Generational Dynamics Forum - New Site

Another issue is that volume has been pretty thin. It doesn't
take much money to keep the stock market up, if all there are are
a few people selling stocks to each other using QE money. If there's
a panic, then the volume will be much too high for anyone to
stop it.

I know two people who aren't putting any more money into the market,
but they also aren't selling their holdings, for fear that the market
will go up and they'll look like idiots. However, in both cases,
they're prepared to sell as soon as the market starts falling. How's
that for the perfect atmosphere for a panic?

John

Excerpts from an e-mail I received last night from a former pit trader who now works for a trading firm in New York:

..how strange this rally has been on low volume.
In all my years I can't recall ever seeing this.

...the Flash Crash last May.
...the market made a quantum move.
First the market was "here". Then it was "there".

..trading at ... and have been staring for hours
and hours at the prices on the screen I have noticed little mini
flash crashes in individual stocks.
When I spoke with others in the office people tend to explain it away...
But I have seen these mini quantum moves...
But I got to thinking.
What if we just made a quantum move WAY lower (say 150 S&P points) in
the middle of the day and it then continued down?
Had there never been a flash crash last May (or if it would have been
explained to my satisfaction) I would not even consider this scenario
a remote possibility.
But that flash crash could have just been a blip compared to what
might be coming...


This looks to me like the Maximum Ruin scenario.

Dear Higgie,

Higgenbotham wrote: > Briefly, once again, I'll mention that China can limit the Fed.
> That ties in with the crash starting in Asia. And I haven't
> mentioned this before, but the Chinese are excellent traders and
> market manipulators. I've heard it said many times that Asian
> traders are the best in the world. They could make a lot of money
> off a stock market crash!

If this happens, it would instantly bring the world to the brink of
war.

John

John wrote:Dear Higgie,

Higgenbotham wrote: > Briefly, once again, I'll mention that China can limit the Fed.
> That ties in with the crash starting in Asia. And I haven't
> mentioned this before, but the Chinese are excellent traders and
> market manipulators. I've heard it said many times that Asian
> traders are the best in the world. They could make a lot of money
> off a stock market crash!

If this happens, it would instantly bring the world to the brink of
war.

John

I think it depends. The activity could be disguised in such a way that it is inexplicable (such as the flash crash). For example, the Chinese could hack into and decode the HFT algorithms to see what would set them off or cause them to pull back their bids. Perhaps they did a trial run during the flash crash.

On the other hand, the Chinese may want to ready themselves for war and then crash the market and leave their tracks.

They've perhaps done enough monitoring to gauge whether Congress would or would not be ready to pull Bernanke out in the event of a crash. I kind of doubt they would choose the old obvious methods but would go with something far more sophisticated.

Just some ideas, but the first paragraph is definitely within the realm of possibility.

Also, it seems I remember that a Russian had stolen some HFT code about a year ago and the US government was very concerned about that. Perhaps the code was broken that way. Most of the HFT coders for Renaissance are Russians from what I hear...

http://www.cnbc.com/id/40607440/Former_ ... Theft_Case

http://40yrs.blogspot.com/2010/09/serge ... count.html

...they want to keep this technology out of the hands of the small fry, because it would make the flash crash look like a weenie roast if too many people got their hands on this technology.

Sounds right to me.

Dear Higgie,

Higgenbotham wrote: > I think it depends. The activity could be disguised in such a way
> that it is inexplicable (such as the flash crash). For example,
> the Chinese could hack into and decode the HFT algorithms to see
> what would set them off or cause them to pull back their
> bids. Perhaps they did a trial run during the flash crash.

I'm not so sure that it depends at all. We're not talking about a
jury trial here. Even a whiff of suspicion would spread like wildfire
in the xenophobic public in America and the West.

John

John wrote:Dear Higgie,

I'm not so sure that it depends at all. We're not talking about a
jury trial here. Even a whiff of suspicion would spread like wildfire
in the xenophobic public in America and the West.

John

If the Chinese did have a hand in it, that would be a good reason for a trial run before the real thing goes down. I don't recall anyone on this forum suspecting the Chinese may have had a hand in the flash crash, but am finding some evidence that the possibility has been considered elsewhere. I'm not saying the Chinese did, but I believe they almost certainly have or can obtain the capability and they almost certainly can cover their tracks.

Clear Out the Dross First

Before talking about what may have happened, let us begin with some of the exciting theories that have been roundly discarded by the experts.

...others have whispered that it was a cyberattack by the likes of al Qaeda or the Chinese. In all cases, regulators and investigators have found no evidence to support these ideas...

http://www.forbes.com/2010/06/30/what-c ... panic.html

Warren Buffett gave his thoughts about the Flash Crash during an interview with CNBC's Becky Quick early June. Buffett, who was on his way to testify in front of the Financial Crisis Inquiry Commission, "said he wasn't the slightest bit concerned about the short-term drop."
Asked by Ms. Quick whether he has any concerns about the market, Mr. Buffett replied, "No, it doesn’t affect, well, the world is still out there, we’re selling what we sell, it could have been a cyber attack, I didn’t know what was going on for 15, 20 minutes, but it didn’t make any difference. I mean, it doesn’t make any difference on Saturdays and Sundays when the markets are closed, right? There’s probably some mechanical aspect that I don’t understand that needs some work, but that didn’t raise fundamental questions in my mind about either the economy or the markets."

http://ultrahighfrequencytrading.com/20 ... e-markets/

Interesting article.

http://fredericksburg.com/News/FLS/2010 ... 010/553954