The DJIA, SP500, and NQ100 fought all week against the negative reflexes of the deafening news cycle of impending doom for LEH and others infected with the mortgage blight. As of this posting, the Fed and Treasury are meeting with the leaders of Wall Street to find a solution to LEH before the Asian markets open Sunday U.S. time. Apparently FET, (Fed and Treasury), have told the banking and brokerage mongols they need to figure this thing out amongst themselves without the guarantees given in the Bear Stearns deal. This will not stop the finance boys from trying to squeeze another trade out of the FET, but it does seem to be a motivator considering they all in some way are sharing the same rope.
Current market conditions are tough for all types of traders and there are even some mixed reports about the success of the current trading cult culture vehicle, high frequency trading. High frequency has become in it's own life cycle a refuge of the talentless and those unable to calculate risk. Plus, the additional advantage of the transactional boost made possible because of monopolies held by clearing entities such as the CME Group which are able to charge exorbitantly high fees and commissions for services that cost virtually nothing to facilitate. While those costs to trade charged to large volume operations are mere pennies per trade, the profit margin and resulting volume racing has provided massive revenue to the CME Group where more than 75% of income goes to the bottom line. This added volume has done nothing to help the price discovery process but has certainly exacerbated the daily price swings.
For those of us with a successful track records of designing low frequency and high alpha programs, there is a trading perspective which allows a bit more clarity to the overall trading environment. Just as the current hurricane forecasts have been more media hype than devastating reality, so the play on investors fears have been an opportunity for money center banks, hedge funds, and other players to position themselves into the nation's pockets as they bargain from an insiders position.
There is an old response on the trading floor when reacting to another trader's bid or offer when a market is made to another trader; 'I'd rather eat a dead rat!' The FET should make these insiders eat some dead rat and let the markets move on.
