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The Paradox of Market Chaos?

Submitted by Leo Kolivakis on 05/22/2010 11:10 -0400

Zachary
Goldfarb of the Washington Post reports, SEC
launches inquiry into market's 'flash crash':

The
Securities and Exchange Commission is looking at whether key financial
firms broke securities laws when they stopped buying and selling
stocks during the "flash crash" on May 6, helping fuel the historic
plunge in prices.

SEC Chairman Mary Schapiro said at a
congressional hearing Thursday that these companies, known as market
makers, might have violated a legal duty to continue to buy and sell
during the rapid decline.

"We don't have evidence yet of market
makers who had affirmative obligations from withdrawing from the
market," Schapiro told the Senate banking committee. "It is absolutely
something that we're looking at and we've incorporated our enforcement
division into our ongoing investigation."

Schapiro's comments
are the first signal that the regulator might seek to sanction firms if
they contributed to the decline of nearly 1,000 points in the Dow
Jones Industrial Average. The agency previously had not suggested that
wrongdoing could have been behind the market chaos.

At the
hearing, the chairman of the Commodity Futures Trading Commission said
the regulator would look into reining in some of the high-speed,
mathematics-driven trading that aggravated the volatility.

"A lot of the algorithms are very . . .
dumb," said CFTC Chairman Gary Gensler. "We can't stop technology, but I
think that we have to update our regulations to stay abreast of this."

Regulators suspect that automated trading in a
speculative financial instrument linked to the performance of the
Standard & Poor's 500 stock index contributed to the market plunge.

But even if trading in that
instrument helped fuel the start of the decline May 6, regulators say
the failure of market makers to remain active buyers and sellers of
shares sent prices down even more.

Many long-time market
makers -- often a major bank or brokerage whose role is to facilitate
trades by others -- required to remain active in the market even during
times of market stress. But many other upstart firms, often using
high-speed electronic trading, face no such legal obligation to keep
buying and selling shares.

"I do believe one of the things we
absolutely have to look at is the fact that many affirmative
obligations of market makers have been eliminated by the markets over
the years," Schapiro said. "So one of the things we will be looking at
very carefully is the creation of affirmative obligations again."

The SEC has discounted the possibility
that an error at a financial firm caused the crisis, or that outright
criminal behavior such as hacking or terrorist activity was behind the
market chaos.

The agency has largely blamed outdated and
inconsistent rules governing trading across a wide array of market
venues, as well as speculation in electronic futures markets for
fueling the plunge.

One thing I try to explain to
people is that erratic market moves have much less to do with
fundamentals and more to do with banks' prop desks and hedge funds
flows. Big banks made a killing in the first quarter of 2010. In fact,
the FDIC reported that nationwide, U.S.
banks reported an aggregate profit of $18 billion during the first
quarter, up considerably from the $5.6 billion profit recorded in
the first three months of 2009.

Where are these profits coming
from? Certainly not from lending to small & medium sized
enterprises. The bulk of the profits at the big banks are coming from
trading revenues and most of these are driven by huge algorithmic
trading activities performed by an army of PhDs running ultra fast
supercomputers, looking for the slightest discrepancy in asset prices.

And
what about hedge fund flows? Earlier this week, Boyd Erman of the Globe
& Mail reported, Hedge
funds rebound, head for $2-trillion in assets:

Hedge funds are hitting some old high-water
marks, with assets in North American funds topping the $1-trillion
(U.S.) level for the first time since November of 2008, according to
tracking firm Eurekahedge.

Globally, hedge fund assets have passed the
$1.5-trillion level and are likely to surpass $1.75-trillion by
year-end at the current pace.

It's a big turnaround for a group
that had some of the biggest winners and losers of the crisis. On the
winning side, funds like Paulson & Co. took home huge returns from
bets against housing. Losers found themselves long equities or
mortgage-backed securities in 2008, then had their pain compounded by
margin calls on their leveraged portfolios.

For the moment, some of the hottest returns
are at distressed debt funds as default rates have proved nowhere near
what was priced in at the nadir of the crisis.

Eurekahedge said distressed debt funds have posted 13 months straight of
positive returns, giving them a 50 per cent gain since March of last
year.

