I hope he has "survived" the trading day.... If you want a good explanation how the "surprising" market action could happen at you should read NO FAT FINGER! & "Rise ( & Fall ) Of The Machines" ... ... If my market view is correct i think we can enjoy similar clips in the future.........
Bleibt zu hoffen das er den Handelstag gesund überstanden hat....Mehr Hintergründe für das nicht wirklich überraschende Marktverhalten gibt es in NO FAT FINGER! & "Rise ( & Fall ) Of The Machines" ... Sollte ich mit meiner Marktbeurteilung recht behalten dürften uns noch einige solcher unterhaltsamen Videos ins Hause stehen....
With volatility finally creeping back into the markets i think the "Rise Of The Machines" aka the QUANT story is deserving extra attention....Especially with market stats shown in Does Anyone Detect A Hint Of Complacency? from 2 weeks ago..... Make sure you also read the UPDATE....
Ich denke das dank der etwas gestiegenen Volatilität das Thema ROBOTRADING aka QUANTS einen ganz genauen Blick wert sein sollte....Das gilt umsomehr als das noch vor 2 Wochen ein kollektiver Realitätsverlust ( siehe Does Anyone Detect A Hint Of Complacency? )die Marktteilnehmer erfasst hatte.... Verweise ausdrücklich auf das UPDATE......
How a swashbuckling breed of mathematicians and computer scientists nearly destroyed Wall Street
Instead of looking at individual companies and their performance, management and competitors, they use math formulas to make bets on which stocks were going up or down.
By the early 2000s, such tech-savvy investors had come to dominate Wall Street, helped by theoretical breakthroughs in the application of mathematics to financial markets, advances that had earned their discoverers several shelves of Nobel Prizes.
PDT, one of the most secretive quant funds around, was now a global powerhouse, with offices in London and Tokyo and about $6 billion in assets (the amount could change daily depending on how much money Morgan funneled its way). It was a well-oiled machine that did little but print money, day after day.
That week, however, PDT wouldn't print money—it would destroy it like an industrial shredder.
The market moves PDT and other quant funds started to see early that week defied logic. The fine-tuned models, the bell curves and random walks, the calibrated correlations—all the math and science that had propelled the quants to the pinnacle of Wall Street—couldn't capture what was happening.
At the time, few quants realized what was happening, but over the next few days a theory would emerge: The U.S. housing market was unraveling, leading to big losses in the mortgage portfolios of banks and hedge funds
The result was a catastrophic domino effect. The rapid selling scrambled the models that quants used to buy and sell stocks, forcing them to unload their own holdings.
Authorities, meanwhile, had little idea about the massive losses taking place across Wall Street.
That Tuesday afternoon, the Federal Reserve said it had decided to leave short-term interest rates alone at 5.25%.Investors on Main Street had little idea that a historic blowup was occurring on Wall Street.
Oddly, the Bizarro World of quant trading largely masked the losses to the outside world at first. Since the stocks they'd shorted were rising rapidly, leading to the appearance of gains on the broader market, that balanced out the diving stocks the quants had expected to rise. Monday, the Dow industrials actually gained 287 points. It gained 36 more points Tuesday, and another 154 points Wednesday.
The huge gains in those shorted stocks created an optical illusion: the market seemed to be rising, even as its pillars were crumbling beneath it.
A source of the extreme damage Wednesday and the following day was the absence of some high-frequency statistical arbitrage traders, firms that use high-powered computers to trade rapidly in and out of stocks and can act as liquidity providers for the market.
As investors tried to unload their positions, the high-frequency funds weren't there to buy them—they were selling, too. The result was a black hole of no liquidity whatsoever. Prices collapsed
The arms race in trading technology is set to intensify this week as Thomson Reuters, the news and market data company, on Monday unveils a service for “high-frequency” traders allowing them to make split-second trading decisions based on news articles “before the information moves the market” . . .
So-called “machine readable news” services, such as the new Thomson Reuters product, have grown up in parallel with the emergence of high-frequency and algorithmic trading, which depend on lightning-fast delivery of data and news to traders specialising in such computer-driven trading strategies.
