Wednesday, May 15, 2013

Chimera: sellers and buyers

Moral: Wherein we re-visit the sucker/sacker dual as we clarify a few points.

Chimera? Yes, not entirely. Consider that the concept was used somewhat jovially (not entirely in jest). The first metaphor was a train leaving the station, way back. You see, both "chimera" and "train," in this case, refer to something that has substance at its basis. The question is always how much of the basis is real (we'll continue to pursue this theme). Something has happened the past few years, goosed by Ben. But, if you look closely, it (the train) is still in the station making a bunch of noise and smoking up a storm.

Why say that? A recent article in the WSJ says that 50% (at least) of the US population has not benefited from the current mania (Ben, would you recognize risk if it was under your nose?). What we have is the top tiers raking off value (what else is new? but, that does not a sustainable economy make). Those bubbly affairs that benefit Wall Street (we'll call this Wall and ilk) do not trickle down, necessarily.


Train day,
Saturday closest to May 10th
Aside: Train day was a few days ago. Real trains do real work. If truth were to be told, a reputable train would not want to be used as a symbol for what the Wall and ilk represent (leeching off the industrial activities of others). They ought to find some other symbol, such as a balloon (my image disappeared from this post??). Or, how about a zeppelin (general sense, hence lower case) given the last downturn from which we have not recovered?


So, to the matters. The ideal (in the senses preferred by financial types) is to match up sellers and buyers. We all know that sellers want as much as they can get, even to the point of being sackers (we'll go on about this, to boot). But, for the seller to get the desired amount, there has to be a buyer, even to the point of being a sucker. Evidently, with the DOW going above 15K, with no end in sight, there are many suckers. Let's look at the dynamics, from a very foundation'al sense (ignoring, for now, guns and butter, real economic growth, etc.) before we get to the real essence of the matter (again, no schedule for this; PTIME issue).

Match up? Yes, that is what markets are to do. Nowadays, though, lots of potential buying is nothing more than a computer testing the waters with fictitious (Karl Marx is laughing up a storm) buy offers. Can you believe that this is considered to be normal for a mature economic society?


Aside: Thanks to the actions of Ben during the turmoil, we'll have plenty to study. We can call it after-Ben (my face still smarts from being slapped silly last week, Ben), perhaps. Hopefully, after all of the analysis, real lesson could be learned. But, what are the chances of that?


In short, we have three states of being (Which can be expanded further, but why do that now? Our problem is that the sophisticated have run amok -- we need to teach them respect for mathematics) related to the market (we'll have to detail this phenomenon further; and intend to).
  • Seller -- The goal from this end, for the most part, is to get more than paid out (there are all sorts of nuances, but, altruism is not a characteristic of the Wall and ilk). Right now, sellers are raking it in. That is what occurs on the upside. It also gets people to leverage stupidly. That is, they go into hock to get money to buy stock in order to get gains (which are questionable from the get go). Do sellers, as a set, run out? Sure, but that's another story as things to sell can magically appear. In fact, some of the fictional buying, IMHO, is there to spawn off activity (in some cases, seeding - from whose pocket?, we ought to ask). 
  • Buyer -- Of course, the idea would be to get the best deal (even for free -- ah, we'll have to go on about that -- out of air extractions, of which there are many examples in finance). But, the buyer has to have the motivation to do the transaction. A lot of energy nowadays goes into separating people from their assets (in many cases, one might get a better asset; yet, cyclical realities show that these things are more detrimental than not -- no pessimism here, rather truthfulness). And, losses are not easily recouped (without finagling - nod here to the accounting profession's part - their necessity to be ethical and more). But, buyers on the up side don't lose (immediately). There are small takes, as we see with those dealing with arbitrage (most buyers nearing the peak are not of this type). As we see next, buyers eventually become hard to find (at the demand price, lemon lesson applies).  
  • Up and down -- The up side comes from there being buyers to match up with the sellers sufficient to keep things afloat. And we know, many times the buyers turn out to be suckers (even when being professional money managers -- sheesh). How far can up go? Well, we'll have to give Ben his credit (or not -- future analysis will tell if he's loved or not -- remember King Alan?). At some point, buyers start to thin out (it's not an inexhaustible set, folks, though some leeches seem to think so -- of course, there may be a lot more suckers waiting in the wing -- DOW 25K?). When there are no buyers (and, a recent WSJ article made that point - who will buy if things start to drop and we're past the point that the late comers want to get into the game?), prices fall (and fall). About the seeding (see prior bullet): even that must hit some limit at some point. As we saw with the past downturn, at the bottom (which is not known a priori), those who are in the position to exploit the game buy and do so heavily. Between the up and the down, we have those sideways movements where either side is not clear. 