Two trillion in hedge fund assets may not
sound like a lot, but when you add leverage, it's huge. Many of the
larger hedge funds also engage in algorithmic trading and OTC derivative
trading, adding more volatility in market moves.

I bring this
up because it baffles me when "experts" compare today's markets to
those of the 1990s, 1980s or 1930s! The structural changes in the
markets are huge, bringing more volatility in periods of uncertainty,
and less in periods of stability.

And what really concerns me
is what effects this will have on defined-benefit plans and individual
retirement plans. Moreover, the Prime Minister of Greece, George
Papandreou, raised an important point last week in his
interview with CNN's Fareed Zakaria. Mr. Papandreou addressed the
"paradox" of bailing out banks that turned around and funded hedge funds
that speculated on sovereign debt:

MR.
F. ZAKARIA: You know, you are in some ways the bellwether for
the Western world. You are the first Western country that is going to
try in a comprehensive way to pare back some of the excessive
guarantees, commitments and expenditures of the welfare state.

Do
you think you can do this and survive politically? I know that you
made a reference to taking a voyage like Odysseus, and a Greek
columnist said yeah, but it took Odysseus ten years. All his comrades
died, and he ended up naked and washed ashore in Ithaca. Do you think
you’ll have a few more people than Odysseus did, when this journey is
over?

MR. G. PAPANDREOU: Well, we know that
these journeys are not easy and there are casualties. But we also know
we can reach this goal.

What we lived through in the last few
months was also somewhat of a paradox, because – and again I am not
trying in any way to get away from our responsibilities; we are fully
aware of our responsibilities and what we must do – but there are also
the financial markets.

In 2008 we had actually the governments
coming in to bail out the financial markets and the banks. They had to
accrue a huge debt very often, for stimulating the economies, so that
we don’t go into not only a recession but a deep depression.

Now you have banks
funding hedge funds. They are actually then betting against governments
that had actually helped the banks.

So this is a paradox, and I think this is where we
need to also regulate markets.

MR. F. ZAKARIA:
Do you think that Greece was a victim of the American investment banks?

MR.
G. PAPANDREOU: We right now have a parliamentary
investigation in Greece, which will look into the past and see how
things went the wrong direction and what kinds of practices were
negative practices. There are similar investigations going on in other
countries, and in the United States.

This is why I think yes, the
financial sector – I hear the words ‘fraud’ and ‘lack of
transparency.’ So yes, there is great responsibility here.

MR.
F. ZAKARIA: Could you imagine going after any of these banks
legally? Do you see that you have some legal recourse?

MR.
G. PAPANDREOU: I wouldn’t rule out that this may be a
recourse also, to go into this legally. But we need to let the due
process proceed, and then make our judgements once we get the results
from the investigations.

MR. F. ZAKARIA: And do
you think you will make it, like Odysseus, in the end, personally,
politically?

MR. G. PAPANDREOU: I am doing what
is best for my country, and I think that’s the best way to make sure
that this country does get to its destination, which is Ithaca.

What
happens to me is of less importance, as long as I feel that I am doing
what is best for my country and I can sleep well at night, with my
conscience clear, that maybe taking very tough decisions and decisions
that very often hurt, not only me but also many of the Greek people,
but in the end knowing that this is the best.

On
Friday, I had lunch with a buddy of mine that came in from Greece. He
told me that he was surprised with the speed that Papandreou's
government is moving to implement reforms. He also told me that many of
these reforms are hurting individuals like his aunt who was a
schoolteacher for many years and is now seeing her pension decline from
1,200 euros a month to 900 euros a month.

As far as speculators
are concerned, my friend told me: "I told you a long time ago that major
financial regulations are coming". Indeed, politicians are not going to
let hedge funds and banks run amok, threatening the integrity of the
capital markets and the global economy.

Let me be clear on something: I'm not against
hedge funds or banks with huge prop desks. They provide liquidity to
markets and hedge funds that deliver true alpha (not levered beta) are
worth paying fees for.

But the paradox remains. Banks that got
bailed out are funding hedge funds and so are public pension funds
looking to increase their leverage to meet their required actuarial
rate of return. What worries me is that by doing this, they're
increasing systemic risk. Without taking into account their collective
actions, they're sowing seeds of more market chaos.

