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Commentary on The Capital Markets- Category [Market Musings]

The marginal buyer appears to have bought.

The premise of $600+ mobile device sales as a mainstream purchase by ordinary Americans, never mind overpriced $300 plastic-cased watches, appears to be a fantasy dream.

The iFemineProduct has quite-clearly peaked and started its decline, and computer shipments missed too.

Despite the screaming "buy buy buy!" last night this morning it appears someone woke up in a cold sweat and said "what the hell am I doing?"

Let's face it -- the so-called "gains" in the market have all been due to uneconomic decisions that were enabled by Fed and government policy.  This "looks good" for a while but in fact it is bad because the value that someone "gets" from such an event is in fact stolen from someone else in the economy.

That "someone" then cannot spend said funds (because they were stolen!) and as a result those malinvested funds are eventually lost as the mythical return the "investment" was predicated upon fails to materialize.  That someone is you.  Your grandmother, father, sister, young adult now being saddled with tens or even hundreds of thousands in debt to "attend a college" of dubious (at best) value.

There never was any such "wealth" created; paper share prices are just that -- paper.  They mean nothing until and unless you convert them to cash, and of course to do that someone has to buy them from you.  Until that time it's merely a number in a machine somewhere.

So where are the buyers and at what price?  Hmmmm...... think about that folks.... think long and hard.

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Oh c'mon guys.  You're on your high horse on "proper regulation" with regard to the accused "flash crasher"?

Where the F have you been?  I reported on this behavior in the futures markets in 2010, and nobody cared.  CNBC didn't care and neither did anyone else in the regulatory structure -- yet it was instantly apparent to anyone who watched, as it was going on right under everyone's nose and clearly visible over the 4th of July holiday.

It didn't take any sort of special access or view into the market; my retail trading platform showed quite-clearly a pattern of repeatedly placing bids and offers off the market and then immediately canceling them.  The counts were in the thousand contract area, which meant that with a $5,000/contact margin requirement you needed several million dollars on deposit to place these orders for initial margin.

Well, was that money on deposit?  Let's ask that question first because if it wasn't the order should have never been able to be placed at all.

Second, why wasn't this crap stopped instantly when it was noted to be happening?  It required no special power to observe, you only had to give a crap because all orders are tagged with their originating FCM and thus can be traced.  Quite clearly the so-called regulators clearly did not give a damn.

Third, I don't believe for one second that there was only one guy doing this -- not then and not now.

So-called high frequency trading, to the extent it is abusive rather than legitimate, has a simple solution as I have propounded upon for the last five years: Require every order that is placed to be valid for at least two seconds and require that every outstanding order be margined before it is accepted.

In other words an order can only be removed from the open order books by either (1) execution or (2) a cancel which is not effective until two full seconds have elapsed after the order was placed.

Further, all outstanding orders must be margined.  That is, you must be able to clear every order, individually and without offset, that you have open at any given instant in time.

This would instantly stop these abusive order patterns as if you tried it you'd be subject to having them hit and you couldn't issue more of them than you had margin in deposit to clear at any instant in time.

But no, we can't do that -- because if we did then manipulating the market upward wouldn't happen either -- and it's only the downward moves that get the regulator's attention!

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I'll be damned....

CHICAGO (AP) — A multimillionaire futures trader accused of being a key figure in bringing on the 2010 "flash crash" — when the Dow Jones Industrial Average plunged 600 points in five minutes — was arrested in Great Britain Tuesday based on charges filed in Chicago.


The Feb. 11, 2015, complaint charges Sarao with one count of wire fraud, 10 of commodities fraud, 10 of commodities manipulation and one of "spoofing." Spoofing involves bidding with the intent of quickly canceling the bid.

Hmmm... how about everyone else that has been doing the same thing for years?

I seem to remember writing on this in 2010 or thereabouts, including a video clip during a holiday when I was able to directly observe this "order" activity on my screen.  This sort of "order" has been a fixture of the "market" on a pretty regular basis; I find it rather difficult to believe that only one guy was doing this.

Further, exactly how long did it take to run down this "one guy"?

In short.... why now, and why only him -- assuming the allegations are true, of course.

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There are dark clouds on the horizon.....

Revenue misses are coming fast and furious this earnings season, and ignoring that is a very bad idea.

Everyone so far seems to be blaming the strong dollar, but IMHO that's misplaced.

The truth is that QE and it's pal ZIRP have short-term positive impacts with long-term costs that exceed the positive.  The long terms costs are now showing through the balance sheet in revenue misses.

Further, rotational trades into a handful of high-flying zero-earning (or damn near it; 400x P/Es may as well be negative) while the market itself has structural problems, is a pattern we've seen before.  Netfux anyone?

Now it is true that a few of these warnings have been false, particularly when they've come immediately before a further QE announcement.

But few if any have come from this far into overbought territory (1999 and 2007, anyone?) and when they do they tend to be associated with dislocation-style effects in the relatively-near future.

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2015-04-17 07:44 by Karl Denninger
in Market Musings , 114 references

Hope you're ready folks...

The CPI was a "miss", and yet the headline number was hit (as expected) by rising gas prices.  The claims is up 10%, but I don't know how you get there in that locally we went from right near $2.00 to about $2.40, which is closer to 20% than 10%.

In any event the other issue is the obvious one: Economic data surprises have nearly all been negative.

CNBS talking heads continue to rationalize away the facts -- particularly that economic surprises have simply not filtered through to either prices in the markets.

But they will, and when you add into this the fact that most of the non-McJob additions in the employment sector were in the oil patch here in the US, and that hiring has now reversed with low oil prices and these people are being furloughed, well....

You might claim "jobs have recovered" but when the remaining "jobs" are all entry-level and provide little or no upward mobility there's no economic driver involved in them.

Markets, particularly in the no-earning tech sector, have been extremely buoyant, along with the garbage fast-casual food joints.

Unjustifiably so, in my opinion....

Oh, and then there's Greece.... which is coming, and is going to matter.  Not so much because of Greece per-se, but because all that crap paper they wrote went somewhere, and the place it went was probably in places you don't want it with the LTRO gamesmanship and similar.

Remember that in a derivative-linked world this crap is levered 20:1 as allegedly "good collateral" behind those bets, and when the collateral is exposed as trash the loss isn't the face amount, it's 20x as much because governments allowed this garbage to be geared up by so-called "banks" as a means of legalized counterfeiting.

Here it comes.

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