Wednesday, January 14, 2015

Dark pools and other things

Moral: Wherein we look at a few recent articles and at what these might mean.

The WSJ always has interesting news. When there are some that relate, we need to pay attention.

Note: As said earlier, this opinion comes from a normatively-oriented view.  
  • The head of one of the large exchanges asked the Fed to not pull the spiked punch bowl. One of his arguments is that money is flowing in. Yes, this late accumulation is from those who are guaranteed losers. By this time, those who know ought to be dampening the fever; are they? No, they are stoking the fire. But, this happens, time after time. Do we ever learn? 
  • This same exchange is also wanting to handle stuff being done by dark pools which are suspect to any discerning mind from the get go. You see, consider that these things cloak trades. At the same time, those involved talk "open" and such as the means for better markets. One thing that a dark pool can do is allow unloading of a huge holding without price depreciation kicking in. That is only one of several things that smell. ... At some point, things being done in this cloaked manner will have to unwind; who will be dragged into the resulting quagmire? Earlier, we said that charades lead to the chimera (see Remarks 01/10/2015)- this is not the only path but is one example of an intentional type; however, this type of activity results (can result) in lots of ramifications. But, the players, by the time the stuff hits the fan, have their pockets filled. So, who cares?
  • Then, we see it touted that the Fed has paid the Treasury $98.7 billion. Think of what this would be if the interest rate was up where it belonged. Oh, so the Fed is that giant board upon which the economic decisions are made? Does this not sound similar to that old thing of the input-output model that (some) western minds deride and castigate? So, it's okay if phrased in terms of the wizards of D.C.?  
  • ...
  • Why not have a "global managed exchange rate regime" to help forestall the coming disorder? Again, input-output planning to the max (who won the Cold War?).  
Of course, the WSJ has to fill its columns. Too, the Street needs it playground, albeit a sandbox sounds very good now and then. That last column does bring in another focus that needs its day. 

BTW, arbitrage (misuse of, especially given the "smarts" of computing) is one culprit (remember the Nobel winner needing to be bailed out by the Fed and us - sheesh); as in, too many creating these moments (of liquidity need) just to allow their thrashing? How did this come to be? 

Remarks:  Modified: 03/17/2015

01/14/2015 -- See what Investopedia says about dark pools which are used to cloak. In other words, large block sales can happen without depressing prices. So? Someone down the road eats it. The "pedia" does have a pro/con section, however this "pedia"writeup is from the viewpoint of these types of markets. The blogger sees this as silly gaming and not of necessity. Of course, it's his duty to show why these approaches are bogus (at their core).

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.

01/15/2015 -- It is nice to see, today, that the most-read post this week are from years ago. Yes. In particular, the following are in order by read count: Systemic risk (Aug 2009), Why not? (Aug 2009), Von Mises and friends ( Sep 2010), Economic sandbox (Sep 2009), Bean and accounting, thereof (Aug 2009), Value, faired or earned (Sep 2009).

01/23/2015 -- So much fun. Now, bankers are wanting their own dark pool in order to separate themselves from the front runners (who? yes, HFT, what else?). Our next post on this will show how such dealings (block trades) pull value from the other holders of equity (or whatever else might be the focus of a market). In other words, we see, with this, the proverbial skimming the cream (leaving, over time, less fat for the rest) or the butchers thumb on the scale (I showed that type of thing to the FEDS and was told to, as an individual and an old guy who sees, sue the perpetrators). --- Lack of consideration for the normative is one concern.

02/11/2015 -- Wikipedia: Zero interest rate policy.

02/18/2015 -- One way to explain the motivation is ensuring liquidity (thereby, adding to the illusion, thanks, El-Erian).

03/05/2015 -- Cuban talking lack of liquidity (2000 like). See Remarks 03/05/2015.

03/15/2015 -- Finally, getting around to the pending business.

03/17/2015 -- Dogs of the Dow: Market Cap table, Most activeBeyond the wildest dream.

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