27 July 2007

POP!

OK what's this dumpage all about? The excuses proffered so far:

*Sub-Prime Contagion
*Removal of uptick rule for shorts
*Yen carry trade unwind
*Funds cashing out to build a war chest.

Let's look at these one at a time.

*Sub-Prime Contagion - Well Duh!!! All the Wally's who said it was all contained should be tied up to posts and their tongues cut out. Of course it was going to take out the rest of the economy... 'nuf said?

*Removal of uptick rule for shorts - Absolute BS! Institutions have been able to do it (shortsell without an uptick) via derivative proxies forever. It's only the small fry like us that can now do this now... and we have always been able to do it with futures... erroneous at best.

*Yen carry trade unwind - Empirically, this is not only back on the agenda, but looks to serious. While the Dollar has been in a strong retrace against Euro, Pound, AUD etc, it is getting absolutely poleaxed by the Yen. The carry trade is unwinding and unwinding fast.

*Funds cashing out to build a war chest. - According to at least one money manager, the evidence is in the oilers being crunched in the face of rising crude. Conclusion - the funds want CASH.

... and look at treasuries. There is mountains of cash going there in the face of a crising interest rate environment as safe haven. Expect some volatility there!

IMO, This is the beginning of the credit bubble apocalypse. The $417 is finally hitting the fan. This is not to say we go straight down from here, but we should be aware of that possibility... and at least expect massive VOLATILITY.

Cheers... be careful folks.
__________________

2 comments:

grant said...

WAL,

There has been a lot [some] discussion in relation to the elimination of the uptick rule.

Specifically that institutions have instigated a trade where they purchase a PUT, and then sell continuously to the strike or below, the theory being that if they can generate enough momentum, it will self-fulfill in the short term.

This is being employed in stocks rather than the indices, as the indices have too many competitors and hedged bets anyway.

Certainly the small caps last week suffered a real blow last week.

As I tend only to involved in NYSE large/mid caps I can't say I've noted the aforementioned, but, if you are interested in small caps it may be worth watching for.

jog on
grant

Measuring the Incalculable; valuing the intangible said...

Cramer is sayin' the fundamentals are "unsound"...

Looks like another opportunity to get long!

BORING!