Wednesday, October 7, 2015


The DOW was up again at the close with  gain of 122 with the ten year at 2.06%.  Again, no one know why...well, I suppose I should modify that by pointing out that today's trading is computer driven and those machines are really good at picking off little signs programmed into them as to when to sell and when to buy.  Busy as little bees they buy and sell and sell and buy in accordance with their programmed instructions.

The folks that write those programs are really smart, really good.  Same education; same majors...Math, Physics, computer science.  Same schools to a great extent.  Same Instruction.  Same..........results?  Hummmm.  Something to think about.  With not a damn thing in the world going on to influence markets in a positive sense, up go equities five days on the trot leading one to the conclusion that it is what is inside the boxes, not outside, that is the true causation of market valuation.  So what, one might ask.  No good answer except that the input is very likely, no matter at what location, to be the same as the inputers all were all, essentially, clones.  You get my drift: suppose all the clones decide at the same time that all that they were taught in the same schools indicates it's time to leave town?

This is not a phenomenon exclusive to the equities market.  Our friends at the IMF came out with a rather interesting tale today.  In their view, since 2005, the debt level in emerging markets has risen to the point where it is probably $3 TRILLION above sustainable levels.  Seems like in the past ten years everybody had the same idea.  And now, everyone seems to have come to the conclusion that it might be a good time to lighten up a touch.  Been there, done that.  It's not easy to pull that off without a substantial amount of crockery being broken.  As we have talked about before, one of the first signs is the act on the part of central banks of what is know as "getting liquid."  Official figures released for September show an accelerated sale of U.S. Government securities by foreign central banks and governments, with China leading the way with $48 billion.  (Now that is down from August but in that month was the great collapse of the Chinese equity market).  Continuing action of a like sort is predicted for this month.

There are other signs.  A couple of small hedge funds shut down yesterday.  No big deal but notable.  Then there's Goldman, J.P. Morgan and a few of their friends who underwrote $1.2 billion of an LBO and are waring it.  Now if 1st National of Nowhere eats a loan, no big deal, but these guys are the two biggest players in the business with a lot of favors to hand out--SURPRISE, bribery does work--and saying no to their syndication can have it's consequences.

Finally, there was the pow-wow up in Boston last week.  I'm  really surprised at the absolute non reaction to our nation's top financial cops saying--basically--that they are clueless as to how to prevent or for that matter what to do the next time the fertilizer encounters the air-distribution mechanism.  Really.  The meeting was covered by the NYT and that was that.  No follow-up, no nothing, nada.  We seem to be going day by day, whistling louder as we approach the graveyard.  Now I could be completely out to lunch and I really hope I am but I would think (hope?) that someone in authority might point out that we are not in a very good place right now with the event risk factor rising higher and higher.  Putin just fired off two dozen cruise missiles at targets a thousand miles away.  The Russian military has never been known for it's precision.  If a couple of those decide they don't like where they are going and drift south...Tomorrow is another day.

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