Monday, December 7, 2015


Something happened that I don't really understand and given the commentary, not many other people do as well.  With that in mind, a few quick thoughts.

Everything got hammered today; equities, bonds and currencies--especially the dollar.  That doesn't happen a lot so you have to start looking for reasons but there aren't a lot hiding in plain sight or anywhere else for that matter.

I confess I'm in no better shape than anyone else...worst shape I suspect as  understanding this market is impossible without being involved in the same and last time that happened was a long time ago.  My best guess is that the Mario blooper of last week was not a one day event in the sense it revealed some structural shortcomings that were heretofore unnoticed or, frankly, being ignored which justified or not, caused an intense concern as to what risks were really out there among market participants.

In conversations with Max it was clear that the crowded or tight trade in the dollar/Euro which of course influenced various positions in all sorts of risk asset had trouble clearing and for some people probably never did.  Forget about all the protestations to the contrary; the liquidity in this market stinks.  Recognizing and admitting to the reality of course leads one to the conclusion that it is due to some extent--one can debate the true extent--of the emergence of the massive set of regulations over the past few years.  While this is unsettling to the egos of  some people,  it also leads to a refusal to understand just what is going on in one sense and in an entirely difference sense, a mis-assessment of the risk overhanging the capital markets.  That is not to make a judgement as to the amount or nature of risk in any way but what I think I missed last week was the when we spoke of certain players not even trying to unwind but simply taking and marking losses, was that as a result, market participants began to ask themselves as to the true state of very specific names; this is exactly what happened in 2008-09.  When this happens, the cause of the problem if indeed it is liquidity-related, exacerbates, and moves from a simple ability to adjust positions to being able to fund continuing operations.

I am not suggesting an imminent collapse but it wouldn't be a bad idea if some adult out there--if there is one hanging about--have a few words to say on the subject of market sustainability just to let folks know that someone is thinking about these things which I am sure (hope?) they are.
Today was borne of deep uncertainty and nervousness.  Those sorts of fears can be allayed if not terminated with some well-chosen words from the right people.  The new leadership theory of "leading from behind" has no place here.

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