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Rosenberg On The Specifics Of The ECRI Leading Index As An Investment Tool
We have been observing the recent collapse of the ECRI index in all its glory over the past several months. As we have discussed previously, this is one of David Rosenberg's preferred leading indicators. Below we present some of his summary observations on the four distinct cycle in the ECRI index, with an emphasis on the current one, which as Rosie highlights is Phase IV - Recession (Zero to Trough), in which the S&P drops by 6.4%, and the worst performing assets are consumer discretionary, industrials and tech, contrary to what has been performing the best over the past six months. Time for some sector rotation.
From Rosie:
The growth rate on the ECRI leading index did it again! It sank further into negative terrain, now at -9.8% during the week ending July 9, down from -9.1% the prior week. This was the tenth deterioration in a row and the growth index is now negative for six straight weeks. We have never failed to have a recession with the ECRI at current levels but there is also inherent volatility in the index that requires acknowledgment. Our reckoning is that in the past few weeks, the index has gone from pricing in even-odds of a double-dip to two-in-three odds. It may take a while, but Mr. Market will figure it out before long.
All we hear from in the mainstream economics community is that double-dip recessions are out of the question because they are “extremely rare” events. The double-dip deniers say that this only happened in 1982 because of the renewed sharp tightening by the Fed (as if we aren’t going to see a sharp fiscal withdrawal this time around to take its place). What is it that these economists and strategists don’t see?
These “extremely rare” events have been the norm for the past 24 months: negative nominal GDP growth; negative operating earnings; a massive contraction in credit; a 30% slide in home prices (these same economists — Bernanke too — were telling everyone that home prices never deflate over a 12-month time span ... but they did this time!); a record-high duration of unemployment.
The past 24 months have given us a lifetime of “extremely rare” events, but as we suggested last week, these are only “rare” from the perspective of an analyst that sees the past 24 months as a typical post-WW2 recession. In a balance sheet recession, these extreme events are the norm, so the “extremely rare” would be things like, expansion of private credit, strong inflationary pressures, rapidly declining unemployment and rising interest rates.
Relying on indicators that have been useful in previous post-WW2 recessions is like comparing the statistics of U.S. football teams versus the statistics of Australian football teams. They may be called the same thing but they are different sports. The economy is one sick puppy and we are seeing first hand now what it looks like once the crutch of government support is taken away.
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Is ECRI part of the Plunge Prevention Teams lead trade algorithms? Oh wtf my mind is boggling.
this was a great newsletter from DR this morning... just one side-note that is unrelated to ECRI but is related to Baltic Dry, about which there was a bunch of chit-chat on Friday last week (or was it Thursday?).
Rosenberg aptly points out that it certainly is a clear example of deflation, with respect to capesize spot rates, regardless of whether this is caused by a lack of trade or by a ship-supply glut. Avoiding the issue we were discussing, perhaps, DR makes a pretty good point here. Now, if you're looking for global trade indicators...which I am...perhaps it's time to go elsewhere......and in the meantime, watch out for some more debt-payment woes from the shipping companies. Defaults, anyone?
Default risks on cargoes as Chinese mills withdraw from cape market
Friday 16 July 2010
FIRST signs have emerged that Chinese steel mills might default on contracts of affreightment, as brokers report that many have refused to take cargoes, as spot freight rates fall well below levels at which longer-term agreements may have been fixed.“
http://www.lloydslist.com/ll/sector/dry-cargo/article173836.ece
Thank you for this post.
Thanks for the link.......it requires a registration (looks maybe like a subscription?) to read the story.
Is it possible you can expand on the article, Carbonmutant?
They seem to following up on the shipping impact from a Vale interview last month.
China steel mills could default on ore deals -Vale
http://www.chinamining.org/Specials/2010_Iron_Ore_Prices_Talks/2010-06-0...
http://www.miningweekly.com/article/chinese-steel-mills-resisting-higher...
Capesize ships are losing money at $4000/day
http://www.lloydslist.com/ll/sector/dry-cargo/article173526.ece?service=...
