Wednesday, May 19, 2010

Flash Crash re-visited...

It's too late to add much color to these stories.

* Everyone wants to be the guy that called the next "crash" and they get much more confident during volatile markets. I don't buy many of these arguments, but it's worth noting because many of these guys have large followings.

"Dow Theorist Richard Russell set out this dire warning:
“Do your friends a favor. Tell them to “batten down the hatches” because there’s a HARD RAIN coming. Tell them to get out of debt and sell anything they can sell (and don’t need) in order to get liquid. Tell them that Richard Russell says that by the end of this year they won’t recognize the country.

Reuters reported that well regarded hedge fund manager Seth Klarman “sees few bargains in the current environment and predicted on Tuesday that the stock market could suffer another lost decade without any gains.” Klarman is concerned that we could see “another 10 years of zero returns.”

Raoul Pal of Global Macro Investor got even more specific warning in his newsletter: Crash Is Coming In Two Days-To-Two Weeks. He sees as an “archetypal crash pattern — a sharp decline followed by a failed rally followed by a collapse.”

Nouriel Roubini warned on the U.S. Treasury Market:
“Bond market vigilantes have already woken up in Greece, in Spain, in Portugal, in Ireland, in Iceland, and soon enough they could wake up in the U.K., in Japan, in the United States, if we keep on running very large fiscal deficits,” Roubini said at an event at the London School of Economics yesterday. “The chances are, they are going to wake up in the United States in the next three years and say, ‘this is unsustainable.”

Just a quick follow-up on Germany's short-selling ban. I am clearly of the opinion that it restricts the free flow of capital and creates market imbalances, but my career included actively looking for short opportunities. However, here's the real problem with banning short sales - if a stock starts to fall without shorts in the market, the stock falls in a vacuum and the plunge can be much more violent. In a normal market, when a stock falls 10-20 percent those that are short become natural buyers of the stock to close their positions and this often slows rapid tumbles. Without short sellers a stock can fall freely without being held back buy those pesky buyers :)

In other news:

1 in 10 US mortgages are now delinquent. Just remember "house prices always go up" right???

As someone that writes publicly every night I'm sure I violate many of the Elements of Style in every post. However, I couldn't agree more with this story from the Boston Globe entitled "Failure to Communicate". The decline of writing skills among the under 25 crowd is startling.

Finally, KFC has bowed to the complaints of many health conscious Americans and their going to pull the "DOUBLE DOWN" off the market...... Just kidding, chubby Americans can't get enough fried chicken, bacon and cheese - they've sold over 10 million in a month.


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