Must read and listen interview on the markets. “We are not investors anymore, we are all speculators….”. Via Chris Martenson.
“Even Wile E. Coyote had to come back down to earth sooner or later”, says Charles Biderman, founder of TrimTabs Investment Research. In his opinion, the prices of stocks and bonds – enabled by excessive financialization of our economy and central bank money printing – have been defying gravity for a dangerously long time.
If we continue to do all we can to preserve the status quo — to maintain “phony” asset price levels as Charles calls them — at best we will restrict overall growth and handicap the economy.
The problem isn’t so much the unfairness and malinvestment evident in a rigged market. As Charles shrewdly asks: what happens when the market becomes un-rigged?
We’ve never experienced the unwinding of an entirely manipulated financial system, so we can’t predict for sure. But at this point, a painful collapse of our markets and loss of the US dollar as the world’s reserve currency seem entirely plausible. Full article here and video below.
Guest post by Doug Short.
The S&P 500 closed the day with a modest gain of 0.37%, breaking a three-day losing streak. But the financial media was quick to point out that this is the best quarterly gain in the index (and the Dow) since 1998.
In honor of this achievement, I’ve added a chart below, courtesy of BigCharts.com, to illustrate the quarterly behavior of the S&P 500 since the mid-1990s — hardly a random walk!
The index gained 0.81% for the week and an even 12.00% for the quarter.
From an intermediate perspective, the S&P 500 is 108.2% above the March 2009 closing low and 10.0% below the nominal all-time high of October 2007.
Guest post by Saluzzi of Themis Trading.
Poor Investor Nemo. He swam away from our shark-infested capital markets a few years ago, as all the HFT made him dizzy and messed with his sonar. Not to mention his having to deal with that forgetful and gullible blue fish, Regulator Dory. Nemo thought he finally would have a little peace, but it was not to be. You see, the Summit NJ firm, Hibernia Atlantic, has just hired a Canadian research ship, Coriolis II to survey sections of the north Atlantic continental shelf, where Nemo is currently residing (these colder waters have in fact become warm due to global warming from all the strip mall stock exchange server farms).
Why exactly is this Canadian vessel surveying Nemo’s new home? Well, Coriolis II will survey the under-sea northern continental shelf because Hibernia Atlantic is going to put in a $300 million transatlantic fiber optic line, called Project Express, and the line will provide a more direct route between financial markets in New York and London. Read about Project Express in this Bloomberg article, Trading at the Speed of Light.
Only a small group of high speed trading firms will pay the steep fees to travel on this HFT superhighway. The fees to travel through this undersea cable will allow HFT firms to cut the speed of trading between New York and London from 64.8 milliseconds to 59.6 milliseconds! That may not seem like a lot of latency savings, but rest assured it is, according to Joseph Hilt, senior VP at Hibernia:
Guest post by VIX and more.
Lost in all the hoopla over the VelocityShares Daily 2x VIX Short-Term ETN (TVIX) was a historic event in the options and marketsentiment world on Monday: a new single day high in the ISEE equities only call to put ratio.
To recap for those who may not be familiar with the ISEE, this ratio was developed by the International Securities Exchange (ISE) and is calculated by dividing opening long call options bought by ISE customers by opening long put options bought by ISE customers, then multiplied by 100. The ‘equities only’ slice of the full transaction pie means that all trades with indices and ETPs are excluded from this data, which also reduces the likelihood that any of the ISEE equities only data includes trades intended largely as portfolio hedges.
Monday’s record close of 410 means the ISE customers were buying four times as many calls as puts. Because there tends to be a lot of noise in the daily data, I like to average the data over a 10-day period. The chart below shows the ISEE equities only index since July 2011, along with the 10-day moving average.
Some points on interest rates and the creation of housing bubbles. What goes up must come down. From Voxeu.
In the aftermath of the recent global financial crisis, central banks have been widely criticised for having kept interest rates too low for too long. Several authors have argued that exceptionally low interest rates spurred excessive risk-taking in the banking sector, leading to the build-up of imbalances and finally the crisis (see eg Ciccarelli et al 2011 or Altunbas et al 2010). Since property prices have been shown to play an important role during episodes of financial instability (see among others Goodhart and Hofmann 2007 and Bank for International Settlements 2004), understanding the link between monetary policy stance and the emergence of housing bubbles has become an important and topical issue for policymakers.
With Bernanke still running the show, at least in the ES futures, the invisible hand is there picking up those futures, until it suddenly stops one day. Some more on the subject of the importance of a rising stock market and the Fed. From Ilene.
After reading Lee Adler of the Wall Street Examiner’s article, I asked him, “Why is it the Fed’s job to be propping up the stock market? Doesn’t it make the whole market a Fed-controlled game, rather than what it started as – a mechanism for companies to raise money and people to invest in public companies?”
Lee answered: “Bernanke has made no bones about it. He sees the stock market as a legitimate instrument of policy manipulation. It’s his biggest tool, much bigger than the ones between his ears and his legs. The Fed works for the banks, and the capital markets exist as a means for ‘capitalists’ to extract wealth from the public. Stock markets weren’t started for the purpose of enriching the public, that’s for sure… The Fed has two clients, the US Treasury, and the banking system. It operates to make sure that they stay in business.”
Meanwhile in Spain, protesters are taking on the streets. The Peninsula is boiling, and this looks like the start of something much larger about to happen. Expect the property sector still valued at “fantasy” levels to start plunging for real as the distressed sales start hitting the market. From El Pais.
Hundreds of thousands marched on the streets of Spanish cities late Thursday to protest Prime Minister Mariano Rajoy’s labor reform package and austerity measures as workers across the country wrapped up a 24-hour general strike that mainly crippled the nation’s manufacturing industry and transport networks.
While fights and scuffles broke out in some cities, seas of red placards carrying the emblems of the two biggest unions, the CCOO and UGT, which represent 75 percent of the nation’s workers, had filled the streets across Spain by early evening.
Barcelona saw the worst violence when police fired tear gas and rubber bullets at unruly protestors, who were trying to gather in Plaza Cataluyna. Some demonstrators threw rocks and burned debris on the streets surrounding the square, and vandalized several local bank branches. A group of youths with their faces covered looted one nearby store after breaking in. In Vitoria, two police officers were slightly injured after protestors also threw rocks and bottles at an anti-riot squad.
From PIMCO’s Tony Crescenzi on the QE issue, Fed and Bernanke’s choices.
- If the Fed does nothing, asset prices could fall, threatening America’s fragile economic recovery. But if the Fed decides to battle the forces of deleveraging, it could commit a classic error by acting during a turning point and thereby doing too much.
- During Operation Twist, the Fed will absorb the equivalent of all of the issuance of U.S. Treasury securities maturing beyond seven years. When Operation Twist ends, global investors will be left to shoulder the burden.
- The combination of stronger economic data and rebounding inflation expectations makes it more likely that the Fed will hint at rather than decide on QE3 when it meets again on April 25th.
Like Hamlet, Federal Reserve Chairman Ben Bernanke faces a choice; whether to “QE or not to QE,” which is to say whether or not to conduct a third round of Treasury, agency and/or mortgage-backed securities purchases in order to fend off the ravages of the deleveraging process. In other words, whether the Fed should conduct QE3 – a third round of quantitative easing.