As Steel Mills Sneeze, Global Shippers Catch a Coldhttp://blogs.wsj.com/chinarealtime/2010/06/30/as-steel-mills-sneeze-glob...
Thanks for the links........very informative........have wondered about Vale, BHP and Rio Tinto raising iron ore prices in the face of the economic downturn and a China real estate bubble.
"Now, if you're looking for global trade indicators...which I am...perhaps it's time to go elsewhere..."
Sounds good to me. Which Star System are you looking at? Or perhaps you're long on Mars futures? :)
It is a depression, not a recession, with capital, business, and wealthy individuals fleeing the country, thanks to 5000 pages of anti-business, anti-wealth toxic waste. The only "recovery" will be at the federal bureaucrat level. DR needs to address this directly.
Bingo
Show me some evidence establishing that a significant amount of high end wealthy individuals are leaving the country because of your "anti-business", "anti-wealth" laws, that you refer to.\
On the contrary, the IRS has done more within the last two years to make sure that US citizens money is not hidden abroad then any previous administration.
Furthermore, for the last 20 years businesses have steadily been leaving the US, it most assuredly is not because of recent "anti-business" laws. CNBC talking heads love to bitch about the US tax rate being the highest in the world -- that is bullshit when considering with various write-off, credits and other loop holes the US corp tax rate is rather low. For example, GE last year paid almost no corp taxes in the US.
Your comment smacks of old Wall St saw: "do what we want, or the economy/market" will tumble. It is blackmail, pure and simple. Isn't it about time someone calls their fucking bluff?
You are right in mentioning various writeoffs and credits that lower the effective tax rate. However, in the matter of growing the economy and encouraging business to hire and expand is the marginal tax rate on each new dollar of net taxable income any expansion may cause. Additionally, when there are a lot of exemptions, writeoffs and credits, the margina effective tax rate becomes highly progressive. Net losses result in a different reduction in the tax burden than do net increases. Business expansion in a time of slow growth can thus be doubly expensive, especially when nobody can predict how the economy will trend in the next few years.
I am happy that GE paid no taxes last year. I look forward to when rational tax policy will be to distribute corporate profits to shareholders and have them pay tax at the personal rate. The same with dividends. This would substantially boost our competitive position with respect to corporations domiciled in countries that rebate taxes paid up export. It should result in a no net change in receipts to the Treasury.
Maybe not leaving the country.
Rather, LEAVING THE ECONOMY.
Same diff...
Because growing old and strategically defaulting is a hip style choice for the viagara and chardonnay crowd?
Your statements are idiotic. Have you looked at the levels of real private investment and hiring? Maybe you think hiring millions more bureaucrats to regulate(extort) business will "stimulate" economic growth, even as government debt reaches tidal wave dimensions. Not surprisingly, successful business people like Steve Wynn are fully capable of perceiving the allout war on business and private wealth being pursued by this regime.
Please place your supply-side lunacy alongside your head in that cozy space between your cheeks.
So, like I thought no evidence. Too busy dipping your balls in some tea I imagine.
Anyway, you are an moron, go blow Steve Wynn you wanna be, aspirational, sychophant.
Rosie has been tracking smaller side gov't difficulties. He's pretty well disciplined to use published data (many sources) as basis for commentary. I'd bet that he'll start in as the bad effects become more evident. Notice how he's been dancing around the "double dip" meme.
- Ned
Who needs tightening when you have credit destruction?
"Extremely rare" events? Conditional probability.
Industrials are the new housing bubble
The folks who got us here are the ones who are to get us out of it and have the tools to do so.. never fully` understood that one.
2x.
There seem to be all sorts of deflationists around these days. This is copied from Jim Sinclair. The ultimate explanation of what is to come.
Explained Time and Time Again: Currency Induced Cost Push Hyperinflation
Posted: Jul 19 2010 By: Jim Sinclair Post Edited: July 19, 2010 at 12:47 pm
Filed under: General Editorial
Dear CIGAs,
If gold market participants were all tank drivers their machine would have but one gear – reverse. The smallest book in the world is the book of confirmed gold price visionaries.
