On The Death Of Stat Arbitrage And The Sound And Fury Of Stocks, Signifying Nothing

Tyler Durden's picture

There was a time when the travesty that is capital markets had at least some logic to it. Then about a week ago, everything snapped when rumors that a major stat arb desk had blown up swept through the market, following days of ridiculous ongoing market action. Below we present a chart of the three major correlation factors: ES, the 2s10s30s butterfly, and the AUDJPY which historically have correlated around 0.9+. No more. One can clearly see the snap the occurred on Monday as the spreads between various assets no longer matter, correlate or are in any way relevant. Computers now trade stocks, but without any factors or signals. The market is one big robot on autopilot, buying blind through a fog in which every move it does is a Brownian motion inspired jerk. There is no longer any rhyme or reason to what stocks do (as opposed to before, when the rhyme and reason were just barely there) - it is only noise. Our suggestion, as has been the case for over a year - take your money to Vegas. Better odds, better fauna, better pool parties. As for that gold investment - the time to take first profits is coming soon... at around $2,000.