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Veteran
Posts: 214
| You could easily have missed this but US stocks dropped near 10% in about 15 minutes around 14::40 EST. They recovered about 7% within an hour but the why of it is still a mystery:
http://www.marketwatch.com/story/regulators-on-the-flash-crash-its-...
Not surprising then that I don't have a certain answer for you. The best I have so far is that the pregrammed traders stopped, that reduced the liquidity of the markets significantly (by about 70%) and the makets malfunctioned as a result.
If I find an answer I'll post it here. Meanwhile be aware: this could happen again and there is a small but real risk it could bring down this financial system. The speed of the 6th May happening is impressive, implies the system could break in a day or so.
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Veteran
Posts: 214
| This has rambled on a bit, sorry.
A commentary on Minyanville hinting at specific market manipulation probably related to Apple shares:
http://www.minyanville.com/businessmarkets/articles/apple-microsoft...
That links to the preliminary official report (PDF of about 80 pages plus 100 pages of appendices) which I've not properly read yet (you'll probably need to have a decent understanding of the financial markets to find the report fully comprehensible):
http://www.sec.gov/sec-cftc-prelimreport.pdf
Some quotes that jumped out from that report as I glanced at its first 7 pages...
"This extreme volatility in the markets suggests the occurrence of a temporary breakdown in the supply of liquidity across the markets."
"We have found no evidence that these events were triggered by “fat finger” errors, computer hacking, or terrorist activity, although we cannot completely rule out these possibilities."
"The precipitous decline in price in one market on May 6 may have influenced a sustained series of selling in other financial markets."
"14% of securities suffered greater declines than the broader market, with some trading all the way down to one penny. The experience of these securities exposed potential weaknesses in the structure of the securities markets that must be addressed."
"In fast-falling market conditions, stop loss market orders could potentially trigger a chain reaction of automated selling if they are in place in significant quantity for a particular stock."
"analysis of market performance measures is consistent with the conclusion that a very temporary, but serious liquidity shortage occurred across the securities and futures markets."
The report does seem to give very interesting insights into the way the markets currently function, but it's probably a good day's work to properly comprehend it.
I don't know whether there was deliberate manipulation or whether it was just the result of an unfortunate confluence of events that caused the apparent malfunction of markets, hopefully we'll find out in time and in time. There does seem to be a reasonable case for suspecting manipulation. I do think (no, I know and noe) that financial markets have now become seriously and fatally maladaptive. Their original purpose of funding business is now near an insignificant irrelevance relative to the casino that has become their present main purpose. Indeed, transactions in stocks and commodities are now secondary to the multitude of derivatives which have become the main market movers.
All of that must be stopped and reversed very, very quickly. Essentially the basis of our present 'financial industry' needs to be destroyed before it destroys itself and the basis of our present economy with it. The time to do it may be frighteningly short - and it won't happen.
I'd expected a minor bounce in stocks coming out of the very poor May 2010 performance. The loss of about 4% over the last 2 trading days (Friday 4th, Monday 7th June) looks to have scuppered that for various 'technical' reasons. Previously I was anticipating a drop of 12 to 25% from the April highs sometime in the August-October period. We're already below the 12% drop, I now expect a 25% to 50% drop from those highs in that timeframe, which, to put in context, could easily be greater than the collapse of 2008/9. The possibility of a total meltdown has become a significant possibility (20 to 30%?).
Two possible contributory events could be...
1. The Katla volcano in Iceland (its biggest) which showed signs of stirring around 22nd May - though it does show frequent enough seismicity for that NOT to be a reliable indicator of eruption:
http://www.msnbc.msn.com/id/37371442/ns/world_news-europe/
http://www.volcanodiscovery.com/en/volcanoes/europe/iceland/katla/
http://fabiusmaximus.wordpress.com/2010/05/28/052810katla/
http://www.volcanolive.com/katla.html
http://www.volcanolive.com/news.html
2. A very active Atlantic hurricane season, as is being predicted:
http://www.noaanews.noaa.gov/stories2010/20100527_hurricaneoutlook....
http://tropical.atmos.colostate.edu/forecasts/
But the financial markets don't require external triggers, they're quite capable of shooting themselves in the foot, leg (as in late 2008), or head (as they will likely do within 2-ish years) all on their own.
Oil has remained stubbornly above $70 per barrel (WTIC next month contract), and gold is atypically high for the time of year - it normally declines May through July before peaking in the October-February period as a result of South and South East Asian demand (wedding and festival season). Very odd to see it pushing its all time high in nominal terms at this time of year. Over the last decade the best time to buy gold has generally been in late July. Some agricultural commodities (wheat, corn, soybeans) are languishing a bit just now and might be near bottoms. I'd be inclined to sell gold and buy grains with a view to reversing some of those trades in about 6 to 8 weeks. Gold could go stratospheric (well, up by 50%-ish) from its summer 2010 low to spring 2011 high.
