Financial topics

Investments, gold, currencies, surviving after a financial meltdown
malleni
Posts: 150
Joined: Sun Sep 21, 2008 3:34 pm

Re: Financial topics

Post by malleni »

wvbill wrote:We've talked about market manipulation in these forums...

A must see clip:

http://market-ticker.denninger.net/arch ... ation.html

Bill
Thanks Bill,
Great clip!

John
Posts: 11479
Joined: Sat Sep 20, 2008 12:10 pm
Location: Cambridge, MA USA
Contact:

Bloomberg interview - Joe Saluzzi, Themis Trading

Post by John »

-- Bloomberg interview - Joe Saluzzi, Themis Trading

The following is my transcript of an interview of Joe Saluzzi, Themis
Trading on Bloomberg on Tuesday:
Joe Saluzzi, Themis Trading wrote: > I'm a realist. I like to cut through the garbage that we hear
> constantly from hopeful politicians and hopeful corporate
> executives, trying to tell you they see things are good.

> Let me see some numbers. Show me the quarterly earnings. Are
> you going to prove to me that second quarter was good, in the
> retailing sector when the savings rate is sky high, and consumers
> aren't spending?

> No, I don't believe it. I'm a cynical person at heart, I guess,
> but I'm also a realist, and it keeps me out of trouble a lot. ...

> The problem is that most people are pessimistic on this market
> right now, but they're afraid because they see the market
> running.

> What my job is during the day is I'm an institutional trader for
> large mutual funds and hedges. So my job is to trade for them,
> and to not get caught upin the noise.

> The volume that you see during the day, sometimes as high as 12
> billion across all three exchanges, is fictitious. It's not
> real. I'm going to say that 60-70% of this volume that you see
> coming across -- it's volume, but it's done by what they call
> 'high frequency traders.'

> These are machines. The biggest machine out there wins the game
> nowadays. And these people deal in sub-seconds. 50 milliseconds
> is a huge amount of time. Anything over that and you're a
> dinosaur in the business.

> So what they do all day long is they buy and sell and they try to
> collect liquidity rebates from the exchanges, who basically in
> partnership with them, and they trade for no apparent fundamental
> reason, and this is my problem.

> And being that we're all in a bullish tape right now, they're all
> just buying. ...

> I trade for my clients. I'm an agency-only trader. My job --
> they make the decisions, I execute around the noise. Some of the
> clients buy, some of them sell, we deal with all different types.
> Some short, and so on. Some are sector based.

> But my job is to make sure -- that during the day when a program
> gets shot through, -- by the way, a billion shares a week going
> through certain broker on the exchange principally with programmed
> trades -- it's a way to get the market to go in your direction.
> And what happens is -- since we're all electronically linked, the
> algorithms that all these programs use, according to the guys that
> I talk to, chase the stocks and artificially inflate the
> prices.

> It cuts both ways. Since we're in a bull tape, everyone is
> jumping on board, but here's the trick: They could run for the
> trap door tomorrow, and if everybody becomes a seller, they'll all
> just go the other way. They don't care about the prices any
> more.
Saluzzi's remarks are relevant to a subject that I've touched on from
time to time: The effect of programmed trading on the stock market.

I started noticing in 2006 that the P/E ratio had been holding steady
at around 18 for years:

Image

This happened despite the fact that the S&P index was going up and
down (mostly up). This behavior was interrupted for a few months in
2008, and was abandoned completely in 2009.

I concluded that the only possible way that the P/E ratio could have
stayed constant for so many years was if programmed trading
algorithms were all following similar algorithms. This is not to say
that there was a conspiracy; it only meant that computer programmers
implemented similar algorithms at different investment firms, and
that a P/E valuation of 18 was part of those algorithms.

** Stock market rally raises cautious, anxious hope among investors.
** http://www.generationaldynamics.com/cgi ... 09#e090509


According to Saluzzi, these computerized buy/sell programs are
dominating the market these days. There's a remarkable concept in
what he's saying. We normally think of panic buying as based on
human emotion, but Saluzzi is essentially saying that the computers
are panic buying, pushing up the stock market prices.

This is a weird concept since, as we all know with absolutely
certainty, computers are mechanical devices totally lacking in
emotion.

Presumably then, the reason that computer programs "artificially
inflate the prices" is because the programmers tweak the program
parameters to do so.

Saluzzi then suggests there's a "trap door," and this could reverse
very quickly.

This suggests that we're in a classic new asset bubble in the stock
market, led by these unemotional computers. Like any asset bubble,
panic buying can reverse on a dime and turn into panic selling,
leading to a correction or crash.