Aside: How much ought one have in reserve in order to be an adult and to meet obligations (future types)? In the WSJ, the estimates ranged from 3 years to 6 to 8 years. That is quite a range. Those who leverage think less than 6 months. Note, please, that reserve means some place where value is known. You see, if you have to sell in a down market, you lose. Now, Ben et al, a sustainable economy would provide a means for stable-value decisions. Okay? Too, one cannot time the market (as a game). The amount needed may not even be possible to attain when one has to sell low.


Somehow, things have gone awry in the market mentality (not recognized by those doing the taking - as in the big pocket'd who have benefit -- gains? hah! funny connotation). The speed of this has been accelerated with the advent of automated means. Just because people can hack what they think of as algorithms is no reason to turn these loose upon the economy and its peoples. Actually, we ought to have many types of sandboxes.

But, it's not a simple thing, folks. Enough for now. We'll let the chimera run its course and not rail about the idiocy that is implicit in the whole affair. After all, science would say to observe not interfere. Ben has interfered as he's the cowboy let loose without any constraints. Yet, that which prompts the philosophical remarks will not be repressed.


Any thoughts on the peak and how far the drop? Actually, what would cause the buyer (sucker) set to dry up? Too, can the seeding effect be studied (hint, malfeasance of a major sort here)?


Post note (added after initial publishing): We need to look further at buying and selling of stock. With the increase of computer-assisted means, the past few years, there are added uncertainties. In the old days, there was a role in the market activity, that of being a buyer of last resort. That is, the stock specialist ate the loss, for which loss there were planned reserves. Of course, the advent of options trading added wrinkles. Then, with the algorithmic trading mess of late, who will be the buyer of last resort? This question has been asked. Who will buy? Will we have a stalemate'd market (think huge tie-up) that is much worse than a liquidity freeze? Ben, the sooner we see this thing, the better (would not you think?). Forget the flash crash sort of thing. A type of solidification would be difficult to unravel.


01/15/2015 -- At last, a series that will establish the basis and extensions, as required. We are going to go back to some simple and come forward to the modern, complicated economy. Why? My long chain of ancestors (inherited via Prof. Lucio Arteaga) is one motivation.

10/30/2014 -- Where are we? For one, let's talk how most are losers, okay (due to idiotically applied multiples)? This can be ignored when their reality is pushed outside of common awareness. So, we have the top tier (0.001 or less) gaining under the present scheme (even with it being stopped, QE, that is, the latest of it). The other? Dire straits, indeed. Yet. the talking heads chase the DOW daily, as if it has meaning (ah, why this?).

10/16/2014 -- We need to get back to this. Today, we have seen six days of selling off. So, when will the Fed pipe up with its little cacophony of coo-coo, goo-goo? Well, it started today. Also, golden sacks talks nicely about the Fed. Panhandling?

09/17/2014 -- Yes, she did. The coo-coo, goo-goo goes on. The landscape is strewn with the lifeless bodies of the savers. Thanks, Janet.

12/05/2013 -- If only Ben would put a shot across the bow.

08/15/2013 -- Nice viewpoint. Farce, indeed (chimera). Buyers and sellers are Investors (sometimes).

