30 December 2009

Ghosts of 1987

I am a 'fan' of very few people in the money business. One of my favorite pundits is a frequent guest on Bloomberg Television, which I tend to watch off and on during the day on my computer screen: Joe Saluzzi. Another person for whom I always turn up the volume is Howard Davidowitz, the savvy and no-nonsense retail analyst.

Here is Joe Saluzzi's excellent explanation for the 'odd' market behaviour which many traders have noted to me in the past few weeks.

But it was not until today that it 'clicked' in my mind that this is setting up like the market crash of 1987, for purely technical reasons. The volumes are so hugely dominated by 'high frequency systems trading' that if and when a dislocation occurs, and it may only take something trivial to set it off when the time comes, the market will gain a moementum to the downside that the government may not view so favorably and dismissively.

And in response to such a meltdown, one of the first things the Poseur-in-Chief might consider doing is replacing the current head of the SEC, Mary Schapiro, who has managed to become almost as useless as Christopher Cox, the SEC head under Bush. Granted, the SEC is an awful place to work, rubbing shoulders with the wealthy on a meager government salary while every swinging Congressman cuts your funding when not making personal calls to protect their campaign contributors. But really, the people of the US deserve much better from their government than franchised looting and organized mispricing of risk. It really is becoming that blatant.