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The Incredibly Shrinking Market Liquidity, Or The Upcoming Black Swan Of Black Swans

Tyler Durden's picture




 

"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.

Let's back up. I recently posted a chart which tracks equity market neutral strategies: in essence a cross section of quant funds for which there is public performance tracking. The chart is presented below.

There is not much publicly available data to follow what goes on in the mystery shrouded quant world. However, another chart that tracks the market neutral performance is the HSKAX, or the Highbridge Statistical Market Neutral Fund, presented below. As one can see we have crossed into major statistically deviant territory, likely approaching a level that is 6 standard deviations away from the recent norms.

What do these charts tell us? In essence, that there is a high likelihood of substantial market dislocations based on previous comparable situations. More on this in a second.

Why quant funds? Or rather, what is so special about quant funds? The proper way to approach the question is to think of the market as an ecosystem of liquidity providers, who, based on the frequency of their trades, generate a cushioning to the open market trading mechanism. It is a fact that the vast majority of transactions in the market are not customer driven buy/sell orders, but are in fact high frequency, small block trades that constantly cross between a select few of these same quant funds and program traders.

This is a market in which the big players are Renaissance Technologies Medallion, Goldman Sachs and GETCO. Whereas the first two are household names, the last is an entity known primarily to quant market participants. Curiously, the Philosophy section in GETCO's website exactly captures the critical role that quant funds play in an "efficient" market.

What’s good for the market is good for GETCO

GETCO’s strategy is to align our business plan with what is best for the marketplace. We earn our revenues by providing enhanced liquidity and efficiency to electronic financial markets, which in turn results in lower costs for market participants (e.g. mutual funds, pension funds, and individual investors).

In addition to actively trading, we partner with many exchanges and their regulators to increase transparency throughout the industry and to create more efficient means for the transference of financial risk.

A good example to visualize the dynamic of this liquidity "ecosystem" is presented below.

In order to maintain market efficiency, the ecosystem has to be balanced: liquidity disruptions at any one level could and will lead to unexpected market aberrations, such as exorbitant bid/ask margins, inability to unwind large block positions, and last but not least, explosive volatility: in essence a recreation of the market conditions approximating the days of August 2007, the days post the Lehman collapse, the first November market low, the irrational exuberance of the post New Year rally, and the 666 market lows.

The above tracking charts indicate that something is very off with the "slow", "moderate" and "fast" liquidity providers, indicating that liquidity deleveraging is approaching (if not already is at) critical levels, as the vast majority of quants are either sitting on the sidelines, or are merely playing hot potato with each other (more on this also in a second). What this means is that marginal market participants, such as mutual and pension funds, and retail investors who are really just beneficiaries of the liquidity efficiency provided them by the higher-ups in the liquidity chain, are about to get a very rude awakening.

Also, it needs to be pointed out that the very top tier of the ecosystem is shrouded in secrecy: conclusions about its state can only be implied based on observable metrics from the HSKAX and HFRXEMN. It is safe to say that any conclusion drawn based upon observing these two indices are likely not too far off the mark.

Skeptics at this point will claim that it is impossible that quant and program trading has such as vast share of trading. The facts, however, indicate that not only is program trading a material component of daily volumes, it is in fact growing at an alarming pace. The following most recent weekly data from the New York Stock Exchange puts things into perspective:

According to the NYSE, last week program trading was 8% higher than the 52 week average, which on almost 4 billion shares is a material increase. It is probably safe to say that the 1 billion in program trades last week does not account for significant additional low- to high-frequency trades originated at non NYSE members, implying the real number for the overall market is likely even higher. Some more program trading statistics: principal trading is running 21% above 52 week average, agency trading is 11% below average, while NYSE weekly volume is running about 9% below 52 wk average.

A very interesting data point, also provided by the NYSE, implicates none other than administration darling Goldman Sachs in yet another potentially troubling development. The chart below demonstrates the program trading broken down by the top 15 most active NYSE member firms. I bring your attention to the total, principal, customer facilitation and agency columns.

