US stock market 'levitation' is really becoming blatant ...
yes you read this right ... 1/3rd of ALL New York Stock Exchange trades this week were the result of large Wall St. financial houses trading shares amongst themselves !!!!
I would also add for the benefit of anyone who isn't familiar with the jargon, that a 'principal' account means company money ( or in this case TARP money) whereas a 'non-principal' account means private investor money.
(snip)"Latest NYSE Program Trading data out. Program trading last week ramped up by 27% from 26.5% the week before, to 33.7% of all NYSE buy+sell volume, and much higher than the 52 week average of 25.3%. The 15 most active member firms traded 1.9 billion shares for principal accounts, compared to 1.6 in the prior week. The top principal trader is and has always been (at least for the past 9 months) Goldman Sachs, with 741.7 million principal trades, virtually nothing in facilitation and 115 million in agency, keeping the principal to non-principal ratio at just under 7x."
"And if the Goldman Supplemental Liquidity Provider team is patting itself on the back for its tremendous contribution of being the major (and likely only) liquidity provider, maybe they can explain the insane bid/offer spreads on the SPY at close today (and everyday): one could drive a Tengzhong Sichuan-made Hummer/forklift through that spread blindfolded"(snip)
Again for the benefit of anyone unfamiliar with the jargon, the 'spread' refers to a gap between the prices being asked by would-be sellers and the prices actually being offered by would-be buyers. The relevant point of course is that, once the bidding / buying by the principal accounts of the big Wall St. financial houses stops, the remaining bids originating from any other source (i.e. private investors) are FAR lower in price. However, since no trades actually take place at these lower prices, the SPY does not fall.
The implication of course is that the 'natural' price level of the SPY is far lower than the 'levitated' level being created and sustained by this Wall St. principal account trading. The conspiracy theorist interpretation is that the gov't / FED, via TARP funds and the 'collusion' of the big Wall St. financial houses, is now manipulating the S&P.
Re: US stock market 'levitation' is really becoming blatant ...
Rockefeller strategy.
Didn't work to well the first time it was employed either.
Re: US stock market 'levitation' is really becoming blatant ...
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
The above may be true, but the fact that yields on "safe" (eg- money market, t-bill mutual funds) suck goat testicles now could be a motivating factor. With aforementioned yields south of 1/4% (I've heard a few recorded hotlines where any yield isn't quoted), dividend paying stocks, even those paying measly rate are looking more & more attractive.
Re: US stock market 'levitation' is really becoming blatant ...
Quote:
Originally Posted by
Melonie
yes you read this right ... 1/3rd of ALL New York Stock Exchange trades this week were the result of large Wall St. financial houses trading shares amongst themselves !!!!
(snip)"Latest NYSE Program Trading data out. Program trading last week ramped up by 27% from 26.5% the week before, to 33.7% of all NYSE buy+sell volume,
Nothing too suspicious about that. If people have big positions to close out, the only people able to take the other side of the trade might be other big institutions. Program trading ramping up might be an indication that some technical signals have been triggered and GS is putting on a big trade (not unlike when one of you posts some charting analysis and then someone goes BUY NOW!)
Quote:
Originally Posted by
Melonie
The relevant point of course is that, once the bidding / buying by the principal accounts of the big Wall St. financial houses stops, the remaining bids originating from any other source (i.e. private investors) are FAR lower in price. However, since no trades actually take place at these lower prices, the SPY does not fall.
Yes, we should mark the price to the highest bid! No, the lowest offer! No, the average spread! All of these present blatant opportunities for market manipulation, and most exchanges around the world agree that last traded price is probably the least susceptible to such things.
:magnify: Trite example: Let's say we mark to best bid like you seem to think would be good. Say personal investors buy a bunch of XYZ stock, but then due to the economic crisis, they stop buying, waiting to see what happens next. Big institutions are stuck short, because personal investors bought off them. Oh well, just pull all the bids, and then the "price" will fall. This might cause personal investors to get margin called, and have to dump their shares at a big loss. Profit! :highfive:
Re: US stock market 'levitation' is really becoming blatant ...
^^^ your latter point is essentially an analogy of 'mark to make believe' versus 'mark to market' where unsalable bonds and CDO's are concerned. The gov't felt that 'mark to make believe' was sufficiently misleading to enact Sarbanes-Oxley and the 'mark to market' accounting requirements that went along with it. Stockholders in banks holding CDO's took a massive beating as the collateral value of those CDO's was 'marked to market', with resulting 'calls' i.e. increased reserve requirements being imposed on the banks. Why shouldn't the stock market be forced to play by the same rules ???
Re: US stock market 'levitation' is really becoming blatant ...
So you're saying as soon as spreads widen, people with either a long or a short position should be both forced to take huge losses? I don't know what the situation is like in the US, but over here many stocks are quite illiquid, let alone options, so if you said "if there are no prices on the screen, we'll just assume anyone with a position is bankrupt", then all trading would just stop.
Re: US stock market 'levitation' is really becoming blatant ...
^^^ tell that to Lehman Brothers ! Same fundamental scenario. If there aren't actually any real world buyer's bids / trades, then the 'price' of any such illiquid security is being 'marked to make believe'. This is great for governments / bankers / brokerage houses, but from a 'retail investor' standpoint it's a fraud pure and simple.