This is
something which needs to be addressed on a global level. Individual
countries are powerless to deal with these structural changes and their
implications for global systemic risk.

Finally, as you listen to Mike
Ryan, head of wealth management research for the Americas at UBS
Financial Services Inc., talking with Bloomberg's Matt Miller and Carol
Massar about the outlook for U.S. equity markets and prospects for a
continued U.S. economic recovery, keep in mind the structural
changes I discussed above. Nothing shocks me anymore. Erratic moves
have become the norm, not the exception.

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Sun, 05/23/2010 - 08:58 | 368468 MacedonianGlory

Leo, its not reform when G-Pap steals pensions money. It's robbery.

Socialists always try to change the meaning of crime actions, by using words with positive meaning. Sunce when robbery is called reform?

G-Pap is hiding the last week, trying to avoid the anger that has caused by bailoyting with 43 billion euros the bankers.

He is going to end to jail for this crime. Greeks are gonna reform him.

Sun, 05/23/2010 - 02:03 | 368334 bretondog

But the paradox remains. Banks that got bailed out are funding hedge funds and so are public pension funds looking to increase their leverage to meet their required actuarial rate of return. What worries me is that by doing this, they're increasing systemic risk. Without taking into account their collective actions, they're sowing seeds of more market chaos.

.......................

PARADOX?

Sir, you and George are of the same fabric.

There is NO paradox and your shame only allows the inaccurate use of words such as these.

Your amorality leaves you at a loss in times like this.

May some one forgive you.

Sun, 05/23/2010 - 01:07 | 368300 chindit13

What we have here is reverse anthropomorphism. The animal kingdom is imposing its characteristics on to humans, and in particular, the markets. We're eating each other in order to survive, or even prosper. The weak (also known as sheeple, taxpayers, the public) are being consumed by the strong so as to insure the propagation of the strong's gene pool. Bernanke has taken away the seedcorn of the masses (interest) and handed it to the powerful. Treasury has taken away whatever wealth the masses may produce (taxes) and used it to guarantee the survival of the well connected. The drones exist merely to serve the queen bee. The TBTF are the queen bees, the rest of us just drones.

Yet when governments bail out banks with debt and free money, the the banks turn around and short the debt and the currency used to bail them out. Bite the hand that feeds them.

In nature the wildebeasts aren't so stupid that they point out the river to wayward crocs. We should learn from them.

Sun, 05/23/2010 - 06:37 | 368409 tip e. canoe

"The weak (also known as sheeple, taxpayers, the public) are being consumed by the strong so as to insure the propagation of the strong's gene pool."

outstanding analogy chindit. agreed that this is most likely the objective of the long game.

Sat, 05/22/2010 - 21:20 | 368150 Mr Lennon Hendrix

"You know, you are in some ways the bellwether for the Western world. You are the first Western country that is going to try in a comprehensive way to pare back some of the excessive guarantees, commitments and expenditures of the welfare state."

Wow. The MSM is already throwing the term "welfare state" in the face of the people who got snuckered into the scheme; the scheme perpetrated by banks. Wow.

People, the world is not in default, do not believe the liars on the television! The world is the same as it ever was.

Sat, 05/22/2010 - 21:49 | 368030 Mark Beck

If you are in finance, you have to keep your finance face when talking to the public, just like Ryan who still wants his paycheck next week. But, then you look at what they are doing with their own money, and it is a very different story.

----------

The unaware, will ride the technicals off the cliff. Understand the true forces at work

----------

Ask yourself, what is the real value? What is the fair price? Be wary of holding assets not under your direct control. That is, equities. Part of equity investing, without majority interest, is a loss of control over how your money is used, and subsequenctly what you get in return based in the countries currency. An act of trust, both in the company and you ability to convert your shares into currency (taking profits).

So why did Warren buy a railroad at a premium price, why wasn't he just a stock holder? It is control. When a currency crisis hits part of the loss is in conversion and debasement. So you must have controlling interest of the asset. Only the owners will benefit in its "new intrinsic" value, no matter the medium of exchange.

At this time, to maintain real worth, you must own and hold the assets you invest in.