Key to note here is that Goldman's program trading principal to agency+customer facilitation ratio is a staggering 5x, which is multiples higher than both the second most active program trader and the average ratio of the NYSE, both at or below 1x. The implication is that Goldman Sachs, due to its preeminent position not only as one of the world's largest broker/dealers (pardon, Bank Holding Companies), but also as being on the top of the high-frequency trading/liquidity provision "food chain", trades much more often for its own (principal) benefit, likely in tandem with the other top dogs on the list: RenTec, Highbridge (JP Morgan), and GETCO. In this light, the program trading spike over the past week could be perceived as much more sinister. For conspiracy lovers, long searching for any circumstantial evidence to catch the mysterious "plunge protection team" in action, you should look no further than this.

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 what happens in a world where the very core of the capital markets system is gradually deleveraging to a point where maintaining a liquid and orderly market becomes impossible: large swings on low volume, massive bid-offer spreads, huge trading costs, inability to clear and numerous failed trades. When the quant deleveraging finally catches up with the market, the consequences will likely be unprecedented, with dramatic dislocations leading the market both higher and lower on record volatility. Furthermore, high convexity names such as double and triple negative ETFs, which are massively disbalanced with regard to underlying values after recent trading patterns, will see shifts which will make the November SRS jump to $250 seem like child's play.

For readers curious about just how relevant liquidity is in the current market, I recommend another recent post that discusses DE Shaw's opinion on the infamous basis trade, in which their conclusion was that establishing a basis trade, which is effectively the equivalent of selling a put option on market liquidity, ended up in massive financial carnage as the market rolled from one side of the trade to another. Is it possible that what the basis trade was for credit markets (most notably Citadel, Merrill and Boaz Weinstein), so the quant unwind will be to equity markets?

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. One thing is for certain: the longer the divergence between real volume trading/liquidity and absolute market changes persists, the more memorable the ensuing market liquidity event will be. At the end of the day, despite the pronouncements by the administration and more and more sell-side analysts that the market is merely chasing the rebound in fundamentals in what has all of a sudden become a V-shaped recovery, the "rally" could simply be explained by technical factor driven capital-liquidity aberrations, which will continue at most for mere weeks if not days.

 

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Sat, 04/11/2009 - 20:47 | 1899 Anonymous (not verified)
Anonymous's picture

HB @4:12pm,
Joking?

Martin Armstrongs predictions.

Marty Armstrong has predicted market crashes right to the day.

Do people like 'Tyler' and his crack team at GS formulate markets and panic around Marty's longstanding predictions??

Look at section 'The Economic Confidence Model in 2.15-year intervals'

http://www.contrahour.com/contrahour/2007/03/free_martin_arm.html?no_pre...

A SeekingAlpha article not written directly by Tyler:
http://seekingalpha.com/article/103613-on-martin-armstrong-s-it-s-just-time

I call BS.

Sat, 04/11/2009 - 20:58 | 1900 Anonymous (not verified)
Anonymous's picture

anon @ 4:47

You mean that ZH is trying to beat Martin Armstrong to the punch?

In effect leverage his Intellectual Property and claim it as their own by using some cock-a-mayme market neutral theory? No?

Sat, 04/11/2009 - 21:41 | 1901 Anonymous (not verified)
Anonymous's picture

To "Anonymous who said "Here's a crude analysis of recent NYSE program trading patterns and GS's role." this is an example of folks taking statistical data and look for the trees in the forest -- none can be found.

If GS takes over 26% of PT volume on NYSE, shares steadily increasing from beginning of the year -- if this doesn't mean that props are trading with props, what else will? ITG reports of a 17% decline in commission revenues due to volume shift from traditional money managers to lower priced DMA mostly used by systematic traders confirms that as well.

Now the same poster assumes that volume equals liquidity. It does not! High one sided volume doesn't constitute liquid market, just on opposite. In liquid markets, large trades can be executed with minimal, consistent with long-term-averages, market impact. Trading costs in the past few weeks could be the highest since late Sept to Nov of 08 period. Individual names moving 10%, 20%, 30% and more a day (look at Textron spike on unsubstantiated takeover rumors) is not what happens in liquid markets.