P/E Insanity

I've overused the word "insanity" so much on my web site that I'm
reluctant to keep using it. My problem is that the insanity keeps
getting worse and worse.

If you look at the P/E index chart earlier in this posting, you can
see that it's above 60, and its off the chart.

If you look at the "official" S&P 500 P/E index spreadsheet at
http://www2.standardandpoors.com/spf/xl ... EPSEST.XLS
you can see that the Q2 P/E is 133.62.

If you look at the WSJ chart, where it's newly "honest",
http://online.wsj.com/mdc/public/page/2 ... dc_h_usshl
then you see that the P/E index is 35.38.

But if you listened to Bloomberg TV today, then you heard "the P/E
index is around 15, and there are many stocks with very low
valuations."

I have NO idea where this figure of 15 comes from. If you look at
the S&P spreadsheet, there is no current figure below 18, no matter
what fantasy assumptions you use.

What this means to me is that the computerized trading algorithms
have changed drastically in the last year.

Since 2004, these algorithms have been pegged at maintaining a P/E
ratio of 18. Obviously that's out the window now, as the P/E ratio
is well above 100.

Is any other peg being used? I'm certainly not aware of anything.

This gives meaning to Saluzzi's statements: "And what happens is --
since we're all electronically linked, the algorithms that all these
programs use, according to the guys that I talk to, chase the stocks
and artificially inflate the prices."

In other words, the computerized trading algorithms are specifically
designed to create a bubble. Once again, I'm not saying that this is
a conspiracy, any more than the Tulipomania bubble was a conspiracy.
I'm simply saying that the "human emotions" that normally cause a
bubble have been encapsulated in computer algorithms and programs,
resulting in computers that create bubbles.

As I've said for decades, "To err is human. To really fuck things up
takes a computer."

Bubbles

It never ceases to amaze me that the concept of intrinsic value or
real value is completely lacking, even among so-called expert
economists.

If you buy a chair made of wood, you know that the wood costs, say,
$20-50. You assume a certain cost for labor. If the chair sells for
$100, then you might think that's a reasonable price. If the chair
for $200, then you might wonder what's special about it. If the
chair sells for $500, then you would assume that it's way overpriced.

With stocks, no such reasoning ever exists. If a share of stock
costs $100, that's good. If it costs $200, that's even better. If
it costs $500, that's WONDERFUL.

The Law of Supply and Demand says that price equilibrium occurs when
the marginal cost of manufacturing one more chair equals the marginal
amount that a buyer would be willing to pay for one more chain.

If we focus on marginal cost, the problem is that a share of stock
has no manufacturing cost. It's just a piece of paper or, worse,
just a number in a computerized data base.

Thus, so-called expert economists conclude that there's no price
equilibrium, since their textbook computations don't apply.

That's why so-called expert economists conclude that there's no such
thing as a "bubble," or that there's no way to know whether you're in
a bubble, except in retrospect, after it crashes.

** WSJ's page one story on Bernanke's Princeton 'Bubble Laboratory' is almost incoherent
** http://www.generationaldynamics.com/cgi ... 18#e080518


You never hear any mainstream person talk about the intrinsic value
of a share of stock, based on the value of the underlying
corporation. And when I raise this question with someone, I just get
blank stares.

There are, of course, many ways to get a valid estimate for the
intrinsic value of a stock. The most common method is to relate the
price to reported earnings (P/E ratio), but you can also use things
like book value or sales. You just have to compare the price to some
number that can't be fudged.

Computerized buy/sell programs used to use a P/E value of 18. Now,
they're apparently using nothing. They're simply programmed to
create a bubble, as Saluzzi is saying. And at some point, the
parameters will be changed so that they'll be programmed to create a
crash.

Sincerely,

John

John
Posts: 11479
Joined: Sat Sep 20, 2008 12:10 pm
Location: Cambridge, MA USA
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Re: Financial topics

Post by John »

A couple of people have referred me to Mike Taibbi's article in
Rolling Stone about how Goldman Sachs is manipulating the market.

I'm very skeptical about such claims -- that any one company can
manipulate the market. I'm more comfortable with the concepts in my
previous posting, that a bubble is created by a generational mood, a
"herd mentality," or the insanity of crowds.