Mark Beck

Sat, 05/22/2010 - 17:06 | 367966 Gunther

I checked the market action in the DOW and transports from 1928 till the bottom in 32.

During the bear market after 1929 erratic moves similar to the flash crash happened.

Few marks of a financial bubble according to JK Galbraith ( The Great Crash and a Short History Of Financial Euphoria)
Extreme brevity of financial memory
Association of money and intelligence
Investing public is fascinated by the great financial mind
Use of leverage
New paradigm
Debt secured by real assets
Debt/bonds to buy stock
Debt dangerously out of scale with means for repayment
Aberrant optimism
Widespread stupidity (obvious afterwards)

Signs of market top according to Robert Rhea' Dow Theory (who sold his stock 1928 and called the bottom'32 within a few days)
Corruption
Inflation

In my opinion: Checkmark to all; Inflation might be not anymore but surely during the run up.

Sat, 05/22/2010 - 15:36 | 367874 PeterSchump

Don't bail out banks. Period. Problem solved.

Sat, 05/22/2010 - 15:12 | 367839 Akrunner907

Answer this question: What is the purpose of the capital markets?

Sat, 05/22/2010 - 17:05 | 367964 blindman

http://maxkeiser.com/2010/05/22/1129-the-truth-about-naked-short-selling-resonance-fm-22-may-2010/

[1129] The Truth About Naked Short Selling – Resonance FM – 22 May 2010

Sat, 05/22/2010 - 16:07 | 367921 mikla

The purpose of the capital markets is to create productive capacity through leverage.

With a properly functioning capital market, all of society is "richer" because more goods-and-services are provided because more "good ideas" are executed. Even the "relatively poor" are "rich" (e.g., they have food, a house, two cars, cable TV on multiple televisions, etc.)

Unlike the Middle Ages, when the unit of labor served as currency, I can today take my "good idea" to the capital markets to borrow money (get capital). With this I build my business and produce goods and services.

Without the capital markets, I cannot execute on my good idea unless I first save up my own money to do so.

Today's complaint is that capital flows have nothing to do with "good ideas" and society's growth-and-benefit. In fact, today's capital flows ensure "good ideas" are absolutely *not* executed.

Look at the GDP of Greece over the next few years. It's small, and about to get a LOT smaller.

Sat, 05/22/2010 - 14:36 | 367781 Sudden Debt

the trick is always doing the oposite of what the media pushes or trashes.

If I had done this starting 2007 I would already be a billionaire :)

It's not as easy as it sounds, but if you're able doing it half way it already gives you pretty hughe returns.

Sat, 05/22/2010 - 14:05 | 367751 hardmedicine

huge algorithmic trading activities performed by an army of PhDs running ultra fast supercomputers, looking for the slightest discrepancy in asset prices.

what degree program(s) does one go through to get to this understanding.

I would love to understand what exactly is taking place. I would also like to advise young persona who are looking for a career path.

Sun, 05/23/2010 - 07:12 | 368420 Chicago bear

Trading firm founders hire only minted PhDs into their firm. They could care less about their disciplne if they are going to work on the strategies. They hire comp sci coding geeks to write the codes that the strategy geeks say to do. Hire the smartest brain then ask them to tell you how the markets work. Have several vets in the room to listen. All blue sky. One yong trader told me "half the trading floor is guys working on Alvis the other half is traditional traders. Everyone believes the Alvis will be the only ones left not too long. MBAs get run out. Frined of mine got into GETCO then got run out. MBAs have management ideas not required in trading. . PhDs think different and are more suited to the task. Trading owners need new eyes since they think markets workthe old way. Most interesting for us is the ZH gap between these naieve PhD ideas and the old market patterns. Algos cannot adapt only get reprogrammed. We can trade faster than they can get reproggged. Good for us when we learn. Bad for them

Sun, 05/23/2010 - 10:28 | 368529 Leo Kolivakis

My personal belief is that PhDs, MBAs, CFAs, FRMs, and all these fancy titles are nice on paper, but at the end of the day, only one thing really counts:

Sat, 05/22/2010 - 16:02 | 367916 snowball777

Many barely-trained wanna-be MBAs with off-the-shelf computers running algos that are all A(rticifial) and no I(ntelligence).

