3/21/12…the fly

Today marks the 1,000th edition (1.5 million words estimated) of TB’s blog (traderbill.com), but there were perhaps 200 more emails before the blog was started…thanks for reading. TB

Bloomberg Top Stories:


*Osborne Says U.K. Will Avoid a Recession as He Maintains Austerity Drive – oh really?

*U.S. Stock-Index Futures Little Changed Before Existing-Home Sales Report –mtg apps weak!

*Europe Comeback Seen in Most Company Bond Sales Since 2010 – or is it?

*Hartford CEO Says Paulson’s Plan for Complete Breakup Wouldn’t Make Sense – of course!

*Buffett Seizes Lead in $1 Million Bet on Stock Index Beating Hedge Funds – but the high fees?

*Monti to Impose Italian Labor Market Overhaul as Talks Falter

*Top Junk Beats Treasuries for Safest Profit Since Lehman – of course they do, yields!

*Stocks Will Rise for Several Years as Economy is Priced In, Goldman Says – are they short?

*JPMorgan Claims No.1 for Government Debt After Jefferson Co Failure – oh you rock, Jamie!

(They did it the old fashioned way…they rigged it! Two big scandals yet they are loved???)

*Unemployment Rises for U.S. Military Veterans Serving Since 2001 Attack – some thank you!

Volume declined modestly two days after hitting new 2012 highs on BOTH NYSE listed stocks AND on those traded directly on the NYSE!!! 3.65B shares vs 3.8B vs 4.85B vs an average of 4.4B shares for the three prior sessions. Meanwhile, NYSE stocks executed on the Big Board declined further to 711M shares vs 721M from 1.65B and are about 300M below the 12 month average. Friday’s was the highest of 2012 and highest since 12/16/11…the last quadruple witching! Since 11/1 there have been just eight 1B share days…only three in 2012! Since 2/6 there have been FIVE sessions less than 700M shares. 86 of the last 93 sessions have now been less than 1B! As promised by TB: “an illusion of liquidity may exhibit itself following the quadruple witching (options expiry). Advance/Declines were negative: -2x vs +1.8x vs -1.2x vs +1.5x vs -2.8x on NYSE and -2.2x vs +1.8x vs -1.1x vs +2x vs -2.2x on Nasdaq. Breadth too was also negative: -1.5x vs +2.1x vs +1.5x vs +4x vs -1.3x on NYSE and -1.5x vs +2.5x vs +1.1x vs +2.8x vs -1.3x on Nasdaq. New 52 week highs dropped nearly 2/3 to 124!!! vs 322, while new lows ROSE to 54 vs 33. The ratio is now +2x!!! vs +10x. The S&P VIX climbed in a mixed session to 15.58 +.54. Friday’s intraday low of 13.66 was lowest since 6/20/07’s 12.75. Not good!

Here are the results of the last five sessions: Dow -0.5% vs +0.1% vs -0.2% vs +0.4% vs +0.1%; Transports -1.2$! vs +0.2% vs flat vs +3.3%!!! vs -1.4%; Dow Utilities UP 0.4% vs -0.4% vs -0.2% vs -0.1% vs -1.4%; S&P 500 -0.3% vs +0.4% vs +0.1% vs +0.6% vs -0.1% vs +1.8%; Nasdaq Composite -0.3% vs +0.8% vs flat vs +0.5% vs flat; Nasdaq 100 +0.2% vs +0.8% vs -0.1% vs +0.2% vs +0.4%; Russell 2000 -1.0% vs +0.9% vs -0.1% vs +1% vs -0.9%; NYSE Financials -0.3% vs +0.6% vs +0.5% vs +1.3% vs -0.1%. NYSE Financial Leaders: BAC +2.9% vs -2.8% vs +6.1% vs +4.5%! vs +4.1% vs +6.3%!!! vs -0.8%; C +2.5% vs +1.3%??? vs +1% vs -0.9%.

GE/F -0.7% – due to large financing operations considered one here.

