Financial topics

[John]

> john, i've been wrong before. but there's one thing that i know
> for sure, beyond any doubt. in the market, losers always have an
> excuse and a scapegoat and want change. the real winners just
> continue on about the business of continually adapting and
> winning.

> what Mr. Saluzzi wants is just a another form of market
> manipulation for his benefit. that's fine with me. i dont care.
> for me, manipulated markets trade just as profitably as the
> unmanipulated.

Perhaps I should have emphasized this more, but I agree with you that
regulations shouldn't be imposed, or at least that regulations are
irrelevant. This is something I've written about frequently -- that
regulation has very little use. The regulations that were put in
place during the 1930s could have prevented the current financial
crisis, but as soon as they began to conflict with generational
attitudes and behaviors, they were ignored or repealed.

From the point of view of Generational Dynamics, what we're seeing is
typical of unraveling and post-unraveling periods. It's not that
there's anything wrong with the fundamental techniques -- whether
structured derivatives or programmed trading -- but that there's an
abandonment of all sanity and sense. It's like the difference
between someone who drinks a little wine with dinner, versus someone
else who gets stone cold drunk every night.

Higgie says, "In the big big picture, nothing at all has been learned
in the past 2 years," and that's absolutely right. These people
believe that the current financial crisis was CAUSED by the failure
of the Fed to prevent Lehman's collapse, and that the crisis was
CURED by flooding the economy with stimulus money. It's like
believing that alcoholism can be CURED by flooding the patient with
more alcohol.

Sincerely,

John

[sadhic]

Nervous China may attack India by 2012: Expert
PTI 12 July 2009, 07:03pm IST
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A leading defence expert has projected that China will attack India by 2012 to divert the attention of its own people from "unprecedented" internal



"China will launch an attack on India before 2012. There are multiple reasons for a desperate Beijing to teach India the final lesson, thereby ensuring Chinese supremacy in Asia in this century," Bharat Verma, Editor of the Indian Defence Review, has said.

Verma said the recession has "shut the Chinese exports shop", creating an "unprecedented internal social unrest" which in turn, was severely threatening the grip of the Communists over the society.

Among other reasons for this assessment were rising unemployment, flight of capital worth billions of dollars, depletion of its foreign exchange reserves and growing internal dissent, Verma said in an editorial in the forthcoming issue of the premier defence journal. In addition to this, "The growing irrelevance of Pakistan, their right hand that operates against India on their behest, is increasing the Chinese nervousness," he said, adding that US President Barak Obama's Af-Pak policy was primarily Pak-Af policy that has "intelligently set the thief to catch the thief".

Verma said Beijing was "already rattled, with its proxy Pakistan now literally embroiled in a civil war, losing its sheen against India." "Above all, it is worried over the growing alliance of India with the US and the West, because the alliance has the potential to create a technologically superior counterpoise.

"All these three concerns of Chinese Communists are best addressed by waging a war against pacifist India to achieve multiple strategic objectives," he said.

While China "covertly allowed" North Korea to test underground nuclear explosion and carry out missile trials, it was also "increasing its naval presence in South China Sea to coerce into submission those opposing its claim on the Sprately Islands," the defence expert said. He said it would be "unwise" at this point of time for a recession-hit China to move against the Western interests, including Japan.

"Therefore, the most attractive option is to attack a soft target like India and forcibly occupy its territory in the Northeast," Verma said. But India is "least prepared" on ground to face the Chinese threat, he says and asks a series of questions on how will India respond to repulse the Chinese game plan or whether Indian leadership would be able to "take the heat of war".

"Is Indian military equipped to face the two-front wars by Beijing and Islamabad? Is the Indian civil administration geared to meet the internal security challenges that the external actors will sponsor simultaneously through their doctrine of unrestricted warfare? "The answers are an unequivocal 'no'. Pacifist India is not ready by a long shot either on the internal or the external front," the defence journal editor says. In view of the "imminent threat" posed by China, "the quickest way to swing out of pacifism to a state of assertion is by injecting military thinking in the civil administration to build the sinews. That will enormously increase the deliverables on ground – from Lalgarh to Tawang," he says.