I guess the gist of what I'm saying is: things don't smell right at the moment. We could be hitting some serious turbulence a bit sooner than I expected and I'm not quite sure why - the markets have been very capable of ignoring reality over the last decade so why are they showing signs of acknowledging it now? Hmmm. Dunno. But it troubles me. It should trouble you, too.
Or maybe I'm just talking myself into staying on the Black Isle, lol.
Nah, it convinces me that I must get away fast just in case things break even sooner than I expect and I never (in this lifetime) get to see the southern side of the Cairngorms again. I'm sure I'll see it coming in time to get back - or am I?
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Veteran
Posts: 214
| Is that there is no sign of Katla becoming active, and there was a bounce in financial markets just after my previous post above.
Bad news predominates.
The first tropical atlantic storm of the season reached hurricane status: "Hurricane Alex, the strongest June hurricane in 44 years ... made landfall at 9pm CDT last night, 110 miles south of Brownsville, Texas, as a Category 2 hurricane with 105 mph winds. Alex was the strongest June hurricane since Hurricane Alma of 1966, which had 125 mph winds as it skirted the west coast of Florida." It could have been worse, if the ridge of high pressure over the northern Gulf of Mexico had been weaker or Alex stronger then it could have tracked more north, intensified further,hit more population / oil and gas fields / BP spill.
Perhaps the best place to get info on current hurricanes is:
http://www.wunderground.com/tropical/
If you want minute by minute info (though you'll have to tolerate a fair bit of nonsense comments along with the excellent analysis) Jeff Masters' blog there - linked on right of above page - is the best I've found.
First indications are that 2010 hurricane season may well rival 2005. The waves coming off Africa look ominous already, sea temperatures are mostly well above normal, the transition from El Nino to La Nina favours tropical storm development. Not good.
That bounce in stock markets. Well, looks like I was a tad premature but otherwise spot on in what I said above. The bounce came weakly a week late but has subsequently broken down and confirmed the violation of several important technical support levels, expect a further 7% to 10% drop over next 2 months (and it could be double that) and more thereafter.
More ominously we got drops in just about everything today (stocks, US$, gold, metals, oil etc) - all these markets rarely move in tandem except when there is a need to liquidate investments to cover losses elsewhere, but we really shouldn't be at that point just yet so I have no convincing explanation for it. The only sector that gained was agricultural commodities, perhaps explained by the weaker US$ but that didn't stop other commodities dropping, LOL.
These bode ill. Smells like dip two of the great recession is looming even before the tightening of UK and Euro economies bites, and before the US realises that fiscal stimulus can't resurrect a dead patient. So, it could be that stage two of the financial collapse (stage one was August 2007 to March 2009) has begun a bit ahead of my schedule. I'm not yet sure of that, perhaps tomorrow (2nd July) - being US NFP (Non-Farm Payrolls = employment data) day - will tell.
Personally I've really enjoyed my week near Turiff with Max & Hanna, then 10 days at Culdees by Loch Tay getting a good sun tan. Now I'm in Yorkshire for about 10 days before heading off to Wales. | |
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Veteran
Posts: 214
| The secondary top looks in for stocks earlier this week. Though I don't expect an immediate plunge I think it's basically downhill for stocks hereafter with biggest damage likely to start around very late July with lows of worse than -20% versus now within 2 to 3 months.
Not sure what it will mean for other assets like commodities, logically they will be squeezed down also. Grains like wheat and corn have bounced nicely (10 to 30%) since lows in the first week of June (I nailed that one in my 7th June post above) I would hang on to them for a while if only because nothing else looks more promising at the moment. Gold and oil have meandered marginally lower. US$ has weakened 6%. When stocks do sell off rmedium term correlations suggest that US$ will bounce, but one day soon-ish (in next year?) that pattern will break conclusively. When that happens the odds are we will be over the brink and the only real question is how fast and how far. Will that reversal in US$ / stocks correlation happen in next few months? Probably not, so expect a US$ bounce of magnitude about 25% of stocks decline (so 20% stock decline = 5% US$ bounce) which would probably take commodity prices down across the board by 1x to 2x the US$ gain.
Gold should have made a seasonal low already but I think it could drop a further 10 to 15% before breaking to new highs. If I'm right expect gold to hit $1350 in the November-March period, if I'm wrong expect it to hit $1750 in that time (currently $1205). Oil is at the whim of weather and geopolitics at least as much as economics, I'll stick with my prediction of last December for a peak of $95 and yearend $92 (currently $76.71) drops below $70 should be bought.
If you plan to sell a property in UK, US or many other developed countries then I think you've missed the boat. If you think you'll need to sell in next 5 years (ie. in this economic reality) then move as fast as you can, accept any sane offer, then rent rather than buy. | |
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Stocks plummeted on UK election day