Owen

Who Is the Mystery Buyer?

The E-mini averages over 5,000 contracts a minute during regular trading hours. A total of 50,000 contracts in a 5 minute period is not unusual at all.

You don't need one billion dollars to buy a notional value of $1B in S&P futures. Based on current margin rates, you'd only need about $60 million, a mere trifle for most hedge funds. And if it's done as part of index arbitrage, the amount needed is far less.

Why would the government need to "stabilize the market" after a 65% run-up from the March lows by buying the S&P on low-volume days? If you must dream up conspiracy theories, at least come up with plausible ones.


On Nov 10 10:18 PM TheDecider wrote:

> Small orders? The volume was over 50K in this 5 minute period.
> That means the order on the E-minis could have been well over $1B.
> You call that small? Who has the firepower to execute an order like
> that at the asking price?

Values Have Dropped Less than 25% of the Fall Required to Reach Trend Status

Asset values behave in a lognormal manner, not linear. Any long-term chart using linear rather than exponential extrapolation shows a basic misunderstanding of price behaviour.

Plot the chart again using a log scale for prices, and everything will make more sense, and will, not surprisingly, coincide much better with reality.

Who Is the Mystery Buyer?

That's right...some evil mastermind is pushing the market higher just to spite us!

It's amazing how even in the absence of any motive or mechanism, people will still come up with the most amazing conspiracy theories.

No one can move the cash stock market simply by buying small amounts of S&P futures on low-volume days. The reason for that is that there is effectively unlimited capital behind index arbitrage traders, so you'd never see the spread between the cash market and the future's fair value drift by more than a tick or two, except during massive crashes.

Rapid, large block trades in the S&P futures can be the result of any number of things. These include mutual funds rolling over their December contracts to the March ones, hedgers or 130/30 funds being forced to rebalance after a large transaction, a hedge fund being forced to cover a short due to an impending margin call, or even a foreign government trying to diversify a multi-billion dollar portfolio.

The S&P futures are the basic tool of the trade for any large equity trader. When things need to be done in a hurry, they go to the CME "spooz" pit, or--more often these days--the Globex E-mini S&P terminal. Large blocks change hands all the time; we only notice them during low-volume days, when they move the futures market.

> I don’t know if there is malfeasance behind this

New from The Economist: a Global Debt Clock. At 10:37 today, global debt totalled $35,014,935,027,853.

Debt to whom? If you owe a dollar to your bank, who in turn owes a dollar to another bank, who owes a dollar to the government, that one dollar debt is counted three times. Much of the world's debt is counted more than three times.

A person, company or country can be leveraged. The world as a whole cannot, by definition, be leveraged. For every debtor there is a creditor. Once again, an article published with the sole purpose of inspiring panic in people who don't have basic knowledge of economics.

Bailout Cost, per Taxpayer, by Income

My apologies, Mr. Shaw. My post was intended for some of the commenters above, whose forecast was based on nothing but panic.

True, the initial indication of profit on the TARP funds may be misleading. However, the assumptions behind your calculations are also already known to be false, even if no additional dollar of TARP is to be repaid from this day on -- an unlikely scenario.

There was no way of knowing any of this in September 2008. What bothers me is the accountability of naysayers. I salute you for following up on your old articles and responding to comments. However, the fear mongering crowd of commenters who kept predicting the end of the world -- they were heroes a year ago, and now are nowhere to be found. I'd like to see one of THOSE idiots stand up and say, "Sorry, I was wrong!", instead of hiding behind a new alias.


On Sep 01 10:51 AM Richard Shaw wrote:

> Owen -- I presume from your comment that I am one of those idiots
> in your opinion. I disagree strongly with your view that TARP has
> shown a profit. There is no way to know what the profit or loss
> is until all the accounts are settled. It is false logic to assume
> that because some accounts have turned out well that the remaining
> accounts will perform similarly.

What Might Happen with America's Unemployment Rate

Aren't you tired of always being right?

Last October you told us here on SA how the bailout will never work and how the taxpayer will never see a penny of it back. Now we know the bailout saved the economy, and not only much of it has already been repaid, the taxpayer made a cool 15% profit on the funds.

So now what? Of course, predictions of doom about employment.

At least have the decency to admit that you don't have the ability to forecast economic conditions any more than a pair of dice. In fact, you'd probably be right more often if you used a pair of dice to make your predictions.


