Today I see the pattern I saw several times in the last year: bad stocks go up, good stocks go down, the overall environment is suspicious.
I think it means that some players are giving up and close their short positions on stocks they (properly) consider “bad” and to maintain the same market bias they also have to sell some of the longs positions as well. In my previous experience the opposite trade was always profitable.
Check yourself, scan your favorite list of “good” and “bad” stocks and verify that everything is upside-down.
Overall it means money are just leaving the market and at some time later that will show up as another step down. Connecting with my previous post that broker-dealers show no interest to borrow from the Feds it seems that the capital is either disappearing or moving away from the market. Or both
The Theroxylandr in Flame 
January 22, 2008 at 5:35 pm
Sir, now that the 10YR hit below 3.5%, is Winter confirmed?
January 22, 2008 at 8:03 pm
Check yourself, scan your favorite list of “good” and “bad” stocks and verify that everything is upside-down.
It is true for me: the short positions that I thought of as very low risk, i.e. these are companies that are mired deep in losses with absolutely no chance of that changing any time soon, were all up today, a few of them up substantially, while the modest long positions that I have, all in (what I consider to be) very strong companies (the leaders in their industries) with very good balance sheets and reasonable current and forward looking valuations, companies that will not be hurt deeply by a slowdown (certainly they will not lose money), were all down today.
January 22, 2008 at 8:08 pm
…were all up today, a few of them up substantially,…were all down today.
To my extreme annoyance, I might add.
January 22, 2008 at 11:43 pm
JoeMortgage, my opinion is that we had Winter briefly in 1998, then in 2000-2002 and then since last Summer. I think various forces were able to pull the economy out of Winter twice.
I think (based on Murphy book) that Winter is not only a particularly low yield, but also the feature that Treasuries and stocks are trending in opposite directions.
In all other seasons bonds and stocks are correlated and trending in the same direction. This is why I think 1998 was already Winter.
January 22, 2008 at 11:47 pm
eh, my understanding is that many people who had the same position as you (and me) deleveraged. In all the previous times that lasted 2-3 days and then all returned back to normal.
My portfolio lost about 3%. I know it will recover pretty soon, it always did.
January 23, 2008 at 11:49 am
Again, banks came with $5 bln of treasury collateral bidding at 1.7%. They got nothing at that rate.
They got $7 bln with agency collateral at 3.45%, but that’s not the same as treasury collateral, those money are less speculative and more to just repair balance sheets
According to:
http://www.gmtfo.com/RepoReader/OMOps.aspx
that was a drain. But now I’m now saying that “Feds drained” anymore. I’m saying “banks show no desire to borrow”
January 23, 2008 at 3:37 pm
I’m not covering any shorts
Are you still holding out? The pain is getting pretty intense…
January 23, 2008 at 4:30 pm
Is Bloomberg wrong? I am a little bit confused here. Is delivering “free cash” to banks any good if they don’t accept it? Is the rally in financials a “trap” (delusion?).
Link: http://www.bloomberg.com/apps/news?pid=20601087&sid=aF6R5d2C1ALo&refer=home
January 23, 2008 at 6:44 pm
I was out of screen for two hours before close and when I got back I’ve got a huge 7% spanky on my portfolio. Well, I was too lucky for too long 🙂
Mostly SRS pain. I have (had) more than $40k in SRS.
But CMBX is crashing:
http://www.markit.com/information/products/cmbx.html
I think I believe credit-default swaps more than I believe the stock market.
January 23, 2008 at 6:46 pm
I have many long positions in stocks that I consider “good” and you know, they did not make me any money today.
January 23, 2008 at 7:04 pm
“I have many long positions in stocks that I consider “good” and you know, they did not make me any money today.”
Just more reason to believe that a quant or other large hedge fund is going down the tubes. Something very weird going on with this market, with all of the rumors about ABK and MBI getting a bailout, and strange dark trade markers on a number of stocks:
http://market-ticker.denninger.net/2008/01/bouncity-bounce-bounce-bounce-thud.html
January 23, 2008 at 7:18 pm
Could you please explain what a “dark trade marker” is? If you would. And thank you.
I completely agree — very, very strange.
<…I’ve got a huge 7% spanky on my portfolio.
Tell me about it. Although I did get out of SRS last week — decided not to push my luck there. Both it and SKF got clobbered today. For the moment it is sobering.
January 23, 2008 at 8:03 pm
theroxylandr Wrote:
“But CMBX is crashing”
Remember that the fed cut 75 bps yesterday, therefore the spreads would have automatically jumped by 75 bps. Unlike treasuries, investors aren’t going to pile into CMBX right after a rate cut. I am pretty sure that the spread rose because the yields on treasuries took a tumble, not that CMBX bond prices are falling (ie Crashing).
For the CMBX to be crashing I think we would need to see the spread rise when treasuries are flat or rising.
We probably won’t have an idea whats happening with CMBX until late February since its likely that the Fed will cut again, or investors will continue to pile into treasuries driving treasury yields even lower. We need to wait until the Treasuries stablize.
theroxylandr Wrote:
“I was out of screen for two hours before close and when I got back I’ve got a huge 7% spanky on my portfolio.”
Sorry to hear about your loss. FWIW: I am staying on the sidelines. If I was going to trade, I would trade on the volatility, not go long or short. I think there is even an Option on the VIX (bet that VIX remains strong). Or just pick the most volatile stocks that ride the wave, but aren’t in financial, real estate, etc. Of course to make this work, one must follow the market from 9:30 AM to 4 PM without missing a beat. This is hard to do, when you have a full time day job. Volatility should remain high next week since the Fed meets on next Tuesday. Will the market go up or down over the next trading days? I don’t have a clue, but I know it will certainly be a wild ride.
January 23, 2008 at 8:59 pm
eh, I’m no dark pool expert but I understand why they exist. They allow you to remain anonymous with a pre-arranged bid/ask agreement within a pipeline without tripping a bid/ask algorithm. The purpose being that you could theoretically get a better price on something without having to game the algorithm. Also, the larger funds would use these to bypass people trying to front run their large orders to bid the price up.
An example today would be NCC with huge volume spikes and almost no price movement. Check the chart or listen to KD’s ticker for an analysis of this. This is undoubtedly a quant fund unwind, and this really supports theroxylandr’s theory of massive deleveraging and unwind. AAPL, and GOOG also had huge volume spikes with no price movement associated with each trade.
Weird stuff.
BTW: Slosh report shows a $6.5G drain.
January 23, 2008 at 10:36 pm
Fortunate to cover my shorts at 2:30 or so. The Naz hit its March 07 Low and my gut said bounce. 70% odds we break the March 07 low on the Naz within a 10 market days.
January 24, 2008 at 1:07 am
Wow, those dark pool trades really tell the story, don’t they? Watching 70x volume hit with no change in price… and then wondering why the trading gets so wildly erratic at the end of the day. I couldn’t understand how I made so many failed trades — every stop I put out got hit, as did my profits. So instead of fighting them, I’ll join them.
Anyone got a way to peek at the blocks on Liquidnet?