Our friends at Themis Trading, who continue the good, if seemingly futile fight, for a fair and untiered market, refresh on their late 2010 market structure forecast, only to find that with a 1 out of 10 "success" track record, they have the same predictive hit rate as Byron Wien and Joe LaVorgna. Which, incidentally, is not a good thing: it simply means the US stock market is now more broken and corrupt than ever, a development that is not lost on US investors, who later today we will find have redeemed a near record amount of cash from US equity mutual funds in 2011, and have pulled cash for 34 out of 35 weeks in a row, leaving mutual funds with virtually zero cash buffer, massive leverage and dreading that day when the Santa rally coupled with low volume levitation is no longer sufficient to mask the massive capital hole in the heart of the S&P 500.
In early 2011 we penned out market structure predictions for 2011. We revisit them in this note to keep score and measure our accuracy. We have failed you, our clients, in making predictions that can only be rivaled in their accuracy by the venerable market strategist, Joe LaVorgna. We were one for ten, and failed to hit the Mendoza Line.
1) A certain large exchange eliminates flash-order types in equities, but implements them at the NJ Food Bank. David Tepper is pissed.
- FAIL. Flash Orders have been exponentially on the rise with different names. If you ever hear the words “liquidity partner”, run Forrest run.
2) NYSE apologizes. Tears down Mahwah. Hires back 486 traders from Staten Island.
- FAIL. NYSE not only did not apologize, they agreed to merge with DB and export the HFT “market making” model to other countries and asset classes. Also, they hired back none of the 486 traders from Staten Island.
3) A large Chicago HFT firm hires Joe Saluzzi.
- FAIL. Joe still works at Themis.
4) Tyler Durden of ZeroHedge closes up shop and goes to trade double inverse ETF’s of baskets of CDO’s that start trading on Exchanges.
- FAIL. ZeroHedge media reach hits new records each month. Also almost all of the double-inverse ETF’s have been converted to triple-inverse ETF’s.
5) Funding is increased at the SEC through a corporate sponsorship program whereby financial firms can sponsor specific line items in Rules.
- FAIL. This program has been put on hold because the House Financial Committee has been distracted trying to bury the STOCK Act (Insider Trading Rules for Congress).
6) The Bernank announces a new Exchange in which rebates are given on added AND taken liquidity; volume explodes. Dow hits 20,000.
- FAIL. The new exchange has not come to pass, and volume has not surged, as parasitic HFT volume cannot divorce itself from massive flight of funds from Investors.
7) A major fund manager introduces Single-Stock ETF’s, in which ETF’s are created to track the performance of specific individual stocks.
- FAIL. We are early on this one. It will come!
8 ) Warren Buffet starts a High Frequency Value Fund.
- FAIL. Buffet still on the sidelines here, although Venus Capital has introduced its Relative Value Fund, which “exploits temporary anomalies in pricing relationships and correlations.”
9) FastFiberInc launches a new dark fiber route that exceeds the speed of light by 16 mph.
- PASS. NANEX has shown how YHOO, based on official UQDF/UTDF exchange timestamps, trades were executed on quotes that didn’t exist until 190 milliseconds later!
10) Dark Pool volume hits 100%, public quote abolished.
- FAIL. Dark volume has one exploded to about 35% of the market.