Re: US stock market 'levitation' is really becoming blatant ...
Well, in reality, most of the small companies listed on the ASX are very illiquid (ie. wide bid ask spreads much of the time), but many personal investors still want to trade them without being treated as having potentially worthless portfolios simply because the screens aren't full of quotes like bigger companies.
Such a mark-to-market regime would decrease liquidity on a compounding scale, as people factor the "mark-to-market" risk into their trades. That is, on top of all the other factors that go into trading, you have a random P&L every day from how wide the spreads are, and random margin calls. So as a stock gets more illiquid, that risk goes up, and that makes it get more illiquid, and so on ad inifinitum.
I hear that most things are really liquid most of the time in the US. That's not really the general situation all around the world.
Re: US stock market 'levitation' is really becoming blatant ...
Quote:
Well, in reality, most of the small companies listed on the ASX are very illiquid (ie. wide bid ask spreads much of the time), but many personal investors still want to trade them without being treated as having potentially worthless portfolios simply because the screens aren't full of quotes like bigger companies.
granted that personal investors don't want to 'face the music' of mark to market accounting. But in the US at least they DO face it whenever an actual trade takes place. But this is precisely the scenario which allows 'manipulators' ( such as two big Wall St. firms trading a few shares between themselves in the absence of personal investor demand) to 'artificially' inflate the price levels of said stock shares !!! The same 'manipulators' are then able to leverage their unsold shares of the same thinly traded stocks. Yes this makes personal investors happy in the short term. But in the final analysis, those same personal investors will get a rude awakening when the day comes that they wish to sell their own shares and the 'manipulators' are no longer buying !
Re: US stock market 'levitation' is really becoming blatant ...
Quote:
Originally Posted by
Melonie
^^^ tell that to Lehman Brothers ! Same fundamental scenario. If there aren't actually any real world buyer's bids / trades, then the 'price' of any such illiquid security is being 'marked to make believe'. This is great for governments / bankers / brokerage houses, but from a 'retail investor' standpoint it's a fraud pure and simple.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Is there any fairly readable way for "RWB" to gauge whether or not make believe pricing is taken place?? Offhand, I can't think of any, except maybe an inordinately large number of institutional/very wealthy individual buys? (% of total trades- wise). Not an MBA or CFP here, just one of many "RWB's"
Re: US stock market 'levitation' is really becoming blatant ...
^^^ well, to there are a few skeptics out there who 'watch the spreads' and 'follow the money' in an attempt to identify situations where 'unusual' trading / bidding activity is taking place. For example, consider this week's treasury auction ...
(snip)"More notable were the Fed's open market operations around and on the days of the fateful 10 and 30 yr USTs this week. Recall, on June 10th was the abysmal $19 billion auction for 10 Yr Treasuries while June 11th saw a surprisingly strong $11 billion in 30 Years. Pulling the NY Fed's OMO data for these days yields the following results:"(snip)
(snip)"As the data indicate on the day of the $19 billion in 10 Yr UST, the Fed was concurrently bidding on almost $11 billion (of which $3.5 billion was accepted) of what most likely were 10 years: more than 50% of the full Treasury auction. Furthermore, the day before, the Fed purchased $7.5 billion in 3.5 - 5 years after submitting nearly $30 billion in bid requests. This is the same day that $30 billion in 3 years Treasuries were auctioned off at 1.96%. Has the Federal Reserve been keep the clearing price conveniently low by purchasing comparable trasuries on or near the days of critical auctions? Open market purchases seem to indicate that is in fact the case.
In summary - last week's bond market exhibited unprecedented volatility: spreads between USTs and agencies fluctuated drastically, prices were all over the palce, the Fed was concurrently conducting OM purchases as the Treasury was auctioning off bonds in the primary market... cats and dogs living together, etc... And keep in mind total activity this past week was under $100 billion. There is still well over $1 trillion in bonds to be autioned off this year alone. If anyone is foolish enough to predict just what will happen with the long bond, the 2s10s, T-bills, etc. by year end, please speak up."(snip)
... put simply, sometimes the data is out there but it is strewn all over the place - other times the data doesn't become available until after the fact ... and even with timely data it requires a major research effort to try and make sense of what's 'really' taking place ! However, when situations are identified where more than 50% of total market action is the result of large institutions with a 'vested interest' in the outcome (i.e. the US FED / US Treasury trading with each other re T bonds, or a handful of huge Wall St. investment houses trading with each other re index stock shares ), it's hard to write these off as pure coincidence !
But more importantly for the individual investor, as ZeroHedge blatantly points out re long T bonds, there is really no way to predict when the 'manipulators' will suddenly decide to change their M.O. ... instantly leaving individual investors 'swinging in the breeze' !
~
Re: US stock market 'levitation' is really becoming blatant ...
Although the market will fall at some point, it has been so frustrating waiting for that big day on the short side (I am referring to holding inverse ETFs) even when the market corrects marginally. Are they trying to kill all short ETFs like FZA, SDS, SKF, SRS to zero before they allow the market to crash so that no non-insider "bears" could be rewarded?