Still, I sought the article out and found it on the internet in a
form that makes it very hard to read.
http://www.scribd.com/doc/16763183/TaibbiGoldmanSachs

So I took the article from this web site, made a screen shot of each
page, and turned the screen shots into a PDF file. I put the PDF
file on my web site.

http://generationaldynamics.com/ww2010/ ... nSachs.pdf

Sincerely,

John

aedens
Posts: 4753
Joined: Tue Nov 04, 2008 4:13 pm

Re: Financial topics

Post by aedens »

Sanity true return's

NEW YORK (Reuters) - Bill Gross, the influential investor who runs top bond fund Pimco
But for now, the trend is the other way and it promises to persist for a generation at a minimum," said Gross, the co-chief investment officer of Pacific Investment Management Co. Under this scenario, Gross, who manages the Pimco Total Return Fund, which has $159 billion in assets, sees a "new normal" for U.S. economic growth rate closer to 2 percent as opposed to the recent average of 3.5 percent.

"There's no magic in that number, and no model to back it up, just a lot of common sense that says this is how people and economic societies behave when stressed and stretched to a near breaking point," he said.

We must have in mind we have far to go.
Sat Jun 06, 2009 7:26 pm
Bottom line is Civilization by the inability of ALL Governments no matter the form it assumes in every state in history has fallen into a Debt crises that has always caused taxes to be higher and lead to a waterfall effect whereby the state became so weak it failed itself since taxation destroyed the civilization and capitalism. History always provides changes takes place in the shortest amount of time. Will western society listen before it’s too late? The last bubble caused dead capital investments and no national wealth at all. Phase one was allowing Marxism to fade away and our battle to stop taxes dead in its tracks to reverse capital consumption loss by the Government to date. Given the onslaught of housing resets oncoming and the nonproductive capital loss it enables we are still dead in our tracks to date. As for the comment (for production or consumption), or consume, then you are contributing to the economy -is the problem which who is taking and depriving funds out the true economy in the first place in a proper context? The implosion sending interest rates higher will be the mortgage resets upcoming, and furthering the stall to restart is capital locked in Government bonds rather than real investments which the consumer cannot control in since he should decide who produces what in the first place.
http://generationaldynamics.com/forum/v ... start=1480

SAN FRANCISCO (Reuters) - California Gov. Arnold Schwarzenegger on Wednesday declared a fiscal emergency to force lawmakers into a special session to tackle a state budget gap that has widened to $26.3 billion from $24.3 billion after they failed to close it on Tuesday.
Democrats, who control the legislature, could not convince Republicans to either back their plans to tackle the shortfall or make a stopgap effort to ward off the IOUs. The two sides agree on the need for spending cuts, but are split over whether to raise taxes to help fill the gap.
http://generationaldynamics.com/forum/v ... 1490#p3506

As I see it still, the underlying driver that caused all this erosion was a lengthy period of cheap money. This crisis has a number of critical links in the casual chain, but the big failure is easy monetary policy by the Fed. Also true regional economic stability will be clubbed like a fur seal soon as in the past as some have survived in real time. The one size fits all policy will cause just as much of a mess as the 1980's in sectors. Just as the investment frauds are not revealed in good times, bad governments are not exposed until recessions. And so too Nobel-prize winning economists.
They need to fail before they destroy more. Living in your means is beyond the libtards abilities.
Paul Krugman sees the problem? Tue Jun 09, 2009 1:38 am

The seeds of California's current crisis were planted more than 30 years ago, when voters overwhelmingly passed Proposition 13, a ballot measure that placed the state's budget in a straitjacket. Even more important, however, Proposition 13 made it extremely hard to raise taxes, even in emergencies: no state tax rate may be increased without a two-thirds majority in both houses of the State Legislature.

Reality: A theory clearly 'too good to check'. State spending in the past two decades, as this Reason Foundation report spells out, has increased 5.37 percent a year (and nearly 7 percent for the past decade), compared to a population-plus-inflation growth rate of 4.38 percent.

http://reason.org/files/a2ec7caccc5d660 ... 6ef5f8.pdf
http://www.uslaw.com/library/Corporate_ ... ?item=7593

They just do not get it yet. There is nothing left.........................................
http://generationaldynamics.com/forum/v ... dens#p1687
There is no U.S. economic growth rate closer to 2 percent as opposed to the recent average of 3.5 percent. Total bullshit
Last edited by aedens on Thu Jul 02, 2009 5:03 am, edited 1 time in total.

greghaught
Posts: 30
Joined: Sat Jun 13, 2009 1:41 pm
Location: sacramento

Re: Financial topics

Post by greghaught »

aedens wrote: The seeds of California's current crisis were planted more than 30 years ago, when voters overwhelmingly passed Proposition 13, a ballot measure that placed the state's budget in a straitjacket. Even more important, however, Proposition 13 made it extremely hard to raise taxes, even in emergencies: no state tax rate may be increased without a two-thirds majority in both houses of the State Legislature.
please don't buy that. it's what the tax and spend crowd want you to believe. but it's just not true. they resent the state's initiative process that allows the residents to try (mostly unsuccessfully) to be heard in spite of their politicians. they want you to think we dont pay our fair share of taxes.

