HF Trading

High frequency trading is going to be getting the once over by SEC and other oversight authorities with ultimately the volume kick backs probably being eliminated. The broader issue of high volume day trading is completely within market making rules and will be here forever. Whether or not they put some type of time throttle on price view is another question whereby no one trading group can see price data faster than a set point of origination from a server.

Many of the HF programs rely on location proximity there by reducing latency and thus by their nature rely on modified front running to make profits because consistent trading program success which depends on unique market insight is rare. Since fundamental market information is practically useless beyond normal bias reinforcement, any edge similar to the old wink wink nod nod is pursued.

What works works. What doesn't is almost everything talked about every day on every business news station. Adaptive programs with alpha producing strategies year in and year out provide a better market view than any earnings, share demand, and growth scenarios.

Correction Time

Systemic price correction is in the offing for almost every market. As with all serious corrections, it is never about the reasons given by market pundits but primarily a structural price recalibration and as such always deeper than the even the bearish forecasts. While it is believed the greatest upside offenders will correct the most, there is really no evidence of any punishment for particular performance. Rather it is more of a random collection of price declines where sectors become the focus of wrath because managers work as a connected organism with limited insight.

All In or All Out

If changing perceptions about values is the main goal of the Fed, it seems to be succeeding. Stocks and treasuries have certainly switched positions on the comfort scale recently with equities now being repeatedly called an "all in " and owning treasuries now being claimed by managers to be the worst investment possible. The bull cheer in stocks comes after a two and a half year bull run along and with a Fed as recently as last month declaring yields would remain at historic lows for several more years.

If the Fed has helped to alter value perceptions then it comes from a lot of work as the great liquidator. Not to be confused with liquifier, rather a proxy liquidator. Banks unable to retrieve debts owned them, Fed in effect liquidates the trade by providing zero cost money to the lender and lets them hold the diminished asset as if to say, go ahead and get whatever you can for it. The same thing is going on by European central banks although not nearly as effectively. Just in case the CDS claims are made, flood the system with cash, though probably no where near the money needed if necessary.

There is a natural bias at work here of coarse. The world is long stock despite what "cash on the sidelines" rant one might believe. The perception of a recovering economy then leads to a bias toward higher rates or bearish bond recommendations.

The Fed has consistently seen a much darker side to the economy. A potential storm's impending arrival seemingly as hard to peg as typical forecasts as to weather to call it a storm watch or a storm warning. Regardless, the Feds actions to prepare for any bad weather has had the effect of herding returns into assets outside the comfort zone of virtually zero risk treasuries. Now these dollars are corralled into a smaller and smaller fenced area as prices for assets such as stock are significantly higher.

If the Feds accommodation is an accurate perception into storm forecasting, then bullish sentiment of stocks and bearish sentiment on bonds probably mark a top for each.

AAPL GOOG Match Up

The battle between these two monsters will be interesting to watch. Here are the number comparisons supplied by Wolfram Alpha

This Time For Sure Again

Waiting for the next leg up in stocks seems to be a given if you listen and read the vested interests, which is just about anyone providing market information these days. Never have so many wanted so much for things to break out on the upside. I have heard endless price forecasts based on the "golden cross" where the 50 day average crosses the 200 day average. It is hard to believe people actually rely on these tools but given the weak state of hedge fund mechanics it is not a surprise. Having looked at enough data for 20 lifetimes it is clear this trick of the trade comes from the secular bull markets developed from the great run originating from the Great Depression. What they don't tell you is the cost against any future gains incurred when the two averages cross back and forth, over and over again before breaking out. I guess they call that the "golden shower".

Anyway, golden cross, money on the sidelines, and describing losses of more than 50% by Greek bond holders as concessions and not defaults are all part of the kool-aid being sucked down. It's a default and CDSs will be exercised in one fashion or another.

Markets have a great habit of using the formula, " this equals that," and as a result, repeatedly makes great errors in pricing.

Facebook Saves Economy

Facebook is now hiring thousands of people to create their own Facebook site. Imagine being paid to put nothing but information about yourself and fellow Facebookians so that millions can experience you and any fascinating facts or not so factual facts. Financial amounts have not been disclosed because negotiations between those who wish to provide important personal information are being interfered with by those who are boring. Just putting a picture of you and your dog is not going to make you rich. You need to put a picture of you and your dog eating together at a table with party hats and T shirts that say Eat Me. And that is only a start.

Now remember, if you cannot get paid for providing personal information you will have to do it for nothing. That means just having a Facebook site and adding pictures of yourself and friends for no particular reason.

Over/Under

Let's look at our basket of stocks and indexes from QRiskValue.com and see how they are ranked by the over/under based on QRV ranking. An increasing positive correlates to overvalue and a increasing negative to a undervalue. Range (+100 to -100)
AAPL +101
F +75
IBM +64
NQ100 +33
DJIA +28
S&P500 +16
GOOG +9
MSFT +9
PFE +6
GS -29
BAC -67

Be Happy and Beware

Bears in stocks and interest rates getting slapped repeatedly as the Fed leaves no doubt it will punish anyone getting in the way of their drive to preserve a recovery being threatened by a Europe known for creating world class events which affect the world badly. Fed clearly does not believe the ECU will be able to work out of this mess without some type disaster. Thus they have to create a fall back position where the world can seek refuge. The action is really just a redo of last year for stocks and, had it not been for the ECU then, indexes such as the S&P 500 would have had a great year.

What could screw up the Fed's intent? All of us participating in the markets daily know the monster never sleeps and market direction and volatility live with randomness. Just as the Fed was sure of the health of the housing market in 2006, it is sure of its ability to corner investments into selected alternatives with more risk than the 10 year. Structural price events, flash crashes, panics, and rolling downside momentum are the unpredictable side of a sure thing intervention.

For bulls, be happy and beware.

Say Anything

Got to love the Gingrich candidacy. In motions of body type and style, he looks like a caricature of an 'old pol' but without the discretion. His interesting domestic policy of asking his then now xwife to have an open marriage is one way to have it two ways in a three way. But just in case he needs a defense, he is using one reminiscent of a fallen television evangelical; do anything just ask for forgiveness. Just like the recent luxury liner captain explaining why he did not stay with his ship and instead found himself in a life boat with fleeing passengers. He tripped, and found himself in the life boat. Like Gingrich, the captain found himself in a dilemma. How do you make a "this may look odd" moment of life into a ready to apply response? You know. Say anything, and if you have to, just ask for forgiveness.

Markets say anything all the time. Remember the New Economy of the tech nineties. Old rules did not apply to speculation and capital formation. How about real estate inflation forever. Or the financial deregulation is better for everyone. Or the efficient market theory. Or gold is a currency. Or in 2012, the worst of the financial crisis is over.

Pawn Your Stocks and Indexes

Lots of talk about an upside break out in equities and that is fine. Up, down, whatever but maybe a few comments about where we sit and what things may be worth in turns of premium or discount. Now the things that have been going up for the last 4 years will get even more interest because they are proven movers. Brand name movers AAPL, IBM, and F are darlings of the risk averse. But lets look at several stocks and play pawn shop or let's find the riskvalue, the QRV, what will they be worth if things become not so bright and beautiful. Let's throw in a few of the indexes. So here is what the pawn shop will give for the list. (Data from QRiskValue.com)

AAPL 220
IBM 113
F 7
GOOG 528
PFE 20
MSFT 26
S&P 500 1140
NQ 100 1840
DJIA 9800

Oddly, only two pigs of the last 4 years have big upside, GS 152, BAC 20