Someone says deflation and the long gold positions hit the fan. Gold banks make their short covers even though the fuel in Bernanke’s Helicopter Money Drop is founded in the dreaded use of the “D” word.
People are so fixed in present time that they cannot picture a euro back towards its high and the dollar back towards its low because the financial condition of the USA dwarfs the problems of the USA.
Hyperinflation is always the product of a loss of confidence in currency resulting in a “Currency Produced Cost-Push Hyperinflation.”
No one with a synapse talking to another synapse expects a “Demand-Pull Inflation.”
All hyperinflation in modern history has occurred for one reason, and one reason only. That is loss of confidence in currency.
Loss of confidence in a currency can be brought about by many reasons, but there is one constant factor. When hyperinflation has occurred in modern history EVERY economy involved was decimated as and when it occurred.
It has never been caused by “Demand-Pull,” but always and without exception caused by “Currency Induced Cost Push Hyperinflation.”
The nonsense being spread by the F-TV taking heads is that the Fed is out of ammunition to fight deflation. That is raving BS. The Fed can and will do QE to infinity which is restricted as a tool by nothing whatsoever. The ECB will not be far behind the Fed.
Argue all you want, but this is exactly what is going to happen starting now. Stop being glib. Study hyperinflation in modern times listed below before you ask me to explain it one more time.
What is out there today QE wise is enough to result in hyperinflation as confidence falls in currencies due to two characteristics, QE and volatility.
Try meditating on the concept of “Currency Induced Cost Push Hyperinflation,” rather than loading your pants over gold banks manipulation full of sound and fury, but meaningless in the great scheme of things
Zimbabwe must have had a helluva GDP number to cause hyperinflation (sarcasm).
USD is the worst currency except for all the other fiat. Sure, the world could lose confidence in the USD, but it will do so after it loses confidence in the Pound, the Yen, the Renminbi, the Euro, etc. Every time there is a crisis of confidence in one of those other currencies, the USD rallies. On a relative basis, the USD benefits from deep and liquid bond markets, unified fiscal policy from a Federal government, favorable demographics, better domestic energy resources, superior military to project hard power (with the ability to protect offshore energy supplies), ability to project soft power, leadership in technology innovation, etc.
Compare our current period to 1980. That was a true crisis of confidence in the USD. What had happened in the previous decade? Nixon closing the gold window; Watergate; military defeat in Viet Nam; social upheaval including race riots and violent police actions on civilian protesters; loss of industrial leadership to Japan Inc. and depression in the US industrial base; uneasy military detente with the Soviet Union, with questions about US military strength, Soviet invasion of Afghanistan, etc; conflict in the Middle East, including the Iranian hostage crisis and disastrous rescue attempt; two separate supply side oil shocks in 73 and 79; and a sitting US President undergoing a serious primary challenge. And disco -- don't forget disco :) How did the market react at the time? Record high price for gold and record high interest rates. That my friends is a real crisis, one that even the Greeks would be proud of.
The US exiting the 1970's was like a company that had zero to negative revenue growth, uncompetitive product lines, low gross margins and several consecutive quarters/years of operating losses. However, the balance sheet if not strong, was underlevered.
The US today is akin to company with competitive product lines, good gross margins, and decent prospects for revenue growth -- all compared to its competition. On the other hand, its balance sheet is overleveraged. But then again, the same can be said of the balance sheets of several of its competitors.
Truly, we are going through a period of a global crisis in confidence. Yes, it could result in the complete repudiation of all fiat currency including the USD. But do not discount to zero the possibility the world settles to a new equilibrium with fewer fiat currencies, even to a scenario where the USD becomes the de facto, if informal, one world currency.
Gold is a trade right now. Will surely go lower. One week it correlates with stocks, the next week with the dollar, the next week does the inverse. It's a trade and IMHO will be a much better buy when it settles lower and lower (maybe...maybe it will never be a good buy!). I still have not started an AU position at this time and see no need to either.
When all you hear is how the PM markets are managed, manipulated, and govt. controlled, and I see hundreds of thousands of short contracts by JPM and the like, then why the hell get in front of that locomotive. If you believe they control it and are shorting the hell out of it, why would you get long? Governments hate gold and will not allow its ascendancy.