Statistics, apparently can deceive some but not all. Death rate is 100% for those who died and 0% for those who survived. Need evidence for that?

Sat, 04/11/2009 - 22:11 | 1902 Anonymous (not verified)
Anonymous's picture

Anonymous April 10, 2009 6:57 PM said...

"Big liquidation triggers hedge-fund turmoil
Some compare upheaval to LTCM collapse; market-neutral funds are hit hard"
Last update: 6:46 p.m. EDT Aug. 9, 2007

the article you referenced was from August 2007

Sat, 04/11/2009 - 22:44 | 1903 tyler too (not verified)
tyler too's picture

to unduly focus on armstrong's predictions is to miss the genius of armstrong's writings.

same with ZH.

same with anyone actually.

mix and match and learn and think for yourself.

Sat, 04/11/2009 - 23:34 | 1904 Anonymous (not verified)
Anonymous's picture

T2,
Nice ego. Trust me, you'll never be in the same category as Marty. Not in genius nor principle. Very few are that far up the food chain.

Best of luck.

Sun, 04/12/2009 - 00:50 | 1905 The Contrarian (not verified)
The Contrarian's picture

I have been reading the recent postings of Martin Armstrong - Destroying Capital Formation: Economic Suicide - http://jsmineset.com/index.php/2009/04/06/martin-armstrongs-most-recent-... He is looking at a probable cascade in equities down to about DJIA 4000 and S&P500 falling to 460 this northern summer. His economic confidence model has a turn date of 19th of April. See how his work matches yours.

Sun, 04/12/2009 - 01:11 | 1906 Anonymous (not verified)
Anonymous's picture

as someone who has worked in PT (program trading) for 3 major brokers in the last 12 years, I have to note that the NYSE PT stats do not include high frequency trading. Those are baskets traded by the PT desk either principally (risk bids, guaranteed vwap, efps, or index arb). All high frequency trading isnt reported in that manner, so good try. The consiparacy theory doesnt work. The 1,152.7 figure could simply be a couple big risk trades which were taken down over the week or a sizable EFP (exchange for physical). While the risk trades could have a delta to them and be involve rebalancing from Quants, many other types of accounts use these trades (mutual funds, transition managers, and pension funds). Further the can just be an efp which would have none as the customer was transitioning from futures to a basket or back. Further, these numbers have been around for years and each desk reports them differently. And with regard to Quants trading, I think you are referring more to Stat Arb strategies then the Quant accounts that PT desks deal with. The accounts that you are referring to can trade on their own through DMA (direct market access) which isnt Program Trading. Or they can use futures.

Sun, 04/12/2009 - 01:18 | 1907 Anonymous (not verified)
Anonymous's picture

Hey if M. Armstrong is so smart why is he in jail?

If you're really smart you never go to jail. Somebody that works for you instead goes to jail.

Sun, 04/12/2009 - 01:33 | 1908 Anonymous (not verified)
Anonymous's picture

Only through disaster can we be resurrected. It's only after a fund's lost everything, that it's free to do... umm.... well, free to shut down I guess.

Sun, 04/12/2009 - 01:38 | 1909 chrispycrunch (not verified)
chrispycrunch's picture

Your hard work and analysis is mind-bloggling, impressive, and appreciated.

May I look at the $VIX to confirm your prediction? I see VIX falling, not rising. Would this give some pre-indication of what is to come?

http://stockcharts.com/charts/gallery.html?$VIX

Sun, 04/12/2009 - 01:40 | 1910 del (not verified)
del's picture

Interesting insider stuff here that as an academic social scientist I've often wondered about but didn't know about, but at least in the comments section I'm also noticing some crummy academic social science . . . e.g., "when stocks fall by x% the stocks/gold ratio always (N=3?) goes to y . . ."

So as long as mediocre social science is on the table, what about the mediocre social science that says don't fight the Fed (much less the conspiratorial Fed) and/or don't fight the Yield Curve? See Pu Shen, "Market Timing Strategies that Worked" and/or Resnick and Shoesmith, "Using the Yield Curve to Time the Stock Market."

