A Melange

來源:Victor Niederhoffer
日期:2010/07/03

A million events coalesced this week to put the market in a highly precipitous state with the expected standard deviation for Tuesday, based on pre holiday lows of 32, being a good twice the normal 15 for any day. Without minimizing the seriousness of a loss of 50 points in a week, perhaps 3 trillion or more in wealth, perhaps one can find some order beneath the random happenings.

First, some quantitative things. Big minima before holidays occurred only 6 times in last 15 years, one on Labor Days 2001, and one 10 calendar days later, two on July 3rd, 2002 and 2008, and two on Martin Luther King day 2005, and 2009. Changes to the close of -60, -60, 35, 14, -13, and -46 followed those days with a stand dev of 32. The situation a week later was even more dour, although in an interesting anomaly so typical of markets, the standard deviation of the 5 day change is 28 versus the naive expectations of 70 from the one day change.

On the other hand after big declines in a week, of 5% or so, a event that regrettably has visited us on 1 in 20 weeks that last 10 years, the market is quite bullish with a standard deviation of 35 the next day and a more expected but gargantuan standard deviation of 60 for the following week. One also notes a string of exactly 5 consecutive losses in the S & P, an event which has occurred on about 1 in 25 days, as compared to its expectation of 1 in 64 days.

Fortuitously, the standard deviation the next day is a mere 18, and the expectation is zero. The situation with Nasdaq is similar on a weekly basis. With its 120 point decline for the week, the expectations are not much different from random. However, with 11 consecutive days without a rise, that's never happened before. Highest run of consecutive declines was 10 on Oct 12, 2000, when adjusted Nasdaq about twice the current level.

More interesting is the failure of the market to rise a reasonable level in 13 consecutive days, an event that is a true rarity only having transpired on 4 occasions before. That event has again led to an expectation of 0 to negative in the next following days. Turning to the always fascinating changing web between stocks and bonds, one notes that while the stocks declined 5% this week, the bonds went up about 4 1/2 points from 123 1/2 to 128 1/2, with 5 consecutive rises to Thursday, July 1, close. One would expect contrary to the upside down sponsor's constant refrain that would lead to some reallocation to the stocks. And indeed to a reasonable extent that is true, albeit the expectation is only 1/10 of its standard deviation going out 1 week in future.

The variability of all these things is so great relative to its expectation that even if the future moves were drawn from the same distributions as the past, nothing here would be of any great regularity.

Thus, we turn to the qualitative.

Everyone from the President to the upside down sponsor was on tv talking about the significance of the employment number, all from their own corner of self interest. I like the emphasis now that is placed on private sector jobs, the 63000 increase, a number that is becoming so much less relevant as government jobs gradually become more numerous, more attractive, and crowd out the jobs in the private sector.

Along those lines, everything came together with Barton Biggs reporting that he sold his technology holdings. The news came out right at the close, putting it in the pitching in the pinch category. It was the one thing that determined the market move for the day as just before the market had been up a 1/2 % on the day and the news caused it to decline 1% in the last 10 minutes.

It was the perfect thing as Zeus sat there at 350 deciding which of the Goddesses to favor with his kind attentions over the weekend, with the balance of the market on his scale. And then came the perfect announcement. Biggs is bearish because the intervention and the stimuluses might stop. And it's particularly newsworthy because he made money in 2009 by being bullish on the stimuluses as if being right one year has anything to do with being right the next year. But its the idea that has the world in its grip. And it provided the perfect backdrop for more interventions coming in the future. And of course the reason that the market is down so much is exactly that the interventions have caused all incentives and all desires to make investments with the increase in service rates of 100 % coming up, totally vanish.

Thus, the news followed the price, and led to what is guaranteed to happen, a call for more jobs, more jobs especially for those organized in special groups that can provide votes and funding– but most important of all, a clarion call for taking from the common man to provide a greater need for intervention by those of superior knowledge and tastes.

I believe one gets the picture.