since prop 13, the state government of california has continued raising taxes using workarounds and loopholes until now we have the highest tax rate (personal and corporate) of any state in the country by far. dont believe me about that. google it. we also have a huge state lottery, the proceeds of which go to the state government general fund. due to fiscal mismanagement, our state government also now has the lowest credit rating of any state in the union. this excessive taxation and fiscal mismanagement has caused our state to drop from the 4th largest economy in the world all the way down to the 8th largest within the last 5 years.

our current budget crisis is not about the need for even more excessive taxation. it's all about our state government needing to have some semblance of stewardship and responsibility with the revenues that they already have. our politicians are feasting on the goose that lays the eggs.

the academics who vilify prop 13 are really vilifying the voters who are struggling to overcome incompetent government.

John
Posts: 11479
Joined: Sat Sep 20, 2008 12:10 pm
Location: Cambridge, MA USA
Contact:

Re: Financial topics

Post by John »

I forgot to mention. The last two pages of the Taibbi article also
contain some very interesting information about how the new global
trading "cap and trade" would becoming a bonanza for investment banks,
by securitizing the "carbon credits," turning them into derivatives,
and selling them to investors, taking a fat profit.

I wrote about this kind of thing before, when I wrote about Louis
Redshaw, Head of Environment Markets, Barclays Capital. I also quoted
Chris Leeds, head of emissions trading at Merrill Lynch & Co., who
said that he believes that carbon could become “one of the
fastest-growing markets ever, with volumes comparable to credit
derivatives inside a decade."

** UN Climate Change conference appears to be ending in farce
** http://www.generationaldynamics.com/cgi ... b#e071214b


It's hard to believe what an enormous scam this "cap and trade"
global warming bill is. As I've said many times, the same people who
created the credit crisis that we're all living through, and made
tens of millions of dollars in the process, are still in charge, and
the Obama administration and Congress are full of them, still scamming
and screwing all of us.

Sincerely,

John

mannfm11
Posts: 246
Joined: Thu Oct 09, 2008 11:14 pm
Location: DFW Texas
Contact:

Re: Financial topics

Post by mannfm11 »

I need to read some of this stuff, as it looking interesting. John's post about computers running the market up got me here tonight. I can buy some of it, but not all of it. Something was clearly trading 1 billion shares of BAC a day and it wasn't lots of 1000 coming through the system. But, the computers can only scalp each other for so long before players start going broke. I believe Goldman and those close to the action are front running trades. They know who and where the players are and for short periods of time they can force the hands in one direction or the other and swing their own trades. Look at the news. The idea that the news runs the market one way or the other is nonsense. Which news do you want to be valid. I have worked on this idea for awhile, like 11 years now. The futures market allows for unloading of sizable amounts of equivalent stock without ever touching the stock market. You might note how many opens reverse. Short term traders in futures have their hands forced, trust me. I did it for a year straight. While the public is being forced to cover their longs, Goldman is buying them out then marking up the market. They aren't paying $20 billion in bonuses because they are briliant and straight shooters. You might note the banks are claiming to be trading geniuses right now, as this is supposed to be how they turned their business around. The markets are being run like they wouldn't allow a casino to be run.

There is one thing about the markets. That is that once the market is figured out it changes. It has to change because the trade has two sides and everyone can't be on the same side. This is what contrary opinion is all about, that the shorts have to become longs and the longs have to become shorts. If Johns article has any plausibility, there will be a crash because buying stocks don't make them more valuable and the players are all on one side of the boat, just like they are in the oil markets. Anyone really believe oil should be going up in a depression? Remember the people selling to these guys are sellers, not buyers so why would they bail them out?

mannfm11
Posts: 246
Joined: Thu Oct 09, 2008 11:14 pm
Location: DFW Texas
Contact:

Re: Financial topics

Post by mannfm11 »

I agree greghaught. What created the California mess was the perception that the Wall Street fraud called the tech bubble would go on forever and produce massive tax revenue, along with the real estate bubble. Had prop 13 not been passed, many Californians would have been taxed out of their houses. Wait until the US government collaspes. We have the same idiots now running the country, the California looney tunes along with the NYC crooks.