Why can't things just go on until the Fed changes course?

Sun, 04/12/2009 - 02:01 | 1911 The Contrarian (not verified)
The Contrarian's picture

Re: Martin Armstrong. There is a difference between smart and cunning. Let us see what happens this April.

Sun, 04/12/2009 - 02:02 | 1912 traderedart (not verified)
traderedart's picture

This is why you study charts, not fundamentals.
Are you telling me that after a 1500pt rally the market is wrong?
Look again at your equity charts in a month or so, then modify your analysis.
Bear market rallies are hard and vicious. Bear markets spare nobody.
I'm long the market since 6500, and so far I've been right.
Why would I sell here?

Sun, 04/12/2009 - 02:36 | 1913 The Contrarian (not verified)
The Contrarian's picture

Charts only map the trend, they do not plot the turn. If liquidity dries up, whatever the cause, the markets will turn down. I am waiting for a re-test of the market lows.

Hold your shares if you like. Even if there is a re-test of the lows the market will come back and any losses will disappear. Your only loss will be an opportunity loss, just as mine is now.

Sun, 04/12/2009 - 02:51 | 1914 del (not verified)
del's picture

I agree that liquidity matters, but isn't the Fed committed to providing it at all costs?

I'm just trying to get a handle on what Tyler et al. are predicting here . . . note that, almost by definition, the "Black Swan of Black Swans" wouldn't be "another" anything, and while I'm 93% in cash myself I think many folks who are long could easily handle, to quote Tyler, "another August 2007, or January 2008."

Sun, 04/12/2009 - 04:03 | 1915 Minh (not verified)
Minh's picture

Terminator 2 collapsed when its internal liquid velocity (V as in MV=QP)was reduced to zero. Is this article a hit-piece like Schwarzenegger's bullet ?

Where is the external source of heat ?

Sun, 04/12/2009 - 06:21 | 1916 Anonymous (not verified)
Anonymous's picture

blog is usually good but this bad analysis and poor quality of information is a real discredit to yourself.

it seems like you haven't been around that long. take it slower

Sun, 04/12/2009 - 08:45 | 1917 Anonymous (not verified)
Anonymous's picture

and in the last days will come ungodly men, wicked of heart, unloving, unkind, walkers after their own lusts, uncaring, indifferent to human suffering, mockers of all that is graceful, hell beings, devoid of conscience, reprobate, incapable of love.

Sun, 04/12/2009 - 11:18 | 1918 Anonymous (not verified)
Anonymous's picture

Minh,
"Terminator 2 collapsed when its internal liquid velocity (V as in MV=QP)was reduced to zero."
-->Right on Minh, T's algorithm did not properly deal with V and he's stuck at the bottom of the V that is on the chart. LoL.

"Is this article a hit-piece like Schwarzenegger's bullet ?"
-->Yes, it's just a little tippi for the Tippi Canoe.

Where is the external source of heat ?
-->Maybe friction caused by bears rubbin' bulls the wrong way?

Sun, 04/12/2009 - 13:22 | 1919 Anonymous (not verified)
Sun, 04/12/2009 - 13:40 | 1920 hooligan (not verified)
hooligan's picture

I equate this blog to an explanantion of part of the big bang theory against "let there be light". What is disturbing is that GS is the only player left in the market, with its operators either "last men standing" or probably more accurately, the proof that market prices are easily manipulated by fear and greed bullies. What would happen to your models if the next prices was the weighted average of market cap and traded cap divided by outstanding shares? Probably a fairer value, so let's not go there hey?

Sun, 04/12/2009 - 14:48 | 1921 Stock Market Club (not verified)
Stock Market Club's picture

Fantastic post. I just found your blog and will post up links for you!

Sun, 04/12/2009 - 15:49 | 1922 Anonymous (not verified)
Anonymous's picture

All rallies start on low volume; all rallies are started by "fast liquidity providers"... who else is going to start a rally? Retail investors?