We are living a new economic/currency paradigm and it seems in this new era, anything goes and the rules of the past have been suspended. So long as the rest of the world has just as much to lose from a hyperinflation episode as the U.S., then what will trigger it? The Chinese seem to be the only economy capable of challenging the U.S. for future economic dominance, but they are hip deep in dollars, euros, and yen. They live within the system too. Gold may have its day in the sun sometime in the future, but placing money on it now, in its speculated, manipulated, form is just too risky. I like gold for insurance, but not at these prices.
I like Oil....everybody needs it and it's getting harder to mine. If inflation goes crazy, oil will keep your head above water. It will increase in value with wars (no shortage there anytime soon), and if it dips during a deflation, you can rest assured you will get all your money back on a rebound without having to time it as you would with gold.
At this time, Black Gold is much better long term and less risky short term than the shiny stuff.
I think it is a mistake to compare our current economic scenario to past cycles. We seem to be in no mans land and to me, these 'times' are different, this time. As soon as you acknowledge that every bank is connected to every other bank and if they all start to fall, everyone will get crushed, then why would anyone want to tip that first one? Worldwide chaos would ensue and there is nobody in the power elite or the higher echelons of any government that likes rioting, chaos, and mass hysteria. Those trends are very bad for profits and that IS still the name of the game in our new global paradigm. Everyone is NOW a capitalist.
Do 'you' trust your dollars? I sure do. I don't have chickens or eggplant to trade and if we come down to that type of barter system, is a metal coin going to be accepted universally anymore than a newly discredited dollar? I think not. Ben Bernanke is printing dollars by the trillions and bluffing us all that money is still the same as it always was. We are pretty sure it isn't, but the only way to stop him is to call his bluff. If nobody calls his bluff, then we all just keep playing the game. I don't see anybody willing to call his bluff yet, now, or in the foreseeable future.
Talk your book all you want Turd but all signs point to deflation not inflation,much to the chagrin of the Fed. People selling to cover costs puts a deflationary pressure on assets not inflationary. Much as you gold bugs would like to see us become Zimbabnoway it ain't going to happen brother.
RoE: Perhaps we have different time frames of reference?
TF, perhaps we do. I believe we see deflation first...continued deterioration in housing, CRE, plus no increases in big ticket consumer items, jobs stagnant, wages stagnant, diminishing exports and trade in general, all asset classes generally down, etc.
Then comes QE2 to attempt a miracle at the polls come election time. I think Oblama and Ben have already cut a deal. O said 'ok I will bail out the street, if you promise to pump up the economy (kick off QE2 in a BIG way) just prior to election so I can be a 2 term pres.' I also believe that QE2 will dwarf anything we have yet seen. Fed ran the number $5Trillion up the flagpole to test the reaction. No riots in the street, right? So they will print till the cows come home. Hyperinflation. Dollar destruction. Gold to the moon, other commodities rising in whatever fiat currencies remain...if any...End of story.
That is my WAG and has been for a couple of years.
The first (?) round of stimulus was resoundingly opposed by americans. They passed it anyway. You think for a second, after watching the economy continue to deteriorate and lose more jobs, that our minds have changed since last time?
All of the political winds in this country are for austerity (by actually paying shit off, not by inflating our way out of it). These winds are incredibly deflationary.
Further, I used to be in the camp that thought we would get QE on the backside of another massive delfationary scare. First, I think this conveniently overlooks what we were facing in 08 when we opposed the bailout. Second, we already know we are at the end of our spending rope and have no desire to increase. To presume that we would magically desire QE 2.0, despite 1.0 not working, is incredibly near sighted and snotty frankly. Give people more credit than that... (or maybe don't, the worst debtors will surely take it!). Needless to say, after we KNOW what QE gives us, I sincerely doubt we will be clamoring for another... I think we're collectively realizing we, at the very least, must take our medicine. The fight now will be between private persons who face job loss and public employees who don't (and demand increases in taxes to give them cost of living increases). Third, the administration has painted itself in a corner by trumping up the state of the economy. Why would we need another stimulus, pray tell? Have you been lying to us?
