Game On for the Markets?

Farewell, summer, we hardly knew ye.

The commuter trains were noticeably fuller this morning as the passage of the August bank holiday signals the onset of autumn and full staffing levels. With Labor Day on the horizon, there are likely to be another few days of liquidity impairment and potentially sluggish trade, but for all intents and purposes it is tempting to put one's hockey net in the street and yell "Game on!"

It was a year ago tomorrow that Macro Man scaled into equity shorts at elevated levels, and sure enough, 52 weeks on, major indices are once again at localized highs (but running out of steam.) We're now a month away from National Day in China, the trigger date that Macro Man had circled in his calendar for fireworks.

It seems as if the (pity) party has started early, however, as Shanghai has extended its early-August weakness to lapse back into a bear market. Recent confirmation that whenever you trade with China, you're actually selling them a free option is clearly not the best of news, and we surely must be close to the point where the man on the street starts selling with greater vigour.

And while it is oh-so-tempting to suggest that this spells doom and gloom for the SPX, SX5E, and the like, Macro Man has finally thrown up his hands in final, utter, complete disbelief and lack of understanding at what's going on in developed market equities.

In yesterday's fairly lackluster session, Lehman Brothers - Lehman Bloody Brothers! - stock traded 125 million shares, rising to 18c. In the last two sessions, that share price has more than tripled. Now, Macro Man gathers there is some stuff going on with respect to the vultures picking over the carcass of LEH, fighting for scraps. But he cannot think of any rational reason in the world why anyone would want to buy Lehman common stock....hell, until yesterday's move was pointed out to him, he didn't know that Lehman stock still existed! Gee, he wonders if he can get a quote on Enron or Penn Central...

Meanwhile, US equity volumes are being dominated by what can only be termed as a "cavalcade of turds." Macro Man recently highlighted the surge in volume in the Agency stocks....evidently the same thing is going on in Citi (C) (though at least there, there's been a recent conversion of prefs to common).

Trading volume in these three shares has, according to Brett Steenbarger, recently exceeded the total volume on the NYSE by a pretty comfortable margin. Macro Man has no idea what's going on there but finds it difficult to avoid contemplating something sinister.

So while he likes the short equity trade (what else is new?), at the moment his risk allocation is relatively modest. One of his investment maxims is that it's virtually impossible to forecast what you're going to see if you can't even explain what you're currently seeing. And while it's tempting to strap on a big short in stocks given the waning momentum and ancillary signals from bonds and EM, this bizarre activity in the low-grade financials is preventing him from saying "game on!"

Comments

[Roger Knights:]

When Big Ben strikes 13, it's time to catch a train.

Sep 01 06:54 AM

[conceptwizard:]

The only people that have the "game on" are those who already know who will win and who will lose.
We have a huge integrity problem in the markets of today. It has probably always been there to some extent, but not so flagrantly noticable until this meldown.
Recent articles from Zero Hedge and Karl Denniger and others have all but confirmed the toxicity of HFT and ther market control. I dont know how anyone can have faith that the casino is not rigged, and knowing that why risk whats left on a sucker bet.

Sep 01 07:11 AM

[Harry Tuttle:]

I would point out that Lehman's senior debt trades below $20 (for the equity guys that is "20 cents on the dollar") except nobody seems to understand what they trade.

Equity punters may find this hard to believe, but that debt needs to be repaid at $100 before junior debt holders get anything. The stock? the stock, of course, is not worth anything until the junior debt holders get paid in full as well.

caveat emptor

Sep 01 07:45 AM

[I need more...:]

Here here. Problem is, how many people read and understand ZH, certain SA articles and authors, Denninger, et al?
First, you have huge amounts of printed money funnelled through GS, JPM, etc to prop up markets through 5 stocks, in a low volume market ( this could change after Labor Day, if volumes turn higher ).
Second, you now have mutual fund managers chasing the market, using 401K dumb and blind money ( it's 8 PM- do you know where your 401K money is?- hah. How many people know which companies, and why, constitute their mutual funds? Sad)
You have, or had, China handing out tons of money, much of went into market speculation.
And on and on. What a crock.



