Friday, November 08, 2013

Robots and strung out day traders

Yesterday, a market commentator implied that the only people left trading this market are computers (robots in his terminology) and drug fueled day traders.  Sometimes, I think that's a pretty fair assessment.

So after a single day in the red which everyone failed to notice because of all of the twitter hype, the market exploded higher today on the back of a stronger than expected jobs report (more on that in a moment).  There was a very specific market player that goosed the market with huge purchases all within seconds of one another.  The end result was a market that never let up and got it's typical 3:30pm run to hit another all-time high.

The Jobs Report
Once again this was a very confusing report because of the impact of the laid off Federal workers who filed for unemployment but were ultimately fully restored and paid their back wages.  The strength in this report continues to exist in the low-end (retail and service industries) but who cares, right?  I waitress equals an engineer at Lockheed Martin in terms of economic impact, right?  But I digress.

There remains a wide disconnect between the establishment and household surveys but ultimately no one cared today.

Here's the ironic thing - most people are betting on the Fed continuing their QE policy through June 2014 because the economy remains so weak.  It's a fairly convoluted process but we should remember that the Fed asset purchases are supporting equity prices.  Even the hint of a change in the size of QE took stocks down 10% in July. However, I think these jobs numbers significantly increase the odds of the Fed looking at curtailing their QE program as early as December.  This would be enormous shock to the system and would lead to a very difficult set of circumstances to understand - an improving economy may lead to lower and potentially much lower stock prices.

So given today's numbers why didn't stocks fall?  I don't know.  The computers that run the markets have seen that on days like yesterday, in the past 3 years, stocks are up 26 out 28 times on the following day.  This becomes self-fulfilling - because the programs expect stocks to be up, they buy stocks and force up the market.  Yes, you are excused if your head is spinning at this point :)

Final Twitter point - hopefully, you didn't have any market orders in for Twitter because the stock is down about 10% from the first public trade and almost 20% from the peak yesterday.  Unfortunately, this stock is going to continue to be very volatile.  Those that bought it in the IPO are still up 60% or so, so they are still happy, but those that bought it in the open market might be a little jittery.

In keeping with my theme of building products that reduce human interaction, consider this company which has build a wearable sensor which notifies you when your baby has wet their diaper so that you can log off twitter long enough to change them without having to actually listen for them to cry.  Now, instead of having to be bothered with checking on your newborn every 30 min or so you can stick them in their sound proof box with their own ipad, while you wait for a "wet" alert.

Of course, I'm being sarcastic and I suppose their could be a market in homes for older patients, but when venture capitalists say the ideas they are being pitched are getting more and more ridiculous, I think of ideas like this.


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