If QE 2.0 is to be had, it will be without our consent. I'm not putting that out of the realm of possibility (after all, they did it once already), but I'm just saying everything that I see leads me to believe we are headed for a long period of deleveraging, which will ultimately be deflationary.
"If QE 2.0 is to be had, it will be without our consent. I'm not putting that out of the realm of possibility (after all, they did it once already), but I'm just saying everything that I see leads me to believe we are headed for a long period of deleveraging, which will ultimately be deflationary."
I screamed at my congressman about TARP...and, I know the guy. He solicited my support for local rail over more commuter lanes and I suppored him.
It did no good. Screaming or reasoning with these politicians is impossible. They are going to do what they want to do...period.
'A long period of deleveraging' will hurt the bond holders...friends of DC and Wall St, but it will destroy stock holders and creditors in general.
I see the mind set of these 'leaders' as playing for one more day in the sun. They have no long term plan, nor a plan B. They will kick the can as long as possible and that means QE2 is on the way. It will probably be timed for election cycle benefit.
Sell in May and go away is more true this year than ever in our lifetimes...but watch out in late August thru end of year.
I believe gold will continue it's climb when QE2 kicks off or on more bad soverign news...like a gilt default by GB, etc. If gold goes below 1000 look for extraordinary buying...to the point of busting LBMA and maybe COMEX perhaps. At minimum they will offer to pay in fiat at a premium over spot...and, that is a failure to deliver or, imo, admission of a totally broken market.
Clearly, we do not have enough money to vote.
Creditors and adverse parties are fucked either way, which is why we're range bound. Either debtors default in a real life version of a string of dominoes or creditors are repaid with monopoly money (and get to keep the collateral on the debt). This is a two part game, as noted by the famous quote by Jefferson, first they inflate, then they deflate. We crossed the rubicon into Act II with the fall of Lehman. TARP was just a test run to ensure we were fucked, among other things (e.g. shoring up cash position and distribution of record bonuses). The stimulus money is allowing a controlled demolition, as quick changes kill everyone (and ben can't/won't generate meaningful inflation).
What most people don't understand is that the real powers that be are individuals, insulated from financial ruin through limited liability organizations. This is why the record bonuses should be alarming, as they are a dead giveaway as to the intentions behind the "stimulus." The old entities will go belly up, the same people will set up new shops, and transfer all the assets from the old entities at pennies on the dollar. They know all the good assets the bad companies are holding and have all the connections to ensure first strike at the trough. The regulatory capture so prevalent will ensure that any takeover of the bad banks ensures the new entities will get the assets at firesale prices.
Gold already has a certain extent of QE 2.0 priced in. Even though some of the gold bashers are fucking nuts and troll the living shit out of us, they have a point on this one. Obviously, given volatility and questionable future of fiat, a substantial portion of the portfolio in PMs is IMO a good idea, but I would procede with caution on acquiring large % in the near/mid future. Probably a decent strategy to stagger purchases all the way down... If gold does not follow everything else down (except for paper "quality" of course), then this is the last hoorah... kudos for having a lot of it if you do... but, it's strength will signal this is the last chance at the flight to quality our monetary policymakers are so desperate to happen.
Good points all. I listen for phrases that I have not heard recently.
For instance, if you hear the bobble heads mention 'consumer pent up demand', it is a clue to what is coming. I have not heard the phrase recently but I don't watch the bobble heads. :)
What they do not say, as in music, is as important as what is said. We need to be as attentive as Sherlock and as lucky as Dr Watson.
Good luck!
What signs ROE? The latest M3 figure your favourite deflationista supreme high wizard conjured up from his leaky cauldron? Probably. But certainly not signs like inflating M1, M2 or TMS, oh no: those numbers aren't very convenient to the fledgling deflationsister. And avoid at all costs calculating CPI based on pre-1980 metrics, good heavens that contradicts the whole deflation thing too.
