18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
18,468 Blog Posts

Goldman’s DJ Sol Says Program Trading to Blame For Market Sell Off

Quants, robo-advisors, HFT, and algorithmic based trading desks dominate Wall Street now. It’s has gotten so egregious, I literally base my investment decisions on how a quant would respond to sell off, the criteria it’d be interested in, and how negligent the programmers of said quant might be. Gone are the days when retail meant something to Wall Street. Trades are now done, based off AI, machine learning, and quantitative analysis. Certain triggered get hit, and a cascade of orders follow.

Goldman’s DJ Sol is out with a ‘duh’ moment, suggesting robots are to blame for the recent slide.

Source: CNBC

“There’s no question when you look at last week, some of the selling is the result of programmatic selling because as volatility goes up, some of these algorithms force people to sell,” Solomon told CNBC’s Wilfred Frost. “Market structure can, at times, contribute to volatility and one of the things that we’re spending a bunch of time thinking about at the firm is how changes in market structure over the course of the last 10 years will affect market activity.”

He continued.

“All those things are untested over any duration of time with severe stress,” Solomon said. “Now, when we see a little bit of stress, you can see reactions that might lead you to believe that there’s a risk that with more significant stress that could play a bigger role. I wouldn’t predict that, but it’s certainly something we watch.”

According to JP Morgan, as of last year, discretionary traders accounted for just 10% of trades.

Looking even deeper into quant trading, the high frequency varietal accounts for ~52% of all trades. That is literally the dumbest form of trader — the algorithm that rips trades to and fro in fractions of a second — with the goal of milking each trade for a small profit. Reminiscent of the scheme purported in the cult classic flick Office Space, those pennies quickly add up, and produce billions in profits to Wall Street’s top trading desk.

How profitable are these strategies?

Back during the hey day of HFT, 4 investment banks posted a record 61 straight days without a loss.

Even more perverse, and just to show you how the deck is stacked against the plebeian retail investor, JP Morgan lost money two days over 4 years.

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STRANGER DANGER: Gold is Defensive Again

I bought ABX today because gold is receiving institutional interest again. Now with China and cryptos destroyed, defensive nut cases have no choice but to barrel in sideways into gold. Over the past month, gold stocks have outperformed SPY by +15%.

I also bought some SQQQ, just in case we retest the lows — which is 200 Nasdaqs lower. There’s a lot of ‘just in cases’ in my moves, much to do with being restless, impatient, and impetuous. I am being petty — because my trading account is designated for trading. If it were a long term account, I’d snooze and watch teevee. But because I’m supposed to trade it — that’s exactly what I’m doing.

At the close, I was 60% cash, 5% SQQQ, and a fist filled with pleasantness.

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Cashing Out — Prepping For a Retesting of the Lows

This is the tedious part of dealing with Wall Street, them and their ridiculous traditions and habits and superstitions. Fine, we have to retest the lows. I accept that fact and will now prepare for that eventuality.

I cleared out of most of my SAAS plays and have raised cash to 70%. I did this because I want control over my positions and I do not want to be subjected to market swings, based on Saudi shenanigans or anything else for that matter. I am tempted to hide in cannabis or even gold and might take some positions today, if they continue to trend.

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I was busy all morning doing a little of this and a little of that — then I gazed upon the Chinese sector and found it to be white hot. The overall tone of the market is fat and disgusting; but the Chinese part is very skinny and beautiful — like a nation of bicycle riders subsisting solely on a diet of vegetables.

It the came upon me like a bolt of lightening hidden in a champagne cork, I wanted to become one of them. So then I took to Exodus and sifted thru my “Chinese Burrito” industry and came upon a small piece of shit stock that had already doubled. I pressed upon it with great energy and inserted my will and force into it — and bought it.

I am now what that company does, a Chinese drug dealer, and it’s perfectly legal and fine. You cannot stop me.

I bought CPHI — because the MUH chart looks good.

And here is the overall Chinese Burrito sector, totally oblivious to the world around it.

zài jiàn.

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Here’s Why the Market Must Continue to Rip Higher — Everything Depends On It

Rarely discussed, corporate and government pensions, are barreling towards disaster. For some reason, there is an assumption that what ails the government, with their $20+ trillion in debt, isn’t something that ordinary folk need to worry about. After all, times are good and corporate stock prices are near record highs, people are working, and even wages have been increasing.

But beneath the shiny veneer is a sickness that is festering, a red nightmare of underfunded pensions, both on a government and corporate level. They menace over markets like an explicit threat, a promise of crisis that is both maturing and spoiling with equal violence.

Former Dow component, and once upon a time great American company, has an underfunded pension of $31 billion and a business that is in the midst of restructuring. The stock has been cut in half over the past year.

But at a time when General Electric Co. is facing what amounts to an existential crisis, a $31 billion deficit in its pension plan may complicate any turnaround that involves a breakup of the 126-year-old icon of American capitalism.