[John]

-- Market Summary, Monday, July 13, 2009, 3:30 pm

Everyone is talking today about Meredith Whitney's positive
statements about Goldman Sachs, which is expected to have very high
Q2 earnings, and how it's pushing the stock market up.

Nobody is talking about whether Goldman Sachs is generating these
high earnings through programmed trading (high frequency trading).

On the other hand, I've heard and read lots of people who say that
the economy is worsening, unemployment is worsening, the stimulus
isn't working, and so forth, and that they're being a lot more
"defensive," investing in cash or Treasuries.

During bubble growth times in the past, everyone was very positive
about earnings for the next couple of quarters, but that's not true
this time.

So how could the market be surging if everyone is so negative?

I see this as possible circumstantial evidence supporting the claim
that the current market bubble is being driven entirely by what I
called "the Bubble Algorithm." Program trading algorithms don't care
what earnings are going to be next quarter. All they care about is
whether they can make a quick killing in the next few milliseconds.

If this is true, and I believe that the probability is high, then
it's a further demonstration of how overwhelmingly distorted the
market is today, and how far it is from any semblance of reality.

John

[John]

-- Interview with Seth Merrin, CEO, Liquidnet

On Bloomberg TV, July 13, 2009, 5:40 pm ET

> The institutional trading certainly has tailed off tremendously.
> It's a reflection of what's going on in the market and the economy
> today. There's a huge runup as we know, in a very short period of
> time, and lots of institutions actually caught it well, and they
> are done for the year. They might be up 20%, 30% and they want to
> go home.

> And then there are the others that did not catch it, and at these
> levels, they're concerned about diving in right now. Everybody
> seems to be waiting for more economic news at least to give some
> direction, whether it's up or down, so they know what to do. ...

> [Yes, we're seeing different kinds of traders.] Absolutely. In
> fact, there is a new constituent that's come in that is now
> dwarfing all the other constituents combined. It used to be
> institutional trading, retail trading, and market-making trading.

> And that was what made up the trading. Today, 2/3 of the trading
> are none of those. 2/3 of the trading are high frequency trading.
> ...

> It's tough to say [how it's affecting volatility]. There are
> reports that high frequency trading exacerbates volatility, but
> it's really tough to pinpoint. You know, high frequency trading
> can be broken down into different kinds of trading itself. But
> it's a whole new constituent that's in fact adding liquidity to
> the market today.

The more I hear, and the more I read, the more I believe that
something really incredible and breathtaking is going on. The
explosion of high frequency trading (program trading) is creating a
situation that's unique in history, and was completely unknown even
two years ago.

Stein's Law: If something cannot go on forever, then it won't.

John

[John]

A great article on the housing bubble by Mish Shedlock:

Housing Update - How Far To The Bottom?
http://globaleconomicanalysis.blogspot. ... ottom.html

Don't miss the quotes from 2005 on why the housing bubble will never
end.

John

[greghaught]

If this is true, and I believe that the probability is high, then
it's a further demonstration of how overwhelmingly distorted the
market is today, and how far it is from any semblance of reality.

it seems to me that your using a contradiction as support.

Reality, n.
1. The state or quality of being real; actual being or
existence of anything, in distinction from mere
appearance; fact.
[1913 Webster]

A man fancies that he understands a critic, when in
reality he does not comprehend his meaning.
--Addison.
[1913 Webster]

2. That which is real; an actual existence; that which is not
imagination, fiction, or pretense; that which has
objective existence, and is not merely an idea.
[1913 Webster]

reality is what is actual, what is. the market IS reality. ideas about the market aren't reality. from the very beginning of markets, people have speculated as to whether the market is right or whether it's wrong. those opinions are as irrelevant today as they've ever been.

your 1099 form is another reality. if you dare disagree with the market, your 1099 will show you who's right.