No, no. What you must do to be considered 'righteously contrarian' these days is just continue to desperately unload anything you have left that is of real value and give it to the ones sitting right next to the printing presses and skimming off whatever they wish for less than nothing. Never, ever stop playing right into the greasy hands of the gang on fortune hill. Dupes.
SOOoooo... Talk to us ROE. I don't think you're going to find all that many Goldbugs who are in denial about a deflationary period. Where we knock heads is the cure for it. What happens next? Are we going to print or default?
Either way, the USD is toast. Timeframe? Who knows. But my guess is that Turd really doesn't give a shit one way or the other. I know I don't.
Please don't mistake believing that fiat is a Ponzi for WANTING the system to crash. I believe I'm going to die. I don't want to, I just know it. Timeframe? Who knows.
Domestic default first. Once we have killed every golden goose in the country (many likely without any ability to appeal politically), we will move to default on the weakest countries in order of weakness, beginning with the weakest. Until you see domestic default done, don't expect the superdupermagicinflation. We have a long way to suffer through domestic deleveraging.
At some point along in the process we will have absolutely, positively nothing to lose by repudiating the international debt. At some point, it will be abundantly clear we have no means nor desire to pay our international creditors. It will be at this point that the dollar dies.
I suppose there is the outside chance that as we suffer through deleveraging and our military hegemony follows suit, a basket of foreign currencies backed by [insert commodity here] might overtake our austerity measures. Although, if the gold figures are accurate (probably not, but who the fuck knows), we've got a shit ton of that and we can play our hand. I suspect, much to many peoples' dismay, the reason the dollar has not been spanked by a commodity backed foreign currency yet is because at the drop of a hat, we can do the same and we're already the world's reserve currency. Call it a hunch. Obviously if a foreign currency rose to prominence, it would force our hand...
I'm thinking we suffer through deleveraging for a very long time... we will liquidate enough nonperforming assets to get the equation batted down enough to give us many more decades of compounding interest accumulation before another blow up. Hopefully we get to stair step on our technological advances rather than revert to another dark ages.
Although, if the gold figures are accurate (probably not, but who the fuck knows), we've got a shit ton of that and we can play our hand.
8000 tonnes (Fort Knox) / 165,000 tonnes (above ground worldwide)= 5% of world's gold.
So even if it's there, it's only 5% of the world's gold. Considering the size of the US debt and economy, 5% seems a bit low to me not "a shit ton".
Who are our nearest competitors and how much gold do they have? Are any of these countries likely to rise to the prominence necessary to be the world's reserve currency? Are they capable of having the military hegemony necessary to keep it afloat?
Take a look at this chart and tell me our relative position on the issue. http://www.zerohedge.com/sites/default/files/images/user5/imageroot/tric...
Remember, this is a game of less/least bad...
What likely scenarios do you see, based upon this chart, that would likely scare us in regards to a gold backed alternative currency?
Clearly the direction of the current economy is deflationary. This cannot be allowed to stand however as it will insure the ruination of the biggest debtors in the world, the US Government and the Fed.
Congress is scared to make any spending moves until after the election, Bam is out of political capital, Timmy G is a laughing stock and the TARP & Stimuli programs have not been that effective. So fiscal options are minimal until December.
That leaves monetary policy, Ben B is ready to make a move, but is getting some push back from the regional Fed Banks and "legal" options. So one could expect the Keynesians will win out, the mechanism will be the Fed with a wink from Bam, Congress etal. What is needed is 4-6 months of lousy economic/market data and they will beg Ben to load up the copter and make it better.
But they cannot just give free $$ to the banks anymore, so they will flout the Fed's charter and laws and spread the $$ to other people in different ways. It may even include a check to everyone. It will be big, on the order of $5T.
That will be when the fun really starts!
sschu
Looks like it is all going according to plan. Gold started its run to $1100 this morning. Debt deflation is picking up speed, housing foreclosures also picking up speed, which will accelerate the local and regional bank failures. At this rate, by the time Bernanke restarts the printing presses, it won't be just Krugman screaming for stimulus. Furtunately, the stimulus will arrive just in time for the mid-term elections. I love it when a plan comes together (-the A Team slogan)
The stimulus will be too late to have an impact on the elections, one way or the other.