08/07/2013 -- Over the weekend, Motley Fool had an article that asked how high could the DOW go to which we made comment (post that was precipitated by the article). So, here are a couple of things to discuss, especially since there seems to be some worry of the taper, of late. First. How do we determine the price at which loss is guaranteed? You see, losses like we've see with the two recent swoons (May/June/July, and the one of the past couple of days) are not shared by all sellers. That is, losses that are not paper only, since losing ill-begotten gains is not a real loss. The loss manifests when you sell. So, as a market tumbles down, those who can still make a profit can bail out to a certain point. That is, they can sell before they lose what the put in. Again, ignore ill-begotten gains, please. If we look closely, that price is not as low as we might think. In a sense, equity holdings will lose money. All the talk about the equity markets rising, over time, do not consider the accumulative losses during the period, nor do they look at the side-effects of inflation (and structural changes like we see now where most jobs are essentially glorified indentured slavery). I know, the trick is to use constant dollars; yet, the total picture is not painted. How do we do that? In short, this problem applies to bond markets, too. Second. For anyone to sell there has to be a buyer. But, to buy, there has to be a seller. Prices goes up as buyers try to get in the game. As we saw with FB recently, prices can jump quite a bit (leaping for the stars - usually without a tether). As markets, like  the DOW, go up and up, there has to be some implosion point (as in, the thing collapses due to the unnatural states that accumulate). Let's say that you run out of buyers. Well, that was handled, in the older times, by the specialist who was the buyer of last resort. Guess what? With these modern schemes, we have seen where there was not a buyer (as in, the game runners want it one way: their continual gain - loses go to the public). So, with no buyer of last resort (and, Ben is being just that for bonds), how long can the market just sit there and churn? Now, there are many ways that people might decide to sell. The fall in price, like the going up, will be faster if there are no buyers to catch the thing. How far can we fall? Guess what? Now, they stop the stupid market. Why not let the stupid thing go down to some low number, say what it was in 1990? No, the thing has to ratchet down. Supposedly, that would remove insanity and allow jaw-boning time (by all of the idiotic heads that yap every day) to bolster people's confidence to get back in to the game (which, we know, as ca-pital-sino, is a loser's game). Or some such. ... Now, we could bring in a third (and more) thing related to the churning caused by all of the algos (errant computation) and other crap (greedy worldviews). Stock would increase in value with real accumulation of wealth (whatever that is) over time. However, how can we see such with the dark pools (idiocy) and other murkiness (just the whole thing of perturbing trades that are meant to lure the foolish to their financial death)? Ben, address that, please.

07/31/2013 -- Ben cannot unwind or taper downhe has too many Doves.

07/30/2013 -- The future: economy and technology.

06/22/2013 -- So, how many traded their paper gain (chimera) to solid debt with the downturn? Okay, forget the size of the loser set, how much went from illusory gain (backed by a promise to pay later) to real debt that has to be paid with blood and guts? Wait! Some of those doing the margin calls, and ilk, have some way to weasel (not disparaging the grand animal) out, not doubt.

06/20/2013 -- Can Ben stand quiet? Some charts show that Ben has turned over (morphed, whatever) every time there was a downturn. He would come up with something new to tell the chimera addicts. And, then we saw a rally; there are several charts (and articles) that show this. The net result is that we're at a point where those in the game had their tongues wagging as they awaited another bone. But, there wasn't one. Now, this downturn might just be like messing on the carpet to show displeasure. ... Look, who is selling? I would bet that it's those who bought in long ago, so they've got a gain (ill-begotten, remember?) there. The losers, if they need to sell now, will be the later buyers. ... We really would learn something to see how this settles without Ben's intervention. Would he have to wait for the next opportunity? Not really. But, can he keep from playing hero? ... Too, Ben is not there to inflate the markets. ... Of course, Ben does have to hear what people like the Speaker say about him. Poor guy. Ben pleases the idiots/addicts when he's loose (as he has been for years now). When he talks maturity (like play a fair game, don't expect rigging in your favor, don't look for handouts, ...), does anyone of the idiots listen? ... But, Ben, you've slapped the savers silly now for a long time. You can't hear their groans?

06/11/2013 -- CDOs and tranching, once again.

06/05/2013 -- Singularities (understanding how and why these arise, how to manage) will be of extreme importance. Hint: related to computability but concerned more with what might be termed "vertigo" (subtle, yet not).

06/05/2013 -- Today, a drop. Not that much, compared to, say, what happened in Oct of 1987. However, it does allow an opportunity to point of that those who bought in, of late, are immediate losers. I still intend to get back to this, but there is a curve that we could draw which shows a gain versus lose demarcation. One wrinkle is that the late buyers are getting in due to sellers who bought a long time ago. That is, there is a massive amount of profit (ill-begotten, okay?) taking along the line.