The pryamid labelled "market liquidity ecosystem" is upside down in my opinion. The big guns are the base of the market, and when they start a rally, their game plan is to get momentum going in price which will then suck in money from the other liquidity provders, fund and eventually retail.

The idea is for the big guns to sell their last long share to the stupid retail investors, those who realize long after most there is a rally.

Then they start shorting to the REALLY stupid retail investors until retail money flow is basically used up. And then? Down goes price in the absence of any bid.

Hit bottom and repeat.

Sun, 04/12/2009 - 16:46 | 1923 Anonymous (not verified)
Anonymous's picture

Liquidity is leaving the market. I can tell for a fact that major public pension plans are canning their sec lending programs for various reasons. One being the collateral pools are under water and now will have to MTM the differnece in thier annual reports. This amount is going to be staggering and makes most funds believe (rightly so) they are getting paid very little to take that kind of vol risk on the total portfolio. A good many major plans are slowy unwinding the programs. This will have major implications for market liquidity going forward.

RH

Sun, 04/12/2009 - 18:05 | 1924 Anonymous (not verified)
Anonymous's picture

Interesting charts and stats but I agree with the other posters who feel that the conclusions may be not so well thought out. As someone pointed out, I think you need to draw a better distinction between stat arb strategies and liquidity providers, i.e. between those betting on certain statistical phenomena versus those generating revenues from providing the market with liquidity. It's true that as you move towards high-frequency trading, certainly more and more of your business revolves around liquidity provision. And yes these things are certainly related in some sense and some firms have figured out how to blend the two. But, they are still separate phenomena - one is a market inefficiency whilst the other is a compensated service to the market.

Your point seems to be that stat-arb has not worked well this year (true) and so these strategies are being scaled back (true), and there is overlap between those doing stat-arb and providing liquidity (true), and therefore there will be less liquidity in the market (plausible), and that therefore the market will drop. I follow all points up until the last - can you please expand on why you feel the first points imply the last?

Other related questions for you/readers:
- I heard that very high-frequency mean-reversion strategies underperformed by quite a bit in Feb. Any thoughts as to why this happened?

- As other readers pointed out, EVERYONE and their grandmother are going into high-frequency trading. What are the implications for the market/liquidity/quant strateiges etc.?

Sun, 04/12/2009 - 18:07 | 1925 Anonymous (not verified)
Anonymous's picture

Can someone explain how to find historical Program Trading Purchases and Sales PDF's on the NYSE website? The best I have been able to come up with is to search for Market Analytics & Planning which brings me to this page:
http://www.nyse.com/cgi-bin/google.pl?site=nyse&output=xml_no_dtd&client...

This doesn't help much. I am looking for a link to the page that lists all of P&S PDF's historically (be date). I know it is probably something easy that I am not seeing and will feel like an idiot after someone shows me...but oh well. Thanks for your help.

Keep up the good work TD.

Sun, 04/12/2009 - 18:52 | 1926 VA Voter (not verified)
VA Voter's picture

TD,

I'm new to this blog and thoroughly enjoyed this post and all the comments.

I closed out a naked long on SKF mid-day Thurs.

I am unfamilar with the strategy where Anonymous at 4/10, 11:46pm said he hedged SKF with RSU.

I realize SKF is more volatile than RSU but would like to learn more.

Can someone help?

Sun, 04/12/2009 - 20:35 | 1927 Anonymous (not verified)
Anonymous's picture

A number of you have mentioned concerns regarding financial "news" headlines and their effects on the markets.

The media is a powerful tool - and make no mistake, it is being wielded as such. Events such as the "8:45 AM call", JournoList, etc. can bring us such things as this:

http://directorblue.blogspot.com/2009/04/msm-complicit-in-full-court-pr-...

How many here honestly think those same tools aren't being used to push good or bad economic news on demand?

Sun, 04/12/2009 - 21:32 | 1928 Zen (not verified)
Zen's picture

Thanks for the blog, but why is the first chart from early April, and how does the second chart show standard deviations? I don't see it.