I wholeheartedly agree with what you are saying, though... I think the Fed is looking for enough screaming from the masses before QE 2.0. It's not likely to work, especially if the rest of the world doesn't play along.
Help!
This thought kept me awake all night:
Imagine, what if you could see an exchange rate (or 2) before anybody else could see it. If you had enough time to trade on it before others got the update, well, that would be pretty nifty, wouldn't it? HFT over global distances provides you with just that gift. Communication over vast distances but in short time intervals, creates latency and is something that normally has to be factored in and compensated for, which also means it provides a temporal loophole for those who are clever enough to find ways to get the information to their server before it reaches others. The fastest information can only travel at the speed of light, which seems fast to us, but is snail mail to computers communicating on global distances. The most direct round trip communication with a satellite will have about a full half second delay. For HFT's, this would be like waiting hours or days for your next update. We know very little about proprietary HFT, but we also know very little about their communication networks. Are they using proprietary networks, as well? How might GS perform as if they could see the future? Because they can, at least before you.
"The fastest information can only travel at the speed of light, which seems fast to us, but is snail mail to computers communicating on global distances"
I don't quite understand what you mean. Computers cannot communicate faster than the speed of light.
Look at it like this:
To bring things up to scale, imagine the exchanges were on different planets. The limit to "instantaneous" communication is the speed of light. The latency in the system is huge. Thus, you could shave off minutes of lag depending on the position of your routers. If you can find or make a route that is several minutes shorter than that of others who might not be on the fastest networks or might get bounced around more or be using satellites over fiber, etc., then you're essentially seeing the future before others.
Now, scale things back down, HFT's are trading on the micro-second level, yet they can shave off milleseconds, if not a magnitude more.
Gamers are oddly aware of this lag issue already and how it can be a huge advantage, yet gamers don't even have reflexes coming close to the speed at which HFT's trade.
Dude all systems are constrained equally by the speed of light, which cancels any advantage. That leaves good ole cheating and lying as the most effective tools at GS disposal
Dude, it's the constrain that brings about the advantage. Otherway. Ever hear the old stories about traders moving ahead of the news, going to one town, starting a rumor, then heading back and beating the roomer?
It's a classic trick. I'm just wondering if it's still around but now limited by our communication network instead of horses or birds.
Speaking of that ol' chestnut of cheating and lying, good ol' GS is doing more of 'God's Work' and suggesting that miners reintroduce hedging production. I mean, look at how well that worked out for Ashanti...
So do you think that means GS has a new packaged product to sell miners? "You guys need to start hedging again and here's what you should buy to do that..."
Better start drinking heavily. Already thought of e.g.
http://www.datacenterknowledge.com/archives/2008/09/04/stock-exchange-ex...
So the colocation avoids the latency in routing/switching, not so much as in light speed as in store-n-forward latencies along the (arbitrary) network. Grace Hopper used to pull out an eight inch piece of wire and say "everyone should have a nanosecond in hand."
- Ned
Yeah, that's why it kept me awake much of the night once it occurred to me.
Something else I just thought of, most of trades now are happening regardless of market talk. When trades are happing on the microsecond scale, yet market rumors and such happen on much larger times scales, then it's almost all about the pure analyses. Can news even move these markets then? They must have parameters that some human enters and updates, but then the computer runs with it for a trillion trades before the next entry. Oh, to have such a toy to play with and tweak and see how it moves the market because it is the market and isn't a toy.
What a great idea! I wonder if Tyler can arrange a guest post by Sergey Aleynikov to fill us in on how it is done and let us know what unfair advantage that GS needed the FBI's protection to avoid.
http://www.wired.com/threatlevel/2009/07/aleynikov/
Inquiring minds want to KNOW!
- Ned
I think Tyler has already been putting these thoughts in my head with his narrative about the dominance of HFT and the dangers of such, but, yeah, I'd love to see even more emphasis on this topic and particularly so on the topic of when HFT get their information and how many trades can they execute before other servers (and other traders) get the same information. Man, if you live and trade no where near any of the exchanges, then you're the last trader to get any market updates in the microsecond world, meaning the info is already dated and no longer accurate. This may not seem like a huge deal, but I think a previous article on the fractal patterns in these markets show that it is a big deal.
