I am hoping for some insight from all you more sophisticated participants in these discussions.
I thought I understood that in this complex, fast-moving 21st century investment world, large market movements were driven by cleverly designed algorithms that move huge quantities of shares around in less than a blink of an eye, often out-of-sight in "dark pools". All of it much too deep for a yokel like me.
And then this last little while we have large market movements up and down correlating seemingly more than coincidentally with changes in nuance in a few sentences from Ben Bernanke -- which most of us don't think means much of anything at all.
So what the heck is happening? Do the quant guys quickly add new rules with amazingly high weightings after every Fed pronouncement -- which then causes their automated trading systems to very quickly behave just like a very panicky naive new investor?
Any insight?
I'm feeling a bit blank.
gfb
Comments
Yours Truly,
Wall Street
Thursday, July 11, 2:56 PM Shares of RadioShack (RSH -17.5%) fall further into the abyss with reports out that the company is looking to hire bankers to help find a way to shore up its balance sheet. More than a few retail watchers think the bankers are going to come back to the boardroom with a bankruptcy plan wrapped up with a bow. 1 Comment [Consumer]
Friday, July 12, 8:54 AM Shares of RadioShack (RSH) move up 7.6% premarket on top of a late-in-the-day rally yesterday which cut into a sharp drop related to reports the company hired bankers to solve its financial issues. Though a number of Wall Street firms are defending the stock today by saying a reorganization is more likely than a bankruptcy, traders are playing with dynamite with more wild swings in share price expected. 1 Comment [Consumer, On the Move]
However, interesting to see that at least one of the data center REITs (and I'm guessing the others - such as Digital Realty Trust - DLR; do too) is focusing on this theme. One may think that there may be eventual regulation of this, but on second thought, nah probably not.
You have computers that can read headlines and act accordingly. Large money is absolutely trying to gain that advantage over competition - the only question is what is the cost of an imperfect tool looking to gain an extra millisecond?I think you saw that when Knight Capital happened.
How one bad algorithm cost traders $440m
http://www.theregister.co.uk/2012/08/03/bad_algorithm_lost_440_million_dollars/
I think there has always been movement or volatility based on words the Fed might use or any other high profile administrator or bureaucrat for that matter. What might be different today is what you called the cleverly designed algorithms and extremely high speed data flow. What we used to see as smaller or slower moving market volatility is now magnified 1000 fold. In engineering terms, someone turned up the gain and decreased the reset.
Reminds me of when I used to play around with online sports gaming years ago. The team odds (you could place bets continuously throughout a contest) would continually fluctuate during games. Using baseball as an example, every pitch or swing of the bat caused the odds to change. An "underdog" at game start might pay $3 for every $1 wagered. But, if you bet on the same team during the seventh inning when they were ahead by a couple runs, payout might have reversed to perhaps only $1 for every $3 wagered.
Bernanke's comments apparently changed "the odds" in some folks' minds. Really amusing when you consider his "lame duck" status.
gfb
Let's all "buy and hold". Let only Morgan Stanley, Goldman Sachs, JP Morgan, et. al. keep trading among themselves. Let's not be the "suckers" they sell too. Something tells me when they only keep eating each other's lunch, some of them will under. Which means they have fewer like themselves to cause havoc in the markets. Or they will not be able to do it anymore.
Conspiracy Theory 201
Let's all retail investors come together and decide to short said equity/commodity/whatever on a given day. Let's do it for security want to buy. Let's draw down the price then buy. We do this after 1st week of quarter after asset managers have pumped up their holdings to boost quarter end performance.
RSH
S&P warns of RadioShack default
RadioShack (RSH -12.6%) slumps after S&P downgrades the company's senior notes to CCC from CCC+The agency warns the retailer could default in less than a year unless the cash situation improves quite a bit.