05/30/2013 -- We'll get back to this, but I want to sketch out a view that depicts equity's main problem (we'll follow up with numbers and charts). We have seen a resurgence of interest in equities (moving toward risk since Ben has cut off more reasonable avenues), even though we have seen, in quick succession, busts that cost people lots of their worth. That is, the equity market, as being run today, guarantees a set of winners and a set of losers. Those with the ability to play the game (topmost of the winners) always win. Those who have to sell in order to have access to their worth always lose. In between, we have graduated levels of winners and losers. Why is this split of people? Guaranteed loser? Yes, one thing that keeps people from jumping in is their gut knowledge of the chimera. Yet, there are those who want people in the game (like Ben has been pushing - for awhile now -- take off the training wheels, guy). We'll get into all this. Basically, the equity theory is warped; why? Derivatives, and computation, have drawn the dynamics into a whole different space from that expected by theory. Of course, there are those who want to rationalize the casino aspect. You see, they're of the set that gains. Also in that set are those who run the thing. ... My one goal is to lay out the rationale necessary to show that the market view is bogus. Has always been. Bogus? When there are the little millionaires at places like Microsoft, Google, and such? Yes, as you see, part of the problem is that a few gain excessively; the most do not. So what? One might ask this as it may seem to be morally driven. No. It's sustainability that I'm after. The chimera/capitalsino cannot be the basis going forward; that is, not in its present configuration. What ought it look like? Well, if you really want to know, go to where the fat cats are squealing the loudest. Actually, Jamie is one to watch in this regard (his little flurry of trying to thwart oversight - yet, he is right in a sense - but, he ought to know that the methods to control his ilk will be costly -- payable out of his pocket, to boot). But, we'll not go there and build the proper view constructively. When? Won't be tomorrow, okay?

05/23/2013 -- Poor Ben, those addicts just don't get it. Just having the headline, Ben Stumbles, indicates a whole lot that is wrong. By the way, not with Ben, but with the system and its leeches.

05/22/2013 -- Need to apologize to all babies (past, present, future) for the rant yesterday (Remarks 05/21/2013). After all, baby-hood is a natural state of affairs. And healthy babies wean toward independence. What was being characterized for the thing called "markets" (which is an euphemism for something that needs to be looked at closely - with new eyes, okay?) is more addiction-like; as in, those types are heavy users of what the FED is feeding out (Ben as pusher). He, and his ilk, look at inflation (erroneous measurement), in part. They have no way to see "froth" as of now (we'll work on that - it's obvious, when handled correctly). But, as said before, we will have to step back and isolate out the influences of technology for the past 50 years, first (also, address the nonsense of comparing the equity inflation against bonds (long term - where we're all dead, USA Today yesterday, $1 grow to 3K+ versus 130+ (bucks), respectively). Then, we'll look at what might be called the "cosmology" of business (no, not starting with the egos, like Jamie, okay?). Measurements and observations? Yes, up the wazoo. ... Penrose talks about statistical manipulations (without any shame - ah, from whence this? -- we'll get back to the quasi-empirical needs -Closer to Truth) that are made possible by computation. Actually, he's more into symbol permutations of the normal variety (as in, using his head, okay?) more than computing (which brings up some type of dis-jointness - that will be characterized further- gosh, business having some "meta" purpose?). Also, we, too, need to think of computability issues (see comment at the top of each blog page). ... Too much fun!

05/21/2013 -- If Ben, or one of his buddies, talks, in a goo-goo (poo-poo?) language, the babies (see apology, 05/22/2013) of the market gurgle and giggle (like today's rise). If they pull the babies away from the mammary gland, the babies cry. Now, who are these babies? Many say the rich getting richer. It's the set of takers (guaranteed, almost) suggested in the Remarks of 05/17/2013. ..., Now, I'm off to larger things, thinking about the impending effects that will result from potential singularities (yes, plural) inherent in what the babies are feeding off of (whatever it is, Ben has added nutrients galore). That is, in another view, we will have to deal with patched-up computational systems (and pseudo-algorithms) that have no "science" behind them; they also are much less stable than a house on sand. ... FEDaerated posts will continue; however, Ben may be gone. Even if he does not leave, his role will be more ceremonial, than not, in terms of how the unwinding will impact the larger populace (again, those from whom the takers (above) get their so-called gains). Whoever picks up the mess will have plenty of challenges. So, we'll be dealing with a post-Ben world henceforth. Did he far exceed Alan's  influence, albeit over a shorter time frame?

