Archive - Aug 16, 2009 - Story

"Mr Cuomo, it's time to start asking some very hard questions about expert networks. With the SEC still reluctant to enforce anything against anyone, it has fallen on your office to provide justice to the small investors, to level the playing field. As a number of economic studies have shown, information assymetries can undermine stock markets and result in a critical loss of confidence and trust. Expert networks are a key mechanism to augment information assymetries, giving even more information to the hedge fund managers who already control so many of the cards on Wall Street."

Following up on the earlier piece about predicting financial bubbles is this paper, mostly for Taleb fans:

"The presence of a phase transition is crucial to learn how to diagnose in advance the symptoms associated with a coming dragon-king. Several examples of predictions using the derived log-periodic power law method are discussed, includingmaterial failure predictions and the forecasts of the end of financial bubbles."

The Financial Times is reporting that even as the FDIC probably managed to avert disaster by pushing off Colonial on to BB&T's lap on Friday, its troubles keep escalating. Sheila Bair is trying hard to sell Texas' Guaranty Financial ahead of a Monday deadline, however it may have used up its jokers on Colonial, which was supposed to be the "easy sell."

Recent trends indicate that the pick up in corporate finance transactions, especially in the equity capital market may be petering off. After hitting an unprecedented high in June as the market reached the head of what had previously been seen as a fake head and shoulders formation, the July afterburners in the secondary market did not translate into primary market strength. Additionally, the August run rate indicates that the primary market may well have peaked in the May-June timeframe.

An experiment in finance-fiction fusion.

The below chart sorts the over 350 names that make up the DTCC most liquid index, sorted from most risky to least risky.

The week ended August 7 indicated that Goldman's PT on the NYSE is regaining its dominance after in the prior week it came perilously close to being overtaken by Morgan Stanley (not so much in principal as in agency trading). In the last week 800 million prgram traded shares transacted each day, 26.9% of total buy-sell volume. Unfortunately the NYSE has removed how this compares on an average basis to a 52 week trailing average which last we checked was around 25%.

"As the US market is now back at fair value, I’ve been pondering what could drive the market higher. Jeremy Grantham provides some answers in his latest missive to clients. He argues that “the greatest monetary and fiscal stimulus by far in US history” coupled with a “super colossal dose of moral hazard” could generate a stock market rally “far in excess of anything justified by…economic fundamentals”. This viewpoint receives support from the latest finding from experimental economics. The evidence from this field shows that even amongst the normally well behaved ‘experienced’ subjects, a very large liquidity shock can reignite a bubble!" - Soc Gen

• Insider trading fears beset buying of toxic assets (TribLIVE)
• Retailers see back-to-school sales slowing (NYT, h/t Paul)
• The five core problems with the U.S. (Grandfather economic report, h/t Credit Trader)
• As of August 14, 2009, FDIC is bankrupt (Mish, also here)
• The treacherous path for housing - 42 percent of Cali mortgages with negative equity (Dr. Housing Bubble)