The entire Constitutional basis of the USA has been destroyed by a select few. I just recommended the American people declaring war on Goldman Sachs on another site after reading that Taibbi article. Al Gore, the Clintons and others are nothing more than enemies of typical Americans. Few understand how much $20 billion is, but it is roughly $100 for every adult in the country. Can anyone even begin to imagine how an operation that produces almost nothing of value can draw that amount of money in payroll out of the typical person? Do you really believe that they don't have their finger in the California mess as well? It seems that Calpers gets schemed by Wall Street at every opportunity.

I read a link posted on another site in response to something I wrote yesterday. I am going to find it and post it here, but it was a website that showed who in goverment got money from whom. The Democratic party is the major receipient of money from Goldman Sachs. Christopher Dodd is literally on the payroll of Wall Street. Stanford is in jail for running a ponzi scheme because his banks can't deliver on demand. Neither can the banks operated by Goldman Sachs, Citicorp, Chase, Wells Fargo or any of the others, as the entire system is a ponzi scheme. That is what fractional reserve banking is. It appears that the government is now beholden to the money changers. Jesus Christ attacked one group, these money changing pigs. In fact, pigs are too good for them, worm is more like it. Feed lot worms at that.

It appears that maybe George Bush had such a hard time in the US and European press for good reason. He opposed the global warming bullcrap. It is no surprise that now that they have devised a means of extorting several hundred bilion a year for bankers to divide up out of the worlds population that global warming would be sold as the absolute truth. I believe it is as fictional as the Wizard of Oz. The power of the sun is too much for anything this minor to have this kind of effect. The big lie has been employed.

aedens
Posts: 4753
Joined: Tue Nov 04, 2008 4:13 pm

Re: Financial topics

Post by aedens »

greghaught wrote:
aedens wrote: The seeds of California's current crisis were planted more than 30 years ago, when voters overwhelmingly passed Proposition 13, a ballot measure that placed the state's budget in a straitjacket. Even more important, however, Proposition 13 made it extremely hard to raise taxes, even in emergencies: no state tax rate may be increased without a two-thirds majority in both houses of the State Legislature.
please don't buy that. it's what the tax and spend crowd want you to believe. but it's just not true. they resent the state's initiative process that allows the residents to try (mostly unsuccessfully) to be heard in spite of their politicians. they want you to think we dont pay our fair share of taxes.

since prop 13, the state government of california has continued raising taxes using workarounds and loopholes until now we have the highest tax rate (personal and corporate) of any state in the country by far. dont believe me about that. google it. we also have a huge state lottery, the proceeds of which go to the state government general fund. due to fiscal mismanagement, our state government also now has the lowest credit rating of any state in the union. this excessive taxation and fiscal mismanagement has caused our state to drop from the 4th largest economy in the world all the way down to the 8th largest within the last 5 years.

our current budget crisis is not about the need for even more excessive taxation. it's all about our state government needing to have some semblance of stewardship and responsibility with the revenues that they already have. our politicians are feasting on the goose that lays the eggs.

the academics who vilify prop 13 are really vilifying the voters who are struggling to overcome incompetent government.
That was Krugmans view not mine. Select the other links to view the rest of the story.

Paul Krugman sees the problem? Tue Jun 09, 2009 1:38 am

The seeds of California's current crisis were planted more than 30 years ago, when voters overwhelmingly passed Proposition 13, a ballot measure that placed the state's budget in a straitjacket. Even more important, however, Proposition 13 made it extremely hard to raise taxes, even in emergencies: no state tax rate may be increased without a two-thirds majority in both houses of the State Legislature.
====================================================================
From here my additions:
Reality: A theory clearly 'too good to check'. State spending in the past two decades, as this Reason Foundation report spells out, has increased 5.37 percent a year (and nearly 7 percent for the past decade), compared to a population-plus-inflation growth rate of 4.38 percent.

http://reason.org/files/a2ec7caccc5d660 ... 6ef5f8.pdf <-------------------------------------

http://www.uslaw.com/library/Corporate_ ... ?item=7593 <-------------------------------

They just do not get it yet. There is nothing left.........................................

http://generationaldynamics.com/forum/v ... dens#p1687

There is no U.S. economic growth rate closer to 2 percent as opposed to the recent average of 3.5 percent. Total bullshit

Sorry for the initial confusion on my part. We have been waiting for these policy disconnects to hurl the economy into total tailspin.

aedens
Posts: 4753
Joined: Tue Nov 04, 2008 4:13 pm

Re: Financial topics

Post by aedens »

malleni wrote:
wvbill wrote:We've talked about market manipulation in these forums...

A must see clip:

http://market-ticker.denninger.net/arch ... ation.html

Bill
Thanks Bill,
Great clip!
http://generationaldynamics.com/forum/v ... 1280#p3050 <------------ been on the radar at ZH

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