Juggling Dynamite

Just as we saw risk markets surge the week of October 21 while the Yen soared.  Today we have “risk off” across the board as the BOJ intervened for the third time this year to knock the Yen lower.  The US dollar and bonds are up more than 1% so far today as the algo trades trigger their mindless trail of US dollar up, risk assets off. 

Last Thursday’s 3% rally in the Dow was the 5th of that magnitude since July 22, and moreover, there have been only two sessions since then when the Dow has not swung triple digit moves in the course of each trading day.  Some important big picture on this type of volatility comes courtesy of by David Rosenberg this morning:

“Remember that we had no fewer than 19 of these sessions (3% up-days or more) from the time Lehman Brothers collapsed in September 2008 to the final low in March 2009, and of course, during that time there was also a plethora of plans to save the US banks. Even with all those massive rally sessions, the market still managed to slide 50%.”

Here are two simple changes that only the most self-interested, reckless players can lobby against. And they have. But sane minds must prevail:

1.  Credit Default Swaps markets must be listed, regulated and open so that all sides can see what is where, and what risks are not covered.
2.  High frequency trading must be greatly curtailed starting with lengthening the amount of time trades must remain open in order to be valid. Allowing trades to be posted and retracted 300 times faster than the eye can blink, is absolute lunacy. There is no good (other than bad faith profits gleaned by volume hungry exchanges) that can reasonably be argued in support of this reckless nonsense.

Here is John Mauldin (Republican) this weekend:

“CDS markets should be moved to an open regulated exchange. And while we are at it, high-frequency trading should be stemmed. This could be done easily by requiring all bids or offers to last for at least one second, instead of a few microseconds. You make the offer, you have to honor it for a whole second. What a concept. That would not hurt liquidity, but it would cut into the profits of the exchanges (especially the NYSE) – but I thought these were public markets and not the playground of the privileged few.

If it weren’t so cold here in New York, I might just wander down and join Occupy Wall Street and see if I could enlighten a few minds. If those kids only knew what they really should be protesting.”

This article offers important perspective on the unraveling of the largest real estate bubble on planet earth today.  Those hoping that China will rescue the west, should take note:  China has some major headwinds of its own.  See Shanghai homeowners smash showroom in protest over falling prices.