05/20/2013 -- About singularity (05/19/2013 Remarks), it's a serious argument that will be presented. In the meantime, see the post on Closer to Truth.

05/19/2013 -- In regard to the post note, where "solidification" is used one could think of this as resulting from a type of singularity that prevents unraveling (gosh, Ben does not know that he can unravel - each tick of the clock entangles things more). An analog would come from the several cases that we have seen of failures (product, in one case -- major catastrophe, in another) where experts could not determine a cause. In terms of the product, there was a redesign with an accompanying rigorous test phase. In terms of the bad event, things are still up in the air. In mathematics, the ancient endeavor (okay?), proofs are difficult and tedious yet they are strong when attained. What has finance (other than some realm in which those who have access and means can opportunistically leech off the systems)? Running amok, really - daily watched by all of the talking heads and video cameras - silly). So, when there are singularities (minor type to be defined further - but, dealing with dynamics within all of those computational spaces that perturb matters in a growing manner - out of control, to say the least), what means is there to extract some stable state? Forget the supposed illiquidity of 2008 (which was really lemon peddlers stepping back to assess where they would play next - stroked with bailouts -and more)? Note, please: in one country, accounts are still frozen, 5 years later -- yet, in the US, all sorts of maneuverings have been allowed without seeming regard for future consequences.

05/17/2013 -- Macke (read his text - not in the video) makes a couple of points related to this post. First, the above look at the seller/buyer mix does not consider what is being sold. It's a general look that is part of an on-going discussion. So, what we have seen is that the act of companies buying back their stock does a couple of things to the price: (1) reduces the amount of things to sell (hence, provides an upward force on price) and (2) raises the price (they wouldn't want to buy at a lower price in an up-market, would they now? Oh, altruistically?). Price? Macke mentions how this has traditionally been handled (expected future flows, etc.). Second, at the end, Jeff makes a comment that needs a response: I can sell every stock in my portfolio for within 1% of the price you see quoted. That's fact. Of course, he can as could some of his buddies. But, after that profit taking started, Jeff knows that everyone could not sell at a profit. The real fact (and Jeff knows this) is that there is a point at which those trying to sell are guaranteed a loss (and, not just those who bought late). Whatever that point is, things above it tend to more and more froth (albeit, early takers get a lot of cream). Hence, bubble phenomenon come to mind. A better test, right now, would be for Ben to raise the interest rate to 3% and to unwind all QEs (ah, cannot be done - but, think if it could); that level of the market would probably be more to the truth (what say you? around 8K for the DOW?). One of Ben's buddies is saying that interest rates ought to go lower (Kocherlakota -- his Wiki page). Say what ? This guy like slapping the savers silly? Note that his argument relates spending to acquiring debt (the interminable pit hole that we all have found now with Ben's hocking of the future).  Has he not heard of saving to buy? Back to the theme: the less there is to sell and the more the demand, the more the seller can ask. Buyers? It's for them to determine whether they REALLY want something so bad. Gaining bad money from this market potentially bears a whole of of bad karma for a lot of folks (on both sides of the equation). 

05/15/2013 -- To be complete, one could turn the seller/buyer roles around such that the buyer is the sacker and that the seller is the sucker. In terms of stock, one selling too soon could be a sucker; however, if their amount of "gain" is significant, why wait to get a little more? Also, selling under value is a problem. How could this happen? Forced, or rushed, sale (all sorts of examples). It's harder for an average buyer to be a sacker. But, it's not so hard for someone with the proper amount of clout. Like someone on the other side of a forced sale (remember, politicos were doing this for their friends). The trash-talking naked/short sellers could be an example (was that a short-lived phenomenon?). The thing is that "falls" happen since no one is buying (at the demand price). The seller has to come down. Now why this happens is of the topic of discussion. That it's natural for these things to cycle is well known; what about the upward trend (bullishness) that has been expected (is this where Ben's largess comes into play?)?

Modified: 01/15/2015

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