The Computer Science side of things is trivial...any four-year university can teach the programming skills required; any bright kid could learn it over a summer.

Most any business school can teach them the fundamentals of equity investment.

There are many companies providing algorithmic trading platforms (no, I won't plug them).

As for your hypothetical "young person"...tell them to get a degree in comp sci with a minor in business administration...that way they'll have a solid $100k/yr profession to fall back on when their trading hobby doesn't make them BuffetRich^TM

Sat, 05/22/2010 - 13:59 | 367745 demsco

There can be parallels drawn to the 1930's market. After all, the main problem back then was not that markets crashed, but people used margin, i.e. leverage, to bet. The issue now is that leverage is not what it used to be it is now 10:1 or 25:1 and, in many cases, much higher than that. That is where correlations can be drawn to the 1930's. I, more or less, do not necessarily draw correlations to the markets as I do to the economy. If you read The Depression: A Diary by Benjamin Roth you will see that the path we have chosen now is the same path we chose then and it failed. I see today as being 1932, things look better and the data is much improved, but it is all a joke and we will be in for a big surprise shortly.

After all, you cannot have a +290K jobs report with the BLS making up 188K of those jobs and the government creating another huge swath of the remainder. On top of that, the main area of job growth has been in part-time work, not very bullish at all. I am pointing this out because you can draw those parallels to 1932 very easily. On the bright side, we will not have crushing deflation like we had since we have such huge public safety nets.

Sat, 05/22/2010 - 16:10 | 367738 Leo Kolivakis

Wonder what this comic genius would have said on modern markets:

Sun, 05/23/2010 - 06:29 | 368408 tip e. canoe

"i'm out of rehab, and in denial" classic

Sat, 05/22/2010 - 17:16 | 367971 velobabe

GC, is the only thing i can understand on ZH.

i think i'm getting worst not more intelligent.

thanks, for throwing in some content for my kind†

Sat, 05/22/2010 - 19:52 | 368056 Leo Kolivakis

velobabe,

What the hell, it's a long weekend, a little GC and a double dose of DM to keep our minds of market chaos:

Sat, 05/22/2010 - 20:21 | 368100 velobabe

leo, those are just awful looking.

don't put things up like that horribleness

get out your magnifying glass and look at me sun bathing, much easier on the eyes.

pretty in pink†

why am i gettiing so funked? i have greatly decreased my postings, because no matter what i write, i am junked. it is probably that DUMPSTER. i won't go on any page she has sprayed on. i don't think she comes on your authoring pages either, so we are safe.

PLUS i calling out all you low life troll junkers, don't have the balls to say what your problem is. i forget what your called, oh yeah COWARDS†

Sat, 05/22/2010 - 20:22 | 368108 Leo Kolivakis

velobabe,

I prefer natural looking women, but Denise has something sexy going on. Anyways, dumpster is lurking, but don't let her and her kind stop you from posting. We love true babes like you and Marla.

Sat, 05/22/2010 - 20:38 | 368114 velobabe

i was junked in a matter of minutes. was it you?

i don't think i can take the junking†

i feel the energy and it isn't good. lurking predators maybe.

plus, out of curiosity, would you consider the two above video's to be classified as true pornography, or is it still soft? just askin.

Sat, 05/22/2010 - 23:38 | 368236 Leo Kolivakis

I only junk idiots, never junked you. Two vids above are not porn, not even soft porn. Just a curvaceous beauty strutting her stuff. :)

Sat, 05/22/2010 - 20:00 | 368086 Mitchman

The young lady appears to be quite a talented dancer. However, your financial argument falls apart for me when I realize that on this particular Saturday night, I am sitting at home reading your article while she is in the Hamptons hanging from the arm of one of the hedge fund guys against whom you rail. :-)

Sat, 05/22/2010 - 20:22 | 368106 Al Gorerhythm

It's only flesh!

Sat, 05/22/2010 - 20:50 | 368129 velobabe

looks like they are ready to explode.

ouch†

Sat, 05/22/2010 - 20:08 | 368090 Leo Kolivakis

LOL, trust me, they can't afford her, and even if they could, they wouldn't know what to do with her! Time to prepare for my hot date (real one, not the Palm sisters).

