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News That Moves Markets: Hedge Fund Collapse Hits Gold Price, Portuguese/Spanish Problems Persist, Quant Group Think Imperils Markets

I ended my last post with the sentence, “US equity market bulls need to beware.” A week has past and with Friday’s mass equity selloff fresh on everyone’s mind I thought I’d take a moment and say, “you’re welcome.”

I little too arrogant for you? Perhaps, but fear not, the market humbles us all at one time or another. I say when you are right in this crazy Fed manipulated world a small amount of crowing is allowed. In fact, I rather dislike being right in this case. Warning about imminent disaster is never a enjoyable task. I would much rather call a market bottom when others are prattling about immediate collapse of phantom Head & Shoulders patterns as I did July 14th last year. Oooops! I did it again. Please forgive the hubris.

News that Moves Markets: As usual, ZeroHedge was all over it last week . The following three posts sum up recent market behavior:

Meet The Man Behind The Liquidating Hedge Fund That Blew Up The Gold Market


Over the past several weeks there had been rumors that the reason for the precipitous drop in gold was primarily driven by a hedge fund liquidating its futures positions. This has now been confirmed: “Yeah, that was just me liquidating my spread position,” Mr. Daniel Shak, [of SHK Asset Management] 51 years old, said in an interview. “I had a significant, fully margined position. The dollar amount of the gold liquidation was very small, it was just a lot of contracts.” Of course in the extremely jittery gold market, the kind of persistent marginal gross selling of contracts was all that was needed to spook weak hands into a consistent dump of the precious metal, which as we pointed out was beyond overdone. Judging by this morning’s jump in the PM complex, SHK’s liquidation is now not only over but about to promptly reverse as daytrading momos realize they were duped by one single guy. Look for gold to resume its upward advance as investors realize that the gold dump was nothing more than an ongoing futures position liquidation….Read more

Portuguese, Spanish Bonds Back To All Time High Yields


One would think that judging by all the frequency of lies about Europe’s latest CDO knight in shining armor, also known as the EFSF, that bond spreads would be rushing headlong to zero as yet another form of perpetual taxpayer backstop is implemented. One would be wrong. Spreads on the Portuguese and Spanish 10 Years are now back to their widest levels in history. It is fairly complicated to reconcile this stickiness with the daily barrage of mendacity from all ECB apparatchiks. Basically, the market, unlike Goldman (see below), is fairly unconvinced that any of the currently planned rescue plans have any chance of being successful….Read more

Quant Wipeout In Process?


On Monday we posted an article, highlighting Morgan Stanley’s observations that we may be on the verge of an August 2007-like quant wipeout. Considering what is happening today, it may have proven eerily prescient. Below, we repost the full thing as some may not have taken it seriously the first time around.

Morgan Stanley Sees Recent Market Conditions As Reminiscent Of August 2007 Quant Crash, As “Don’t Fight The Fed” Groupthink Trade Fizzles

Something scary this way comes from Morgan Stanley’s Quantiative and Derivative Strategies: “market conditions over the last two weeks are somewhat reminiscent of that during the August 2007 ‘Quant Crisis’. In only a few days, a number of quantitative long-short equity funds experienced unprecedented losses in seemingly ‘normal’ market conditions.We do not suggest here that the magnitude of hypothetical losses match those from 2007, however, there is little question that the rotation has drawn attention of many quant investors.” In other words, the massive groupthink trade that we have been warning about for months may be about to claim its first mass casualties….Read more