I remember that case but didn't know he was Russian! Why didn't that make the big headlines? Russian Spy Steals Trade Secrets from Goldman Sachs. Maybe they didn't want to admit that the best skills for doing this kind of hack job of the market comes from Russia and that's why they hired him in the first place? Next headline might read: Why Did Goldman Sachs Employ a Russian Hacker?
Tyler is all over Inception, why he's ... er ... I'm off to watch the Red Sox.
- Ned
US equities should be down well over 2% today easy. Why the hell not?
Jimi hittin us with the rhetorical...
If Robo and TD want some blatant PPT manipulation to cherry pick, today is the day.
F*** your couch, Bernanke!
Becuase this is a light week of economic data that matters.
Yeah them housing numbers is light.
Well you have to pump it before you can dump it. It's MONDAY dude.
I haven't checked, but I think i wouldn't want to have bought the VWAP today.
Patience, grasshopper...
"...you have to pump it..."
Exactry.
THe "Double-dip" question is actually a semantic one. NBER has not officially recognized the end of the prior recession based on their criteria which were met in 1981. It's true that the second dip in 1982 was engineered by Volcker and the Reagan administration, in the hope of quashing wage inflation through a one-two of layoffs and breaking the backs of labor unions politically (as with the famed Air Traffic Controllers). However this time we've not recovered the pre-recessionary measures of economic activity.
So we're really just facing another cascading step down in a prolonged slump aka Depression.
Here's the real issue at stake: A "Double-Dip" is more palatable to Bulls. It signals that the trend is still up, with just a couple of cyclic hiccups in the middle. Much worse is the concept of Prolonged Slump aka Depression because there's no way to predict how long or how low we'll go. So once again we'll be caught up in a wasteful, harmful semantic argument about geometry (masquerading as politics) which will just have the net effect of avoiding the necessary and complex task of restructuring the economy.
Economic & political power go hand in hand. To expect the current structure as represented by the leadership of the financial community and the politicians under their employ to address with vigor the necessity of restructuring the economy for sustainability rather than serving the exponential growth curve is foolhardy.
Amazingly Rosie has been trashing the ECRI in April of 2009 when it was signalling a huge economic recovery with 5% annualized GDP growth. Rosie was certain that it was a headfake and called everyone reading anything into the ECRI a nutscase.
Now all of a sudden the ECRI is the best thing since sliced bread? Hilarious.
In all fairness what he questioned was the sustainability of what the ECRI was pointing at and what the markets were extrapolating as a V shaped recovery (or a sustainable V). I think that has been the question all along, throw money at the problem but have we really addressed the underlying issues and once that money and inventory restock fades, where will we be. The question wasn't the ECRI going up so much as why it was going up and could it stay up. That's turned out to be pretty valid.
I have been a private business guy for oh - 40 years. I have been though shit you could only dream about. Nothing like the nazi bastard government dumbasses running around looking for tax revenue.
Here's what I see....
Government in everything...
It is friggin frightening to see retard bureaucrats coming into my and my buddies businesses for audits and questioning them on every detail of every transaction in almost every day of the week during audits which for most of us are simply routine.
These fuuckers are so stupid they seem to think we are crooks first. Dammit we hire people! WTF do these cocksucking maggots think we are - squids?
Anyway, a buddy got wrung through the ringer and will pay a hefty tax reassessemnt becuase there simply isn't any point to fighting them in this age of big fucking government.
No worries though I just laid off all my staff of 100 today, closed my office and told the whole fucking lot of them it was becuase of their new normal government and am moving it offshore.
Moving to Jersey - - adios.........
fuckem where it hurts I say
XAUUSD / XAUEUR / XAUAUD bearish warnings issued since July 1 continue . . .
http://stockmarket618.wordpress.com/about
rosenberg is data mining. adding 20years additional ecri data shows a totally different conclusion