Wednesday August 1st notched yet another day in the trading twilight zone. It all started when news circulated that Lewis Bacon would be [foregoing $40M in fees and 20% of whatever he could earn in the markets being privy to insider Fed meetings] returning $2B to investors. In closing he said that “Markets are increasingly distorted by central banks attempts to squeeze drops of growth from an over-indebted private sector.” Listen Louis – I couldn’t agree more…but you’re killing me giving up on this business. [Head does one rotation, counter clockwise]
Simultaneously, all
hell broke loose in over 100 stocks. To illustrate trading hell by the
numbers: In some names 5X the
average daily volume was directed to be executed "market on open", 148 stocks had to be investigated, 40 unsuspecting listed companies more
dislocated more than 10% from last
sale, trades were later cancelled indefinitely in 6 different names, and for
laughs China Cord Blood Corp more than doubled in price. [Head does one
rotation, clockwise].
Yes, these orders
were entered IN ERROR by a human and directed through algorithms that were
thrown into a market already dominated by 70% algorithms (because traders are
lazy anonymous sheep most of the time). For 45 minutes algo-bots attacked single
names and we had another un-tradeable financial tempest in a tea pot. There is
certainly human error involved but to address a few arguments mindlessly floated
out there by hard working floor traders - this IS a system failure. Human error has
safeguards built in common sense.
If it this isn't
system failure then tell me what would happen if a professional
floor trader with a badge took an order to SELL, for example, TWO HUNDRED MILLION SHARES OF PFIZER on the
opening. The hair on the back of his neck would stand up, his heart would race,
but his gut would blurt out to the order bearer:
"ARE YOU
[EXPLETIVE]’ing FOR REAL?"
To rant within a
rant - I always wonder why portfolio managers and execution traders aren't
FIXATED on NYSE openings - it is the only time of day you have a clue where
"VOLUME AT A PRICE" is going to trade and you can try to game it as you like.
If all traders committed to the patience of a proper stock opening they would
take the auction process out of the hands of the specialist and put it back in
the hands of the interested parties. But no, sadly in this version of Wall
Street the buy side only likes to play poker after midnight at
the Soho Club.
So we've been paying
close attention to all the events that undermine global investor’s belief in
this ultimately fragile financial system. Some of them make the platform we are
trading on feel like a road side tree house in Jurassic Park (and make me bullish gold)
so let's do a recap.
Starting in real
time going backward we are watching the toxic fraud known as the Facebook fall
off our screens, we had global exchange BATS go BATS$%T crazy on its own IPO day, we
had a veritable IPO cancellation parade down, and back in an ominous October of 2010
we had “THE FLASH CRASH” when some
guy in the mid-west evaporated $4 billion dollars in a simple miscue. Forget
about the implosion of real volume in a central bank waste land trading
atmosphere - all of this is taking place while (another branch of!) self
regulating authorities launch phony investigations and throw out buzz words like
"structural cracks", "technology issues" and "market glitch." Somebody rescue
us from this market structure hell.
Why can’t we wake up
Mary Shapiro & Co. at the SEC to demonstrate that she is useless but her job
abundantly secure. Go ahead - take the floor and please explain why this
trading cesspool remains in a broken condition and then tell us who is condoning
it?
All this monetary
and mental capital blown to smithereens all so that the NY FED could safely
transform itself from a client of investment banks, in theatrical irony, to
trade under the same conditions as the hacktivist global brain operates – for to
trade in an algo is to trade ANONYMOUS like an
expressionless man in a theater mask.
In another gross
coincidence of Hollywood entwined with reality – stock ticker
gone dark – KNIGHT SECURITIES [KCG] was the patsy in this unbridled computer
shit show. Thank God the damage was only the massive and abrupt loss of
somebody else's money.
Later in the day the
Fed warned it would end Zero Interest Rate
Policy Forever no earlier than late 2014, another desk worth of five
year traders was fired, equity traders put on shorts the market will never be
let them out of and everyone went home.
The next day everyone came in trying desperately to forget any of it ever happened.