Sat, 05/22/2010 - 20:25 | 368109 ZeroPower

Lol Leo. If a HF guy can't afford her, then not many other people can.

AVB no doubt can, different story though.

Sat, 05/22/2010 - 21:24 | 368153 Mitchman

ROFLMAO on all of these. Except Velobabe. Stay on! We need you!

Sat, 05/22/2010 - 13:19 | 367718 Tic tock

I was thinking exactly that the last two days... the structure, the deep financial cross-linkages in the context of the size differential between M3+ and M2, is the difference between the Great Lakes and the Oceans (yeah, it's not exact.. but it's close). ..the bloke at UBS makes the point, 'that the market still needs Driver's' ostensibly to support earnings. Also, that policy-making is supportive and constructive, which is fairly accurate.

I think that Bernanke's plan was praised for being effective long before the praise was due, but I also think the consumer would have crashed (even more) long before now if it hadn't been for his soultion. I still believe that the financial system as it stands is fundamentally flawed and also, currently, absolutely broken. - Personally, I can't imagine a worse time to permit BHC lobbyists in Washington- not for the dubious series of advantages that speaking for the middlemen in the Ponzi scheme that the dollar has become, but for being inhibited at looking at the issues.

Where we are now does require statesmanship- this isn't Politics as usual and lobbyists are for a political system that (barely) works- the Industrialised Democracies face deep political pressure to reform the way financial markets, numbers and faith, react with Real economics, wages, work, housing, agriculture, energy. This is the great Political change of our times, whether it comes now or in ten years time, the transparency, the dissemination of information, is here now.

Oh yes, Leo's article. It's possible to repair a smaller ecosystem by physically clearing a sufficient portion, allowing natural systems to repair there first and then move on. Repairing a illness at the global scale requires a select number of key drivers to be significantly changed globally in the same instant, then sit back and watch as the system repairs (smallpox). We've chosen Financial reform to be the key to resolving unfunded future liabilities - we could have chosen micro-generation of energy, or Land reform. It could well be that the financial reform necessary to solve the credit payments would leave many extant instruments outside of a guarantee, ring-fenced in their own clearing pools - quarantined from M3, so-to-speak. But if the participation in these instruments extends across the economy (Muni Bond market - IRA) then markets-reform may always be an inefficient solution, compared to bankruptcy: I don't think just reforming the way M3 works will trickle down to positive M2 balances . I think M2 also has to be treated to significant reform.

Sat, 05/22/2010 - 13:18 | 367716 Bruce Krasting

The capital markets are much bigger than the prop desks and hedge funds you blame. The instability is because we are sitting on a mountain of debt that can't be paid. That fact is what keeps causing the Vix to jump. Some time back it was Dubai, then Greece, then PIIGS. Now it is all of Europe. It will move from Europe elsewhere. You have said as much.

Like the trip to Ithaca there will casualties. Values of all sorts of asset classes are likley to change dramatically. It will not happen in an orderly or predictable way. It will be large changes in short periods of time. That is how markets work.

For long term, "buy and hold" investors this will be a very difficult process. Only the nimble will prosper. That is why money is going to hedge funds. Traditional investing is dead.

Those pensioners you worry about are the poster children for the buy and hold. They are going to get crushed.

Sun, 05/23/2010 - 03:42 | 368370 Crab Cake

The instability is because we are sitting on a mountain of debt that can't be paid.

Exactly, thankyou. Two words, solvency crisis.

Greece, and the rest of the world, are running % of total debt to GDP at well above Great Depression levels. The numbers are a big fat lie. It's called fraud and book cooking.

Here is the US total debt to GDP percentage graph, if anyone wants to see it again.

http://static.seekingalpha.com/uploads/2009/3/2/saupload_debt_to_gdp.png

Sat, 05/22/2010 - 13:30 | 367725 Leo Kolivakis

Wrong Bruce,

Pensions are funding large hedge funds because they need "juice" (leverage) to meet their return objectives. Same reason why they're investing in PE and commercial real estate funds. I do agree with you, however, that for the next decade, small & nimble is the way to invest. I even wrote about it on why small is beautiful on my blog and how I use hot hedge fund trades to help me focus my attention on which sectors and stocks to look at. Of course, as you are all aware by now, I am a long-term bull on solar stocks, and keep adding to my positions every time they get whacked hard.

