Sunday, October 12, 2008

Odds and ends.

I'm going to indulge myself a monologue of loosely related observations.

First, Friday's market action: Without a doubt the most volatile equities session I can remember in 22 years -- years that have been peppered with various and sundry financial upheavals. (Yes, of course the VIX hit another peak -- it reached over 100, in fact).

Friday's action was inhuman in character. That is, it bore the marks of robotic trading, and that in the form of a professional wrestling event. A cold, mechanical, zany, lightning fast contest of machines. One does not simply blink, when he sees the market down by seven hundred, only to see it down by three hundred by the time he has opened his eyes, unless large orders are being generated, sent and executed at or near the speed of light.

One thing robots lack is subtlety, which was always the mark of the capable trader. And lack of subtlety can be telling. Does Friday's robotic twitching tell us anything? It does suggest that reasons to buy were found, along with reasons to sell. If nothing else, some fleeting, historic arbitrage trades were made.

Wall Street -- I mean the real Wall Street, not the dog-feces reeking runway of overpriced condos where the neo-rich, the weird, and the arrogant come to strut -- is a treasury of time-tested wisdom. The old timers used to say that extreme volatility suggested (not "guaranteed") an impending trend change. Think of a damsel torn between the suitor she had been pledged to for so long (the existing trend) and the one she really wants. If you could chart her sentimental machinations, it might look like Friday's market action.

We'll have to wait and see which one she chooses. This kind of fickleness is the very thing that trading ranges are made of, as we indicated in previous discussions.

Speaking of Wall Street's treasury of wisdom, there's another favorite that says, "Money always returns to its rightful owners." If you want proof of that, just ponder this turn of events: Abramovich, Deripaska, Oligarchs Lose $230 Billion.

And another thing. What to say about this bit of incredible nonsense? During an emergency G-7 meeting in the throes of the most volatile day in world equities markets history, the prime minister of a European nation says, for quotation by the media, "The idea of suspending the markets for the time it takes to rewrite the rules is being discussed."

It is hard to outdo this remark in terms of sheer arrogance, not to mention folly, in which it lacks nothing. Its implications for the geopolitical structure are mind boggling. It calls to mind the word "apocalypse" in its fuller meaning. Fortunately the market, long since jaded to the inane utterances of grandstanding politicians, ignored this irresponsible remark at first, pending a reality check. Can you imagine the absolute rush for the exits that would have ensued, if the market really believed the doors were about to be barred with everyone locked inside? I trust any trading range would be bounded on the lower end by a significantly reduced value, should the idea be taken seriously.

Soon thereafter, the bright lights in the media began emitting stories with headlines like, "Market rebounds on Berlusconi comments," as if a global dictatorship over markets is somehow a good thing for asset values. Sheer nonsense. Fortunately, reality did indeed check in as saner heads in Washington announced, "White House denies plans to close markets."

Finally, a chastened, quite foolish looking old fat Italian billionaire "reverses himself, says no discussions were held to close markets." Oh, wait: he was a billionaire. He'll have to wait and see what this month's brokerage statement says he is now.

Do you need this translated for you? It means the fat socialists in Europe wanted to close the markets and get on with their plans for the long weekend. It means the idea was floated as if it were a done deal, telegraphed by a compliant media. Thankfully there's still enough backbone left in America that we said, "Get lost. Markets stay open." Let's hope we keep it up, because there is a meaningful possibility that we may not be able to, unless the supply to the markets abates.

Right now, America is the cool head on the scene, as it has been in one world crisis after another. America is the father that bails the wayward brats of the world out every time they get themselves into another pickle.

Quit saying this is America's fault, by the way. That's a tired old rant. We didn't create your asset bubble, any more than we created the tulip bulbs that ruined your economies a few centuries ago. But you can be sure we'll have to help bail you out. Not because we like you, but because we always seem to do the right thing for the common good.
Europe's drag on this mess is going to be a whole lot heavier than the US's, and Europe doesn't have the collective economic sense to grow out of it the way we do. We'll be the engine, you can be all the cars we drag along.

And finally, speaking of dead weight, may I please head off the flood of bleating for "global regulation" and "global market control" and all the associated idiocy that's going to be unleashed by saying, if antitrust applies to business, it also applies to government?


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