European equity markets little changed, Asia weaker, India strongest but still down 1.8% last five sessions!: FTSE +0.1% vs -1.2% vs -0.3% vs +0.4%; CAC40 flat vs -1.3% vs -0.6% vs +0.2% vs +0.1%; DAX -0.1% vs -1.4% vs -0.5% vs +0.2% vs +0.3%; Nikkei -0.6% vs +0.1% vs +0.2% vs +0.1% vs +0.7%; Hang Seng -0.2% vs -1.1%!!! vs -1%!!! vs -0.2% vs +0.2% vs -0.2%; Korean KOSPI -0.7% vs -0.2% vs +0.6% vs -0.5% vs -0.1% vs +1%; Indian Sensex UP 1.7% vs+0.3% vs -1.1% vs -1.2% vs -1.4%. U.S. stock futures little changed and mixed ahead of Existing Home Sales: DOW +13; SPX +0.30; NDQ -1.25. Bonds up slightly but still trying to recover from the selloff: 10’s and 30‘s still well above 2% and 3% respectively: 10 yr 2.32% +5/16. RECORD low 9/23 of 1.6855%; 30 yr 3.43% +3/8; Long TIP 0.90% +5/16, it was 0.57% at high. The 5 yr TIP yields MINUS 1.22%; 10 yr -.10%. Bills 0.09% 1 month; 0.09% 3 months, 6 months 0.15%. Reverse Repo 0.22%. 3 mo. Libor 0.47%, and 0.74%, stable.

Gold closed below $1700 for a seventh straight session falling 420 and making the hit off $131 since 2/28, closing $1647.00 -$20.30.  2/28’s $1792.70 intraday high was not seen since 11/16! It had been above $1600 since Jan. 31, and is now $1654.70 +$7.70. The record high is $1923.70, a buying climax on 9/6. Res is $1684, the 200 day and $1706, the 50 day, then $1720, the 40 day, about to roll over. Major support is $1652, the 1/25/13 low! Crude closed DOWN at $105.61 -$2.48, the worst decline since 11/17/11! It is now $106.47 +040, with support at the 40 day (103.29), the 50 day (102.67), and major support at $95.08, the 200 day, all rising. Resistance remains at $110.

Then indices were weak except Dow Utilities which rose 0.4% but remain weak due to the bond selloff. All other indices were down except the Nasdaq 100 which was up 0.2% but that was entirely due to Apple and would otherwise have been flat. We are still relying on flash traders (see comments below on algorithms and what it means to markets), for activity. On Monday TB watched the tape for BofA trades which came across about one a minute or less…how could this be. Yesterday, was similar…but try this if you trade on line. TB got quotes on Schwab…live…on BofA and kept hitting the refresh key…1,000 to 10,000 per second…with bid/offer no more than a penny apart: $9.64-9.65…for five minutes…if you don’t understand this, you have no idea how this market is being manipulated. THAT is not retail trading! TB is sick of this…where is the SEC and other agencies who are supposed to protect our markets…biggest casino in the world! What a title to be proud of…

Gold continues to drop, falling another $20 yesterday. Oil too plunged as the Saudi’s are about to ship all it takes to offset Iran effects. Shame on the GOP for blaming Obama…a simple look at the charts shows that until Iran reared its ugly head recently, the price was well below the end of the Bush administration. Doesn’t anyone hold these people to facts??? Disinformation rules!

. . .   – – –  . . .  (SOS)

…the number of movies in the slug now number NINE…why The Fly? It was a 1956 movie that was remade in 1986 starring Jeff Goldblum. Only the base story was still there but a brilliant scientist working on an experiment turned into half man/half fly.