Divvying up the obligations won’t be easy. After all, GE owes benefits to at least 619,000 people. And retirees aren’t the only ones at risk. Ideally, breaking up a conglomerate as sprawling as GE would unlock value for shareholders, who have seen their stock fall 40 percent since the CEO took the reins from Jeffrey Immelt in August. Stronger divisions wouldn’t be dragged down by weaker ones, and each business would stand on its own financially.


Here’s a nice genteel list of the top corporate pension deficits in America.

The municipal deficit is far more insidious, $6 trillion in the hole.

And this from Wharton.

“It seems like there’s enough blame to point to everyone,” Mitchell said. “All of those different approaches proved wrong, especially after the financial crisis where state and local pensions lost 35% to 40% of their money. It’s true that things have been doing a little bit better in terms of their investments, but still the fundamental flaw is that over the years employees were offered a future benefit that was not properly collateralized.”

Mitchell said the problem is worsening because state and local governments have neglected to take corrective action.

“Every year that goes by leads to more red ink and more concern because the state and local plans across the country have clearly not done what they should have done to contribute the right amounts, to invest their assets in their pension plans carefully and thoughtfully,” she said. “Older folks are living longer and needing more medical care, needing longer retirement benefits. It’s a series of challenges that, frankly, nobody is paying much attention to.”

Mitchell and Friedberg warned that the pension hole will swallow public- and private-sector employees alike, because all income earners will pay for it. Mitchell ran a simple calculation to illustrate her point: If the shortfall were $5 trillion, divide that amount by the 158 million workers in the American labor force for an obligation of about $32,000 per worker.

The PBGC, which is a federal agency charged with protecting US pensions for firemen, cops, and municipal workers, have seen their deficits soar in recent years.

The Pension Benefit Guaranty Corporation’s Fiscal Year 2017 Annual Report, released today, shows that the deficit in its insurance program for multiemployer plans rose to $65.1 billion at the end of FY 2017, up from $58.8 billion a year earlier. The increase was driven primarily by the ongoing financial decline of several large multiemployer plans that are expected to run out of money in the next decade.

The largest pension fund in America, CalPERS, has ~$350b invested and have recently reduced cash from 4% to 1%, in an effort to perform better. Bear in mind, during the financial crisis the fund shed $100 billion, losing 24% in 2008 alone. The fund went from being 101% covered in 2007 to 89% in 2008.

With markets gleefully soaring since then, one would assume, even presume, the coverage ratio to be significantly higher, yes?

You’d be wrong.

In spite of stellar performance and robust contributions, pension funding is only 71%, up from 68% last year. The fund doubled its  projected return last year, netting 15.7%.

CalPERS investment allocation for 2017.

It’s widely believed that once pension coverage hits 50%, that is, in fact, the point of no return. It’d take a giant miracle of Warren Buffet proportions to make up such a deficit. With investment allocations at 28% fixed income, 50% equities, it’s damned near impossible to do.

According to Pew Charitable Trusts, the cumulative pension gap is ~1.4 trillion,  at just 66% coverage. Presently, there are 5 states in the union below the point of no return (50%).

Now if you juxtapose that against the $375b deficit on the corporate side, the corporates don’t look too shoddy. After all, their coverage for defined benefit plans jumped 4.7% in 2017 to 89.2%.

Bottom line: the situation at the most sacred investment funds in America are truly in dreary condition, far worse than during the financial crisis — thanks to ballooning obligations. Could you imagine if the market dropped by 30% in a year, what the situation might look like across the country?

Side addendum: Here in NYC, a veteran NYPD officer gets paid $110-$175k per annum. Once retired, said cop gets half that amount for life, including benefits. There are 38,000 cops in NYC and these insane salaries are the result of runaway cost of living increases in the city.


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Forge Ahead Young Man — Stocks Are Rich With Value

Today was a brief stop along the runaway locomotive which is bound to crash into a cave filled with bears — killing them all dead. I expect a resumption of the bull rally to parlay into your brokerage account starting tomorrow, lasting for another week or so, until the great retest of the 2018 market crash is upon us.

When it happens, you’ll be so scared, I gather you’ll soil yourselves ridiculous.

I sold two stocks, both for egregious sized losses, only saved by their small position size. I am 15% cash and I couldn’t get myself to buy Chinese lottery stocks today, in spite really wanting to.

I have a strong and powerful mind for this sort of market, a wonderful blend of shocking behavior and wanton gambling, mingled in with a little irrational mood swings. I’ve done very well this year, much better than you and everyone that you know, probably combined. When I used to manage money, on days like this I’d simply waste the day box watching, chatting with clients all day, talking about nonsense. Now I do the same shit, but on Exodus where I teach people what they need to be told and so on and so forth.

Time to head out now.


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Chinese Boiler Room Stocks Jimmy-Rigging Higher

I don’t know what to make of this — perhaps another mania now that the weed trade has died down.

YECO is higher by 600% and several other Chinese material stocks, as well as financials, are shooting higher. These are stocks that normally trade 5,000 per day, now trading hundreds of thousands and millions. It looks like some boiler room broker won the fucking mega millions.



People are nuts.