Machine readable news systems use computers to “scrub” thousands of breaking news stories, prioritising their relevance for traders – often based on simple key words – and delivering them in a special feed. This provides traders with “signals” that are used to drive their strategies
A handful of high-frequency trading firms accounted for an estimated 70 percent of overall trading volume on U.S. equities markets in 2009. One firm with such a computerized system traded over 2 billion shares in a single day in October 2008, amounting to over 10 percent of U.S. equities trading volume for the day.
Thorpe was the first true quant and an enormously successful gambler and hedge fund manager. He covers everything from beating casinos at their own game to the financial crisis, the role quants played in the downturn and even his own desire to be cryogenically frozen. He even provides his personal outlook and his worries that the return of “business as usual” on Wall Street means the next big crash is inevitable
"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you've got to get up and dance. We're still dancing."
Chuck Prince, former chairman and CEO of Citigroup (told to the Financial Times on July 10, 2007).
A portion of the sharp rise in several asset classes over the past few months could be the dominance of quant funds that worship at the altar of price momentum (and the self-fulfilling prophecy of the fund flows that follow the price momentum induced by the quants!).
By some estimates, this price-momentum-based quant trading now has doubled in significance since early in the year, to more than two-thirds of the average day's trading.
> I doubt that this figure is correct, but it is verry telling that combined with High Frenquency Trading the "Quants" are the main market force dominating trading...... Doesn´t give me much comfort that the recent gains are "sustainable" ...... Especially after one of the biggest Bear Market Rallies ever on almost non existent Volume ( ! ) ..... Thank god the retail investor this time is smarter than the so called "smart money" ( 13th Straight Week Of Domestic Equity Fund Outflows As Market Rips 11% Over Same Period ) BRAVO ;-)
> Ich bezweifle das die von Kass gennante Zahl in der Tat so hoch ist.... Das aber die Quants zusammen mit dem sonstigen computergetützten Handel ( HFT) der wesentliche "Spieler" ( Investor traue ich mich in diesem Zusammenhang nicht in den Mund zu nehmen.... ) an den momentanen Märkten sind fördert nicht gerade mein Vertrauen in die Nachhaltigkeit in einen nicht "unwesentlicher" Teil der bisher verbuchten Kursgewinne . Nicht verbessert wird das Gesamtbild das der Anstieg praktisch unter minimalen ( ! ) Handelsvolumen stattgefunden hat..Wenn man jetzt noch bedenkt das wir gerade einer der größten Bear Market Rallies aller Zeiten hinter uns haben sind immer neue Kursziele die man so jeden Tag zu hören bekommt zumindest "mutig"...Glücklicherweise scheint es diesemal so das der "Kleinanleger" sich nicht erneut für das über Jahre erprobte "PUMP & DUMB" begeistern läßt ( 13th Straight Week Of Domestic Equity Fund Outflows As Market Rips 11% Over Same Period ). BRAVO ;-)
Trades initiated by these funds are insensitive to an underemployment rate approaching 18%, signs of an unsteady recovery in housing, the prospects for higher marginal tax rates and how we are going to finance our budget deficit, which hurdles ever higher.
If you don't believe me about the growing quant fund influence, speak to any prominent institutional trader or salesman: They will tell you that their business with plain vanilla institutions is weak and that the quant funds are the ever growing whales of trading.
The pattern is all-too familiar as a new marginal buyer of an asset class dominates the market until they don't.
Here is an anecdote that underscores the changing landscape and is reminiscent of other sectors hiring at tops. (To refresh your memory, this occurred several years ago in private equity and was followed by a sharp cyclical decline in private-equity deals.) At any rate, a subscriber wrote me a telling note recently about his son's friend who attends Wharton and is "a genius in math and game theory." He was just hired by a high-frequency trading firm after being interviewed by 15 similarly talented employees at the firm. He is 20 years old and has been offered approximately $100,000 a year, with a bonus that can add up to an additional $100,000 a quarter! That's far better than even the estimable Goldman Sachs pays!
Keep dancing if you will, but I continue to sit out the melt-up in stocks and the bubble in other asset classes. When investors/traders are arguably overinfluenced by prices (not fundamentals) that dominate the markets, and are all on a similar side, it has the potential to lead to a treacherous and slippery slope, as it did in 2007-08.
Remember, it is some of the same momentum-based quant funds that sold in March 2009 that have been buying over the past few months
