Can it be? The game resumes…
Nobody can say anything more about last Thursday’s crash than, “Crazy Robots” or the old “more sellers than buyers” as an excuse for those truly harrowing few minutes.
As I have alluded to before, in my humble opinion, the reason for the crash is that Wall Street put a gun to the fleshy shoulder of Washington and pulled the trigger. Just to show they can. And it hurt.
Sure, the Eurozone is bad. But that was the smokescreen; the seemingly legitimate excuse for the “more sellers than buyers” crash. It was addressed quickly with another trillion and without much worry.
Goldman or whoever is the king of HFT knows the weakness in the market. After all, they were given the keys by John Thain when he went “all in” to the dark side. No more people getting paid to take risk, only machines.
The first shot in this new war was made by Obama in January and the markets were programmed for a drop of 100 SPX points. That was a firm warning and Washington paid attention. Financial stocks began another leg up on the expectation that there would only be toothless reform. But the draw of populism was just too strong–especially after their victory against the evil health insurance companies. The administration was emboldened.
By bringing charges against GS, they threw down the gauntlet. By embarrassing them in the kangaroo court, they assured reprisal. The Greek/Euro story was perfect cover for their nefarious plan to get even, and kill any real reform. To show them who is really boss.
After a few days of concerted big volume selling pressure, the markets were primed. Pressure was brought to bear and the market softened under the body blows. Then the hammer fell, all HFT buys ceased and non-HFT buy orders were routed to the Sidecar. Sellers continued to mainstream directly into the market. It was mostly over in 5 minutes.
Stops were hit and sucked up by buy stops under the market. The selling pressure let up and buy spigot was turned back on.
Here we are, just a stones throw away from 11k and 1180 again. that is your resistance. Game on, again. Low volume uppy, goody/high volume downy, baddy…
The big question now is if Goldman–who lost money ZERO days last quarter (lol) will “run-em and gun-em” again just to make the point and as a reward for their humble victory. Somehow I think we will have a few more days of volatility and scare to ensure the public is out of the market.
Contrary to reports, “they” don’t want the odd lotter in the market. They want them out and after last week, many are screaming to the heavens to get out of this broken market. They want and pretty much have obtained complete control.
Congratulations! We are the financial capital of the world! And major financial reform is dead…
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Scott,
In my opinion, I think a flaw in your thesis may be that last weeks dip is going to ensure even more regulations.
i would buy this being a market market conspiracy to put restrictor plates on HFT and restore humans to the equation or HFT figuring out a backdoor to tank the market and clean up, but I think GS is in No Mas mode right now, not trying to ramp up their problems.
I think the crackdown on HFT systems is going to end up being stronger than anticipated.
thanks for your posts on IBC
Government simply does not have the tools to handle the markets. They can stuff it with money, but that’s about it…
Scott,
Merkel made some comments last week that echo your point, but she did so in the context that Governments have to take back control of markets. There is a worldwide movement towards regulation. Governments will reassert control over markets, it’s the nature of things.
Ironically, I think this movement, while bad for the derivative and synthetic markets, will be good for the plain vanilla equities’ market.
At the end of the day, it the world governments want reflation, it is going to happen. Goldman is powerful, but they don’t yet control monetary policy or the money printers. We are seeing the largest worldwide liquidity pump in history. Stocks will reflect this .
where is your office, on the grassy knoll?
I hope you’re right. If it’s between the perceived evil of large financial institutions, or the evil of Washington types, I’ll take the financial institutions, hands down, every time. I can wrap my mind around the first type; what its goals are, how its strategies are being implemented, what its problems and boundaries are, etc.
The second kind, though, I can’t figure out at all. No strategy, no forward planning, very little cohesion of thought…My experience with Washington is that if they perceive there’s a problem with, say, housing structure regulation that may put someone…anyone…in danger thirty years from now, they’ll go to the lengths to bulldoze everyone’s homes today.
Never attribute to malice that which can be adequately explained by stupidity.
Scott,
You’re right about one thing: the HFT buy spigot was turned off. The question is how or by whom. I’m not sure there is a “who” behind this event, at least not a single one. My sense is that you’re not giving enough credit to what’s happening in Europe. The banks there are fucked, and they need their pound of flesh just to not collapse. There is a significant funding shortfall, which is why the Fed had to open swap lines. They need dollars and euros bad, and there’s not enough to go around. Just like the banks here 18 months ago, they’re having short-term funding problems.
Still, I do agree with your general thesis that there is a war going on between Washington and Wall Street as to who will run this country. Mr. Cain thaler seems to believe that there’s rhyme and reason to Wall Street. But that is not true. As we know, it is a machine, and it will run over everything and everyone, even—and here is the big problem—itself. We are no longer in the space of macro/micro economics. This is political-economy, and the consequences are fare more significant than just marginal tax rates.
Nice comments. Here, here…
Spooky,
in the War between Washington and Wall Street, Main Street is on the side of Washington. Wall Street is going to find out what happens when anyone tries to go to war with the United States government. Wall Street doesn’t have nuclear options, Congress makes the laws, has police power and the commerce clause which gives them a virtually unlimited arsenal.
Washington wants Wall Street to stop trading and start financing American businesses. They want the 401Ks to go up so they don’t have half the populace on food stamps. Washington will get what Washington wants.
You’ve got the cause nailed (finally someone has…), and for the learning impaired out there let me focus your attention to Scott’s following sentence:
Stops were hit and sucked up by buy **stops under the market** (ital added).
Most traders have the data sitting on their PC right now to construct a “zapruder chart” of what happened. Get the funnel data from SPY and plot the price, bid and ask. Simple as that. Also note when there was **not selling** and when there was buying and also the volume. Story over, move the fuck on, we move higher.