On Sep 01 07:11 AM conceptwizard wrote:

> The only people that have the "game on" are those who already know
> who will win and who will lose.
> We have a huge integrity problem in the markets of today. It has
> probably always been there to some extent, but not so flagrantly
> noticable until this meldown.
> Recent articles from Zero Hedge and Karl Denniger and others have
> all but confirmed the toxicity of HFT and ther market control. I
> dont know how anyone can have faith that the casino is not rigged,
> and knowing that why risk whats left on a sucker bet.

Sep 01 08:24 AM

[fatcat:]

Thanks for a good,honest article...and good comments,as well.

Very hard to be a trader right now...

Sep 01 08:55 AM

[LKofEnglish:]

bottom line it's completely hilarious that someone would say its mutual funds bidding up the likes of Lehman. That's got day trader written all over it and its been around since "the market" was born. "Pink Sheets" or "curbside traders" are as common as lying politicians. i'll never understand the conspriracy theories since the last thing a company wants is the worthless one "over there" to sop up all the liquidity. this is the obvious result of too much liquidity, "too much money," created by the Fed. It's just encouraging hilariously wasteful investing and in fact was what the Fed was created TO STOP. JP's laughing his butt off right now.

Sep 01 10:03 AM

[Mad Hedge F...:]

fghj. US stocks are now the most expensive they have been in seven years, and never really got cheap during the March low, just fairly valued. At least I have some good company in my views, which are also shared by David Rosenberg of Gluskin Sheff, the former chief equity strategist at the late Merrill Lynch. The “faith based” rally is now discounting a GDP growth rate of 4.0%, which has a snowball’s chance in Hell of actually occurring. This is up dramatically from the 2.5% growth rate the S&P 500 was discounting when the index was at 667. The best stock market rally since 1933 added an unprecedented eight PE multiple points to stocks, and there is now more risk in the market than the 2007 peak. Underweight portfolio managers and momentum driven day traders are to blame. It’s what happened after the 1933 rally that scares me. Needless to say, stocks offer no value here. You can sign up for David’s well thought out research for free by going to his website at www.gluskinsheff.com/.

Sep 01 11:21 AM

[fleeing omega:]

tried to flame iamned spam (above) and got an error message.

to the editorial staff of SA: seems 'cetin' is using some kind of code to rig the voting booth.

Sep 01 02:49 PM

[untrusting ...:]

Trading is the only thing you can do in this type of market. To even consider investing for any type of LT horizon would be exceeding dangerous in this type of market, unless you have an awful LT to hold like Buffett does. And even at that, one is likely to see much much better buying opportunites in the relatively near future.


On Sep 01 08:55 AM fatcat wrote:

> Thanks for a good,honest article...and good comments,as well.
>
> Very hard to be a trader right now...

Sep 01 04:46 PM

[Albertarocks:]

"cavalcade of turds" indeed. I'm sure readers have heard by now that one particular day last week, 40% of all stocks traded were in the 4 scummiest and most inept financial institutions on the face of the planet (Fanny, Freddie, JPM and C). I'm not certain those were the exact 4, but who gives a turd... you get my drift.

"Macro Man has no idea what's going on there but finds it difficult to avoid contemplating something sinister." You and me both, brother. Keep your ears open for some horrific news on the horizon. Is it possible that the rumors are true? Could there actually be a "bankers' holiday", when the worst announcement we would ever want to hear will come to pass? You bet it's possible, if not probable. The dark lords are in a heap of turds up to their necks and no doubt scared sh#tless. Anything could happen any day now, and I fear it's nearly upon us because these ruthless bastards don't care who gets hurt, if it suits their greedy agenda.

Sep 01 05:27 PM

[Suncatcher:]

Watch out below!

Sep 02 12:13 AM