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Here’s a Brief Rundown of Today’s Movers and Shakers

Markets are improving from the early morning sell-off, partly buoyed by strong gains in MS, USB, GS and other banks. Oil is notably on the downside, down by 2.7% WTI and 1.9% Brent. The contraction of the WTI-Brent spread is of course bearish for US refiners who mostly acquired crude in WTI and then retail in Brent. Refiners are moderately lower, off by 1.1% for the session.

Taking the other side of the oil trade are airlines, higher by 1.5%, led by strong gains in UAL. It’s worth noting, UAL, AAL, and DAL have stopped fuel hedging and stand to profit most from the drop in jet fuel costs.

SAAS stocks are off by 0.9%, following yesterday’s +6% surge — but have been firming throughout the morning.

Notable SAAS stocks include: HUBS, WDAY, CRM and recently IPO’d PLAN.

The Cannabis sector has cooled, in spite of Canada’s legalization of marijuana today for recreational use. It’s also worth noting, popular retailers of cannabis in Canada, Aurora Cannabis, has applied for their shares to be listed on the NYSE, under the ticker symbol ACB.

Notable cannabis stocks include: TLRY, NBEV, PYX, and CGC.

What a wonderful world we live in.

Moving on, auto parts stores are enduring ruinous losses today, thanks to a 23% drop in European car sales — likely the direct result of new emissions tests about to start. Some have dubbed this ‘Carmageddon’ (Zerohedge), but this is nothing more than coming off the August sugar high of +30% European car sales, as people bought cars as fast as they could before the new emissions laws went into effect.

Notable auto stocks include: AZO, AAP, RUSHB, and SAH.

Nothing is really trending today, however. Then again, we were higher by 500 yesterday, so consolidation of those gains is to be expected.

On the more aggressive side of the market, traders are diving head first into a nefarious Chinese, ticker YECO — higher by 275% now on 10 million shares traded.

The made an acquisition today, so apparently traders went nuts.

Yulong Eco-Materials Limited (Nasdaq CM: YECO) today announced that it has completed the acquisition of the Millennium Sapphire “MS”. Yulong announced on August 22, 2018 that it had signed a Sale and Purchase Agreement to acquire the Millennium Sapphire for US$50 million. The acquisition was acquired via the issuance of 25 million YECO restricted shares valued at $2.00 per share.

Other notable stocks flying to the upside, with market caps above $1b, include: VICR (+17%, earnings), SMCI (+9%, short squeeze), CZR (+6% on takeover rumors), NFLX (+6%, earnings), LRCX (+2.5%, earnings) and CREE (+4%, earnings). It’s also worth noting, SHLD is higher by 40%, due to bankruptcy filing, naturally.

Finally, and it should be noted, breadth is just 30%. The market might be recovering now, but most will view today as an overall poor day for stocks, especially in tech. Now representing a new record 26% of overall market capitalization, tech has undergone a deleterious decline over the past month — particularly in semis and software. Those two industries comprise of approximately $3.2 trillion in market cap, central to the bull case in tech and the overall market. Stocks like LRCX, CRM, ADBE, MU, amongst others, are viewed as lynchpins to the general mood of the market and would need to firm up first in order lure battered traders back into the mix. In spite of the pleasant 13% return in the Nasdaq this year, the technicals of the market have been greatly damaged in recent weeks and, as is always the case with these sort of squalls, traders will need to see some gradual improvement before fully committing on the long side.

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ALERT: Retest the LowFAGS Out Cavorting Amongst Normal Civilians

You have to know these people exist, if you’re gonna play the game. No one knows why we must retest the lows, only to resume straight up — but we do. We always do.

“This is the second decline of this year of 5 percent or more and two out of every time we had more than one decline in a year, the second decline was sharper than the first,” Stovall said. The S&P 500 dipped to 2,710 last week, a 7.8 percent decline from its all-time high in late September. In February, the S&P was down nearly 12 percent at its low.

“There could be a test of the lows. I’m not surprised that tech, consumer discretionary are leading the way [higher] because they led the way downward,” said Stovall. He said if there is another flush out to lows, it could come before the Nov. 6 election.

Markets are getting punished and I sold NEPT and YGYI — getting caught in a FUCKING SECONDARY on the latter. Whatever. I’m 15% cash now, heading for a sandwich break. While I remain bullish and believe the lows are in, I am not convinced the retest the lowFAGS will go away so soon.


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MARKETS HAVE BOTTOMED (Headline Archived for Aging)

There will be a retest, as the retest the lowFAGS make their rounds around Wall Street, whispering their FUCKING BULLSHIT into the ears of anyone who’d listen.

“We have to retest the lows, right? It’s the right thing to do.”

“But why?”

“For the technicals to truly bottom. You know, the market has never bottomed without first retesting the lows.”

“Oh, ok.”

I see most of you are unfamiliar with the fair value aspect to Nasdaq futures. Go fuck yourselves. We’re about to lift higher again and you really should fuck off.

I’m a little salty this morning because I got caught in a secondary, long YGYI. These are the gambles we take when buying absolute piece of shit stocks.

Canada legalized pot; fade cannabis stocks. Buy the dips when the sellers and the speculators exhaust themselves.

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