On the other hand, this post is as serious as they get.
On Wednesday we posted "Breaking--S&P 500 Could Go Up, Or Down!--Breaking" with the comment:
ZeroHedge is pretty smart, I hope I captured the spirit in which his post was offered.On Thursday the Wells Fargo news caught us leaning to the short side, not the most attractive positioning on a day the market pops 3%. For some reason I thought of Jesse Livermore in April 1906, on vacation, bored and shorting Union Pacific. The stock was going against him but, if Edwin Lefevre is to be believed, the great speculator was remarkably calm.
For now I'll go with Marc Faber's assessment:
Marc Faber: Up to 10% Retreat Before Rally Resumes
San Francisco City Hall after the 1906 Earthquake.
I can't say that I have the nerves of Mr. Livermore* but I've been at the market for quite a while, and although we've been comfy with a publicly published long bias since March 10, Thursday's up-move seemed odd. I still can't put my finger on why but the post below might be a pointer.First though some commentary on the insolvency that loomed over Krupp in April 1967, the then largest industrial concern in Germany. We first** posted this in 2007:
Liquidity in Business and Markets
Zerohedge has an important post up that should be read by anyone who is serious about the equity markets:'Liquidity is expensive but illiquidity is much more so, because it destroys the very existence of a firm"I don't remember if it was Johannes or Ernst, it was a long time ago that I read Manchester, quoting one of the Schroeder boys on the insolvency of Krupp. That line has stuck with me. Here's the book....
The Incredibly Shrinking Market Liquidity, Or The Upcoming Black Swan Of Black Swans
"Anyone who is doing anything sensible right now is either losing money or is out of the market entirely." These are the words of a quant trader, who is seeing something scary in the capital markets. Scary enough to merit a warning that we could be on the verge of another October 87, August 2007, or January 2008....The whole piece is put together in such a coherent and matter-of-fact style that it seriously spooked me.
...Following on the circumstantial evidence track, as Zero Hedge pointed out previously, over the past month, the Volume Weighted Average Price of the SPY index indicates that the bulk of the upswing has been done through low volume buying on the margin and from overnight gaps in afterhours market trading. The VWAP of the SPY through yesterday indicated that the real price of the S&P 500 would be roughly 60 points lower, or about 782, if the low volume marginal transactions had been netted out. And yet the market keeps on rising. This is an additional data point demonstrating that the equity market has reached a point where the transactions on the margin are all that matter as the core volume/liquidity providers slowly disappear one by one through ongoing deleveraging.
Unfortunately for them, this is not a sustainable condition.
As more and more quants focus on trading exclusively with themselves, and the slow and vanilla money piggy backs to low-vol market swings, the aberrations become self-fulfilling. What retail investors fail to acknowledge is that the quants close out a majority of their ultra-short term positions at the end of each trading day, meaning that the vanilla money is stuck as a hot potato bagholder to what can only be classified as an unprecedented ponzi scheme. As the overall market volume is substantially lower now than it has been in the recent past, this strategy has in fact been working and will likely continue to do so... until it fails and we witness a repeat of the August 2007 quant failure events... at which point the market, just like Madoff, will become the emperor revealing its utter lack of clothing....
...So when will all this occur? The quant trader I spoke to would not commit himself to any specific time frame but noted that a date as early as next Monday could be a veritable D-day. His advice on a list of possible harbingers: continued deleveraging in quant funds as per the charts noted above, significant pre-market volatility swings as quants rebalance their end of day positions, increasing principal program trading by Goldman Sachs on decreasing relative overall trading volumes, ongoing index VWAP dislocations....MORE
*We linked to the Jesse Livermore story in "Making Money the Jesse Livermore Way"
**I've used the Krupp story on two other occasions:
January 10, 2008
I'm Pissed at Merrill and Citigroup (MER; C)
September 15, 2008
Washington Mutual, Wachovia: Are Your Bank Deposits Safe? Not Exactly (WB; WM)