Sun, 04/12/2009 - 22:07 | 1929 Anonymous (not verified)
Anonymous's picture

HOLY CRAP!!!!
Look at this chart
http://screencast.com/t/qu2iDVbBl4P
Guy is right - Stay away from market!!!!

Sun, 04/12/2009 - 23:24 | 1930 Anonymous (not verified)
Anonymous's picture

Anonymous @ 6:07pm - Pardon my ignorance, but what does the Capital Markets Liquidity (MM) Index ($CPMKTL) purport to show/measure?

Sun, 04/12/2009 - 23:29 | 1931 Anonymous (not verified)
Anonymous's picture

The scaling of the chart also seems kind of weird . . . their appear to be reference lines at 30 and 70, but is there something black-swan-y about breaking through 30 . . . have we never been below 30 before?

Sun, 04/12/2009 - 23:44 | 1932 Anonymous (not verified)
Anonymous's picture

Another view of CPMKTL
http://www.tinyurl.com/cs4rwu

Mon, 04/13/2009 - 00:01 | 1933 Darth Trader (not verified)
Darth Trader's picture

I wouldn't try to get in front of this market to short it, wait for a couple of down days. People love to try to pick tops, (it's how they think they can control it). I bet the Powers in Control will wait for the 50dma to cross the 200dma to the upside before they sell everything in sight again. This may take months.

Mon, 04/13/2009 - 09:10 | 1934 ForYourHealth (not verified)
ForYourHealth's picture

great post. The current situation is clearly, in George Soros's words a reflexive market.

Tue, 04/14/2009 - 03:53 | 1935 Stephen (not verified)
Stephen's picture

Couple of points. The market movements since the beginning of January have all come on low volume. A gallon of water is an insignificant amount when poured into a lake, but when poured into a bucket, it makes a difference. Same situation with market liquidity, smart money is mostly on the sidelines while it's the quant funds and some hedgies left to slosh the markets around with the market makers in the middle. Before I confuse everyone, let me point out, GS, Getco, Rentech, Citadel are all market makers in and of themselves and the current market scenario has them net short gamma. The reason volatility has lifted into a smile pattern (where OTM puts and calls have higher vol as people are betting on large moves in either or both directions) is because customers are buying OTM puts and calls, in turn, the market makers are selling these options and delta hedging their daily exposure - put and call option sellers are short gamma. That's why you see huge movements at the end of the day, MM's have to adjust for the day's moves. Some of them adjust more frequently which is why you may see odd movements throughout the day. But like he said and the articles discuss, short gamma requires you to chase the market, buying strength and selling weakness.

The chart detail is merely meant to show that quant volume is dropping while their share of total volume is growing. This shows that they are deleveraging, but not as quickly as the rest of the market, leaving their programs as the primary movers of the market, but you all have already ascertained this from the article. While the market makers help facilitate liquidity, which is extremely important, the quants are the market makers on speed. They are looking to snipe spreads wherever they can find them and due to reduced volume they have moved from being part of the mortar that holds the markets together to being the driving force behind movements; basically their programs are trading against each other looking to snag spreads.

Tue, 04/14/2009 - 05:14 | 1936 Anonymous (not verified)
Anonymous's picture

If funds are not prone to redemption, meaning they are proprietary, what is causing the liquidity issues for the top tier of the liquidity providers?

Tue, 04/14/2009 - 09:11 | 1937 Anonymous (not verified)
Anonymous's picture

RE GS leading prog trading vols - To me, it's a valid outcome to Lehman's going down. GS and LEH were the biggest global ProgTraders out there. When LEH went down and the US equities trading arm was sold to BarCap, a lot of volume went to GS. BarCap did NOT buy the global program operations (and they are busy hiring right now to build this out), so for a lot of clients, they will go to the next broker who can deliver global basket trading.

Trading program orders is ONLY given to brokers where clients believe the broker can deliver the minimum price change in the markets AND settle effectively. Trading out global baskets is a nasty, complicated, high volume and commission challenged business (i.e. only big players with decent systems/processes can apply here, otherwise you lose money). As an IT specialist who worked in this space for many years, I'm not surprised that GS are leading the volumes.

