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Re: Dow 11,000 — Too Much Cheering

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  • Fri, May 07, 2010 - 03:55pm

    Peak Prosperity Admin

    Peak Prosperity Admin

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    Re: Dow 11,000 — Too Much Cheering

Right, I agree that for some reason the bids absolutely dried up.  That’s the story.

So what can cause bids to dry up like that?  In time past, with specialists and lots of little investors making up the bulk of the market, that could never really happen.  But with HFT computers operating at the end of a low volume 80% run up in the stock market?  I guess our new learning is that all the bids can evaporate and therefore the market is an even more dangerous place than it used to be.

Another way to put this is that without HFT, the volume in the markets during the huge run up from the lows would be less than half of what people thought.  What this means is that there were no real bids – or offers – for a long long time now.  The masses are still shell shocked after the free fall last March…and the game became very very quiet.

Now, when the only people other than the government via banks who are trading (HFT) decide risk is too great and leave, that leaves no bids.

While yesterday was a disaster of sorts, lets all remember that we didnt even break 6 month lows!  HFT is not the culprit – no one is required to put in bids.  The market is more dangerous now because its faster and filled with government intervention that makes prices artificially high.

Here is a link to the best article I have read regarding the causes of the fall yesterday:  http://globaleconomicanalysis.blogspot.com/2010/05/equity-plunge-yen-connection.html