Active managers, stinging from the proliferation of passive indexing, are utilizing robots to transform active strategies into "passive" ones, capturing 20% of the US ETF market in the process.
Well that escalated quickly...EURUSD has broken the key 1.05 trendline level; and having rallied yesterday on the worst data since Lehman, today it appears some sense of resignation to the fact that The Fed is boxed in to a rate hike no matter what is setting in... and that the exuberant hockey-stick expectations of earnings growth is spiralling the toilet of near cycle lows oil prices. US equity prices have roundtripped most of yesterday's dead-cat-bounce spike with Nasdaq leading the drop and The Dow and S&P are back in the red year-to-date.
As HFT shops begin to turn on each other, it seems appropriate to reflect on the impact that Michael Lewis' Flash Boys book had on exposing the ugly truth that many have been discussing for years in US (and international) equity (and non-equity) markets. As Lewis concludes, after explaining the attacks he has suffered from the HFT industry, "If I didn't do more to distinguish 'good' H.F.T. from 'bad' H.F.T., it was because I saw, early on, that there was no practical way for me or anyone else... to do it. ... The big banks and the exchanges [have] been paid to compromise investors’ interests while pretending to guard those interests. I was surprised more people weren’t angry with them."
There was a point in 2010 when American capitalism might have had an opportunity to heal itself and commence on a long march toward sustainable growth and real wealth gains. But the monetary politburo would have none of it - keeping the pedal to the metal until this very moment... and the rest is history. The Fed and the other central banks around the world have fomented a new and even more virulent and dangerous financial bubble.
Warren Buffett's “financial weapons of mass destruction” - how are you?
Is this the end of the last great run for the U.S. stock market? Are we witnessing classic “peaking behavior” that is similar to what occurred just before other major stock market crashes?
From the meltup to Nasdaq 5,000 day to today... The Dow is down 600 points from its highs...
The current set of dominant market narratives are so well known as to be cliché. Invest where central banks are pumping liquidity, and short the currency of those countries or regions. Look for growth, and pay any valuation multiple that seems half way reasonable in today’s market. Expect any spike in volatility to wilt like cut flowers in the hot sun, and the Fed to care intensely about stock prices. And maybe that will continue to work in this last month of the first quarter… But it always pays to question the foundations of market assumptions...