Tue, 04/14/2009 - 09:47 | 1938 Anonymous (not verified)
Anonymous's picture

I think the big downward move in HSKAX in December 2007 is actually a big dividend not being adjusted for correctly. Also, the HFRX index is a notoriously bad proxy for market neutral strategies in general. They are only a reasonable indicator when the shit hits the fan.

Tue, 04/14/2009 - 16:00 | 1939 Steve (not verified)
Steve's picture

That's very bold, predicting a market crash in one week. Either you know something else that indicates real urgency, or your prediction is a bit flamboyant. The evidence presented does not in itself seem to point to urgency. But we shall see.

Your HSKAX chart is basically trading in a 10% range over 3+ years. What would cause the deleveraging? Is it quant fund investors redeeming shares? Is it carry trades unwinding? The yen has been weakening again this past quarter, so the pressure is off that carry trade.

As long as housing prices are going lower, banks are insolvent and the recession continues.

Tue, 04/14/2009 - 16:04 | 1940 Anonymous (not verified)
Anonymous's picture

Hey anon, he has nowhere said a market crash, he said huge vol potential either up or down. big difference between the two concepts. learn to read

Wed, 04/15/2009 - 16:16 | 1941 sheepdog (not verified)
sheepdog's picture

Why are "double and triple negative ETFs" highly convex?

Wed, 04/15/2009 - 18:48 | 1942 Anonymous (not verified)
Anonymous's picture

This time is different, for sure. Inflation will be laid upon inflation, layer after layer until people are driven to gold. We must break from the Newtonian cycles of boom-bust that are precipitated by debt. The elite are playing the part of "the stick" because people respond more to pain than pleasure. It must be done this way because in the power equation, the process must be bottom-up this time. Thus the government plays the role of "the stick" from the top.

We have been supply driven since the apple was shoved in our faces ..... top-down. This now changes.

I can now buy a single toothpick from a merchant across the globe using a debt free store of value ..... simply with a mouse click, in an instant. Instant liquidity has now married with debt-free store of value.

The only historical problem with gold was the logistical qualities that were greatly hampered by a fixed peg. The peg had to go in favour of real-time valuation. The next challenge was simply to find a simple way to "split the gold" by weight.

You cannot pour new wine into old wineskins - Jesus Christ

You cannot pour new wine into old wine skins.

Thu, 04/16/2009 - 05:54 | 1943 Anonymous (not verified)
Anonymous's picture

Interesting that my own technical analysis came up with the same prediction. That is, the major indexes will rebound until they hit the former support trend line. The old support trend line will become the new resistance line for the major indexes.

My next prediction after that: Once it becomes obvious nothing will stop the market from crashing, the US dollar will begin crashing. The statements made after the G20 pretty much clinched this already, but the avegage Joe doesn't know anything about it yet. Hyperinflation will catch many off-guard, and this will increase the momentum of the crash so that it happens very quickly.

Next: Between 12 and 28 states begin making plans to secede. Martial law is implemented to maintain control, 20,000 troops are deployed domestically, but this fails miserably and is just for show. The start of the 2nd civil war begins. Food shortages drive the unprepared into the cities where they are preyed upon by their own kind. The crash is much worse than what happened to Argentina or Russia, due to starvation and violence.

Fri, 04/17/2009 - 16:18 | 1944 Shanky (not verified)
Shanky's picture

Wow. I like the PPT call. Glad i stumbled uppon this. Will bookmark and continue to follow for sure. excellent work.

Mon, 04/20/2009 - 00:59 | 1945 Anonymous (not verified)
Anonymous's picture

No matter what anybody says - stick with your instincts. I think they are spot on. I've been thinking for a long time that modeling programs are being used to achieve the desired result. I know for a fact that the government is using modeling programs (I watch congressional hearings).

I don't know why anybody would be in the market at this point. There is absolutely zero reason to believe that anything associated with either Wall Street or Washington DC is honest.

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