[freddyv]

-- Market Summary, Monday, July 13, 2009, 3:30 pm

Everyone is talking today about Meredith Whitney's positive
statements about Goldman Sachs, which is expected to have very high
Q2 earnings, and how it's pushing the stock market up.

Nobody is talking about whether Goldman Sachs is generating these
high earnings through programmed trading (high frequency trading).

On the other hand, I've heard and read lots of people who say that
the economy is worsening, unemployment is worsening, the stimulus
isn't working, and so forth, and that they're being a lot more
"defensive," investing in cash or Treasuries.

During bubble growth times in the past, everyone was very positive
about earnings for the next couple of quarters, but that's not true
this time.

So how could the market be surging if everyone is so negative?

I see this as possible circumstantial evidence supporting the claim
that the current market bubble is being driven entirely by what I
called "the Bubble Algorithm." Program trading algorithms don't care
what earnings are going to be next quarter. All they care about is
whether they can make a quick killing in the next few milliseconds.

If this is true, and I believe that the probability is high, then
it's a further demonstration of how overwhelmingly distorted the
market is today, and how far it is from any semblance of reality.

John

I have recently heard about an article in Rolling Stone about Goldman Sachs and today Richard Russell had a quote from it:

As complex as all the finances are, the politics aren't hard to follow. By creating an urgent crisis that can only be solved by those fluent in a language too complex for ordinary people to understand, the Wall Street crowd has turned the vast majority of Americans into non-participants in their own political future. There is a reason it used to be a crime in the Confederate states to teach a slave to read: Literacy is power. In the age of the CDS and CDO, most of us are financial illiterates. By making an already too-complex economy even more complex, Wall Street has used the crisis to effect a historic, revolutionary change in our political system- transforming a democracy into a two-tiered state, one with plugged in financial bureaucrats above and clueless customers below.

I feel like I know just enough to know what's going on and I think this quote sums it up pretty nicely. When I talk to people I know about this they all seem to be quite willing to believe me when I tell then that they are being stolen from by those running our government and those running our financial institutions but that's where it ends. They don't understand the complexities or what they can do.

But I'm a great believer in simplicity and basic truths and I think that the reason these people tune out so quickly is because the answer lies with them and to stop the stealing means calling out the very people who have been sharing the ill-gotten gains with them. As long as the thieves (the powers that be) can keep blowing some kind of bubble and pass along a bit to the common man the common man will continue to allow it.

As I'm explaining this to someone and starting to get excited about it I always come to the point about how this is happening not in some smokey room but right out in open, televised for all to see, and I see that the person just sort of shuts off. It's as if they have to allow it if it's on TV because that's what it's all about - In a society in which Michael Jackson's death is almost the only thing on TV for days and even weeks on end, can you doubt it?

--Fred

[John]

-- Market Summary, Tuesday, July 14, 2009, 11 am

Art Cashin on CNBC this morning was quite vehement in repeating his
forecast of last week that there will be a lot of market clarity --
one way or the other -- by Friday of this week, as earnings reports
come pouring in.

Although he allowed for an upward surge, I got the strong feeling that
he was expecting a downward correction, despite the big Goldman Sachs
victory.

CNBC Earnings Central is reporting a sharp plunge in Q2 earnings
estimates in the last week.
http://www.cnbc.com/id/15839135/site/14081545/

John

[John]

11:35 am Update:

I just heard a Deutsche Bank analyst say that "street" expectations
for earnings this week are considerably higher than analysts'
estimates. He added that a further rally based on good earnings
reports is unlikely, since good earnings are already priced in.

John

[Samir]

The battlebots of Wall Street

Other people are reporting about the "high-frequency trading" going on.

As reported by the Financial Times, Tabb Group, a consultancy, says that "high-frequency trading" firms are driving "almost three quarters of all U.S. equities trading volume." As recently as five years ago, such trading accounted for less less than one-quarter of all volume.

You really need to read all of the little link in the blog to get the full story. I wouldn't doubt that Goldman Sachs has been using such programs to earn their huge profits.