On Aug 12 11:14 AM Socialism cannot compete! wrote:

> Unemployment WILL go double-digit AND remain there for an extended
> period. We continue to bleed jobs to overseas sources. This week's
> productivity report has shown cause for employers to hold off on
> hiring -- just squeeze those who remain for more output. And lastly,
> the neo-Marxist policies of the current administration do not foster
> growth, but stagnation -- this is not my opinion, but the historical
> truth that has been repeated time and again: socialist economics
> leads to higher unemployment and slower growth...precisely because
> government are not producers, but redistributors...which means that
> those who do the producing are continually hit with ever-higher costs
> and therefore, shrinking margins. That doesn't foster hiring. We
> all know this...but Congress refuses to acquiesce!!!

Bailout Cost, per Taxpayer, by Income

It's fun to go back 11 months, and see the comments of all the idiots who were convinced the US (or the world) was coming to an end, and how the government will never see a penny back from the TARP money.

So far, the US taxpayer has actually made a profit of 15% on the TARP money, much of it already paid back. Where are these prophets of doom now? Probably posting here under a new alias.

Here's the current status of TARP: business.theatlantic.c...

A Warren Buffett Stock Screen

Diamond Offshore is publicly traded, but it is privately controlled by the Loews Corporation and the Tisch family, who own over 50% of the stock. Buffett would never buy shares in such a company, unless the controlling shareholder was interested in divesting their ownership.

I'm also surprised to see a criterion like dividend yield as part of the filter. This have never been part of Buffett's criteria. I also can't see him considering a stock with a P/E over 20 as a "reasonable price".

Howard Silverbatt, the S&P analyst who created the list, has absolutely no understanding of Buffett's decision-making process. Mentioning Warren's name in the title is a shameless attempt to plug his own, flawed analysis.

Smith-Midland: Cheap, Undiscovered Infrastructure Stock

What does that supposed to mean? I don't see volume any higher than when I commented in June.

Other than giving your own posts a thumbs-up, do you have something of value to say here?


On Aug 17 05:58 PM JDROC wrote:

> not anymore

Teva Pharmaceutical: Predictable Growth, Good Value

Any long-term price chart that uses linear, rather than logarithmic scale cannot be taken seriously.

Prices, inflation, and compound growth are all log-normal ("exponential") phenomena. Representing them on a linear scale gives a false overweight to recent years while artificially deemphasizing the past.

Smith-Midland: Cheap, Undiscovered Infrastructure Stock

The stock has an average volume of less than $5,000. Getting rid of a $10,000 position may take you a week, unless you're willing to hand it over to a market maker for a 20% discount.

State Street: A Bankable Proposition

Use 100 shares and one each of the options contracts. Then your maximum risk is just over $4,000.

On Apr 29 02:57 PM dirty_dirty wrote:

> paul, any examples of these married options using cheaper stocks?
> very interested, but kind of new to this and would like to try one
> out...want to keep from losing my shirt the first time around.

Great Recession Datapoint of the Day

That was a quote from Felix. I was actually showing why that is incorrect.

We are only 30% below the all time peak, which is pretty typical of long recessions. But of course, people love to panic, given half a chance.

On Apr 29 01:36 PM schlumpf wrote:

> Owen wrote : By my reckoning, that means exports are now
> running at half the level they were at six months ago, more or
> less.
>
>
> how far away is the total collapse ????

Great Recession Datapoint of the Day

Wrong. These are year over year numbers. 08Q4 was 23.6% worse than 07Q4, and 09Q1 was 30% below 08Q1. Since the trouble only started in 08Q3, we are still around 30% down from the all-time peak.

If the 09Q4 figure is down 34.5%, only then it would bring us to 50% below the peak: (100 - 23.6%) x (100 - 34.5%) = 50%.

> By my reckoning, that means exports are now running at half the level they were at six months ago, more or less.

State Street: A Bankable Proposition

Yes, you have indeed noted this play is for STT optimists.

Personally, I wouldn't be at all surprised to see STT going back to its April 2008 level of $80+ even before the Jan 2011 expiration date, so I'd be more nervous about writing the Calls and missing out on the big move, if anything. In my previous comment I was merely pointing out the dollar amount on the worst case scenario outcome, for the traders considering it.

In a post-credit crunch economy, the well-capitalized surviving banks will have better pricing power, and higher margins. While the overall financial industry earnings might shrink, they will be divided between fewer players, so we may very well see some select banks enjoying a very rapid recovery in their valuation.

I make a good portion of my money from writing options, but when it comes to STT, I believe the implied volatility of 107% correctly reflects the potential for a large stock movement--in either direction.