Yesterday, when talking about Kevin Slavin’s video TB mentioned that algorithms are being used all around us thanks to computers. He mentioned a book that was listed for over $2 million on Amazon, an obscure out of print book called The Making of a Fly, by Michael Eisen. Eisen is a professor at UC Berkeley in environmental biology. He decided to list a few copies of his out of print book on Amazon for $32.95. The story seems so preposterous that TB had to check it out. Here is what showed on Amazon  4/8/12 – 4/14/12: 15 used at $35.44….2 NEW at $1,730,045.91!!! You can’t make this stuff up, folks! So how did it happen and can it happen again…it can and will so be very careful on any bidding site because the site may be inflating prices when you appear on it…like when you return to a page and the price is higher…because it left a cookie and YOU came back! A pigeon, hopefully to them! Actually the price of the book reached an incredible $23,698,655.93 PLUS $3.99 shipping!!! How could this possibly happen after all it isn’t the Mona Lisa?

Two retailers were using algorithms which tracked all their books with one using a factor of 1.27059 times any other price…the other at .9983 times. They locked into a computer loop driving the price higher and higher until someone came to their senses. But note, mind you, that not one book actually traded during that time period…zero, zip, zilch!

Here is how it works…Michael’s $32.95 x 1.27059 = $42.86,

Then the other seller came in at $42.86 x .9983 = $42.78.

Then $54.46, $54.37, $69.08…remember the old riddle about whether you should take $10 a year from now or a penny that doubles each day for a year? When you were a kid it was obvious: take the $10, which was of course the wrong answer.

OK, we get that but how did this happen? First, it is impossible to monitor an entire inventory of books…or anything else a retailer might be selling. Actually the number tops out at 21! Enter a company, or others, called FeedAdvisor who will sell you an algorithm to do just that and it will interface with the website and adjust the price automatically. This plus a search of all the prices offered and constantly updated means you will be competitive…some want to be a little higher and some lower based on their experience of how to maximize profits…i.e. a seller with high positives might go for higher knowing some buyers will pay more for the efficiency, just as you might in choosing which store to shop at.

As TB said yesterday, computers are dumb…they (most) have no ability to think past what they are programmed to do. So when the two computers above got locked into a feedloop, the prices escalated rapidly to nearly $24 million…without a single sale! Look at this: at one point it showed 17 copies for sale; 15 used (Eisen’s) at $35.54, and just 2 new at $1,730,045.91!!! Do you still believe in efficient markets? TB doesn’t!

It was actually Eisen himself who saw it and decided to find out why it was happening.

If you Google the book you will see the articles on this phenomenon.

Follow-up: where is the price now??? 2 new (same two retailers) for $276, and 15 used for $82!!!…perhaps a few have been sold to collectors based on the story, but doubtful.    

Would you believe they are even in movies and other things…they can scan a script and tell you how much money it will make at the box office…or pick a movie for you on Netflix or a song on Pandora. Accuracy about 60% – less for the ones Netflix picks for TB! The flop by Disney of ‘John Carter’ shows just how wrong those projections can be wrong…but nothing can go wrong…can it? $200 million worth! Stay tuned!  Here is the link again: algorithms explained

Remember the ‘flash crash’ of May 6, 2010? The Dow had the largest daily swing ever, 1010 points! …and the largest decline: 996 points. When it began the Dow was off a large 300 points…the rest of the damage occurred in just FIVE minutes by within an hour 600 points had been regained, in other words back about to where it started. Why? There was no sudden news…instead an algorithm feedback loop occurred, although no one has ever determined exactly what caused it. Stocks like Cat, P&G and other solid companies saw their market cap drop by as much as 50%. Eventually, the prices were sorted out and the bad trades removed…but can it happen again? YES…and it surely will…perhaps in a much more damaging way. There is nothing to stop it. We are being controlled by people who have turned loose their computers with no logic safety valve. Perhaps the next terrorist attack will be the financial system…if it were TB that is the way he would do it. Much more effective and would draw less criticism then destroying property and lives.

Have a great day!




  1. Yarnman said

    WOW! A 1,000 blogs–that’s equivalent to “going platinum” in my book. Congratulations are well-deserved by you (and your family, too!).–YARNMAN

    • traderbill said

      Thanks for your continued support Yarnman…will try to keep it interesting. TB

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