Sat, 05/22/2010 - 18:55 | 368052 Dixie Normous

Leo,

Little off topic but good article on a piece of NY's problem:

http://www.nytimes.com/2010/05/21/business/economy/21pension.html

Sun, 05/23/2010 - 06:22 | 368407 tip e. canoe

"It’s what the system promised, said Mr. Tassone, now 47, adding that he did nothing wrong by adding lots of overtime to his base pay shortly before retiring. “I don’t understand how the working guy that held up their end of the bargain became the problem,” he said."

anyone who thinks the bankers, govvies & HF's are the sole source of our current problems should read this article.

Sat, 05/22/2010 - 20:19 | 368102 Leo Kolivakis

I've discussed pension padding before. It should be a crime and they should stop paying for this nonsense by going back and seeing who padded their pensions before retiring.

Sat, 05/22/2010 - 13:26 | 367723 Goods

No no Bruce you have it all wrong about debt. Explain to him Leo,

calm will be restored when the trillion dollars starts being felt in the financial system.

Thanks Leo!

Now, back to my favorite porn site.

Sat, 05/22/2010 - 13:31 | 367726 Leo Kolivakis

Goods, get rid of my pic...you can never be as good looking as me!

Sat, 05/22/2010 - 13:04 | 367701 Grand Supercycle

The March 2009 lows won't hold.

Updated DOW daily and weekly charts:

http://stockmarket618.wordpress.com

http://www.zerohedge.com/forum/latest-market-outlook-1

Sat, 05/22/2010 - 13:22 | 367719 Goods

You're a rookie who doesn't know his head from his arse. Only chicken shit idiots are selling now. Buy this dip, all of this will blow over. Dow will bounce off its 200 day EMA:

Sat, 05/22/2010 - 12:32 | 367655 DavidC

That's one of my all time favourite cartoons.

DavidC

Sat, 05/22/2010 - 12:28 | 367649 ZackAttack

I tend to view 'market chaos' as an issue of reversion to the mean. Remember, we went for nearly 5 years from early 2003 to late 2007 without a single 10% correction. This period is without precedent in US market history.

Regulation should be easy in theory in a society not fraught with nepotism and corruption: Pick one - you're a bank (in which case you are subject to 12:1 leverage ratios), a brokerage (in which case you are speculating with only your investors' money) or an insurance company (in which case you are regulated by state insurance agencies for capital adequacy).

Sat, 05/22/2010 - 12:22 | 367647 Ancona

Wow

Sat, 05/22/2010 - 12:20 | 367645 mikla

Good article. I'm not optimistic like Leo is, but he's a smart guy.

Nothing shocks me any more. Erratic moves have become the norm, not the exception.

This goes to the fundamental nature of the problem: These aren't markets. They are leveraged speculative flows. They have nothing to do with markets, nor business, nor productivity, nor allocating capital to productive endeavors. They have nothing to do with economic fundamentals.

In fact, because they are merely leveraged flows, they are subject to manipulation. That's why you can't even trade the technicals (much less the fundamentals).

Government bailout ==> Banks * leverage ==> short Governments

It's insane. It's not a market, those flows dwarf all capital associated with productive activity, which is why it will all fail. I refuse to play.

Sat, 05/22/2010 - 13:25 | 367722 Pimp Juice

"because they are merely leveraged flows, they are subject to manipulation". Totally agree. Stay out for now or get burned. Another "flush" crash coming. My fingers are too fat to be sure I can exit in time. Got gold?

Sat, 05/22/2010 - 12:05 | 367631 lawton

I am convinced without PPT action we would already be down to 8000 Dow...

Sun, 05/23/2010 - 07:45 | 368427 El Hosel

"Nothing shocks me any more. Erratic moves have become the norm, not the exception".

"the outlook for U.S. equity markets and prospects for a continued U.S. economic recovery"

Hey Leo, here is your "shocking" development. There is no recovery, the "illusion" of the so called recovery has been exposed as a fraud.

The Paradox of Market Chaos?

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