what I'm typing, but remember that Credit Derivs were supposed to control risk. The real economy is being hurt now by the way that players cannot manage risks so well at good prices.Lots of big risks need managing. Pension funds need to manage not only market risk, but inflation, FX and other risks.Leverage : All businesses need leverage. We see now that they had too much, there is work to be done providing leverage in a less risky way at an attractive cost.Structured lending : Firms have complex needs for cash, and in particular want optionality in taking up loans at known rates in the future.Mergers, acquisitions, buyouts, restructuring etc. Loads of money made here in the past, going to come back.Government debt. This is particularly important to London, not just because the "anglo saxons" who had fled anti-"anglo-saxonism" in Italy and France invented what we now think of as government debt financing.As it happens the contemporary British government has a number of "anglo saxons" involved in it's trasury functions, and has long had a policy of not interfering with the market in it's debt.(Full discloure, some of my stuff is used in monitoring).3rd world governments have long had a tradition of interference, and so have ended up borrowing in foreign markets. London has over the years made serious money out of that.Italian , French and German politicians have publicly attacked "anglo saxon" interference in their markets. Aside from their history of anti anglosaxonism, each of them has lost at least two big wars because anglosaxon finance has enbled Britain to outspend them in war. Thus I believe it certain that they will take control of their state debt markets the first time it goes against them. Look at how the Channel Tunnel was paid for to see a recent example of France's actions against anglosaxon markets. Will hurt French & German banks a lot.I believe that even now, in ways I have not yet observed; the next new financial madness is being put together.I don't know what its character will be, but I know it is coming.I also don't believe the next boom is 20 years away, mostly because the historically frequency of booms is higher than that.
Last edited by DominicConnor on November 29th, 2008, 11:00 pm, edited 1 time in total.
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