Archive - Apr 4, 2014

On Monday, in "High Frequency Trading: Why Now And What Happens Next" we predicted that "the high freaks are about to become the most convenient, and "misunderstood" scapegoat, for when the market finally does crash. Which means that those HFT-associated terms which very few recognize now, especially those on either side of the pro/anti-HFT debate who have very strong opinions but zero factual grasp of the matter, such as the following:

• Layering: multiple, large orders are placed passively with the goal of “pushing” the book away

Of course, another name for "layering" is "spoofing" which is precisely the term that the SEC used today when it announced that it charged the owner of a New Jersey-based trading firm and several other defendants "in a scheme to manipulate the market through an illegal practice known as "spoofing."

"Stock-Picker's Market" is the term we hear again and again, but, as Cliff Asness blasted "I think they mean, "We will have to pick stocks now because the market isn’t making us money the easy way." As the following chart shows, the picture for most people's portfolios is a very different one from the index all-time highs that are tritted out day after day as indicative of the wealth that the Fed has created. As Asness concluded, perhaps talking-heads should more honestly explain, “Our market-timing forecasts are mostly useless most of the time, but right now, they are completely useless,” as the average member of the S&P 500 is 6.5% off its highs (as the index pushes ahead).

A sneak peak...

While the West and Russia exchange sanctions in a tit-for-tat 'do no real damage' process, the rhetoric between Ukraine and Russia is escalating from words to deeds in some cases. As The FT reports, Russia detained 25 Ukrainian citizens on suspicion of plotting terror attacks (on Russian soil) and claimed to have information that the Ukrainian Right Sector movement was to “carry out subversive and terrorist acts” in seven Russian regions. Ukraine retaliated with claims it had evidence that implicated dozens of Russian Federal Security Bureau agents in a crackdown on anti-government protesters in February that left more than 100 demonstrators dead, many from police sniper fire, which Russia's FSB denied. NATO proclaimed it all "just propaganda and disinformation."

According to this chart from JPM the market's forward P/E ratio now is precisely 15.2x. What was it at precisely the last bubble peak on October 9, 2007? 15.2x.

We get a modest sell-off... and the market breaks. As the popular saying goes: "the market may be rigged, but at least it's broken."

Earlier today, four "buzzing" US-based IPOs priced, raising hundreds of millions in cash, namely GrubHub ($193 million), OPower ($116 million), Five9 ($70 million), and Corium ($52 million), for a grand total of nearly half a billion in proceeds. So how much actual net income do these supposedly post-VC stage companies generate? Instead of boring readers with more numbers, here is a simple chart.

Presented with no comment:

TWTR -43% (from highs); Pandora -30%
NFLX -25%; AMZN -22%
FB -20%; Biotech -17%

The global Central Banks are relying increasing on verbal intervention. The reasoning here is very simple: actual monetary policy is proving to have marginal effects. In the US, every new wave of QE has had less and less impact on the stocks.

UPDATE: Nasdaq negative year-to-date; Biotechs 3-month lows. AMZN, FB, TWTR, NFLX, P all in Bear market territory

Shortly after 946amET, the stock of The Nasdaq OMX Group suddenly dropped in a mini-flash-crash from from 35.98 to 35.00 in just over 2 seconds on approximately 100,000 shares. As Nanex notes, this is what high-frequency-trading liquidity looks like. But now, an hour or so later, the Nasdaq index and most especialy its Biotech and high-growth names are being crushed. Biotechs are near 3-month lows, Momos are down 16 to 18% since FOMC, and Nasdaq is about to go negative for the year.

Is there any hope that we might actually elect a president with the mandate and courage to take down Wall Street instead of kissing its rear end in humiliating obeisance? The 2016 presidential election may be far away to those obsessed with the news cycle, but it's not too early to express one single hope: that we finally elect a president who doesn't kiss Wall Street's rear end every single day for four/eight years running. Either the next president issues an executive order (or whatever it takes) to enact these four administrative rules, or he/she is kissing Wall Street's rear end every single day of his/her administration.

Update: in direct flashback from the summer of 2011 when the ECB leaked news only to retract it within minutes, this just happened: CONSTANCIO: DOESN'T KNOW ABOUT 1 TLN-EURO QE MODEL REPORT

When in desperate need to crush your currency (being bought hand over fist by the Chinese), so urgently need to boost German exports, since you are unable to actually do QE as per your charter, what do you do if you are Mario Draghi? Well, you leak, leak, leak that you are contemplating QE, and then you leak some more. Such as today.

• ECB HAS MODELED BOND PURCHASES UP TO 1 TLN EUROS, FAZ SAYS
• ECB TESTS SHOW INFLATION COULD BE BOOSTED 0.2% TO 0.8%: FAZ

Like US inflation soared on the $1 trillion QEternity? Can't wait. In other news, expect zero reaction from gold on this latest news that another $1.4 trillion in fiat is about to flood the market. If only inbetween Mario Draghi's jaw bones.

The current rally off the 2009 lows is echoing rather strongly the surge off the 1982 lows and lining up uncomfortably close to the Black Monday Crash that took the S&P 500 down over 20% in 1987. Of course, it's always different this time; but the market's confidence that the Fed has your back and that computers are there to help not hinder leaves us with an uncomfortable feeling of deja vu all over again.

Another day, another pre-market pump and post-open dump... it seems a missed jobs number and a determined Fed is not a recipe to maintaining all-time record highs and hyper-growth expectations...