Meet Johnny Law, the new Sheriff in town
Roll up, roll up folks, there’s a new sheriff in town and his name’s Johnny Law. He doesn’t come alone though, No.
With him, he drags a mob of angry town folk, carrying pitchforks and loaded shotguns, ready to gouge and blast their way to justice.
The target of their collective thirst for vindication?
The Nobel committee for awards in Economic Literature! (and some glimmer of market efficiency).
Strange but true, the following belongs firmly in the sky is blue, water is wet category of the naturally obvious but, given the recent hoopla, probably still rates a mention.
Just a day or so ago, 3 gents were awarded this year’s Nobel prize in economics. One of whom (amongst other things) was the popular author of the Efficient Market Hypothesis (EMH). It’s text book definition for the sake of everyone being on the same page is very briefly this: http://en.wikipedia.org/wiki/Efficient-market_hypothesis
The beauty of it, is a dead giveaway in the name itself, it’s a f***ing “Hypothesis”
So here’s the strange but true bit;
For the last 3 days (without fail) the price of Gold has violently fallen at exactly the open of trading on the Comex exchange. So much so, that on Friday 2700 futures contracts traded in 1 second, causing a temporary halt to trading as circuit breakers kicked in. Once resumed (a mere 10 seconds later) approximately $4.2 billion USD in notional Gold had traded within the first 15 minutes. Yeah, in case you’re wondering in relative terms that’s about half a day’s worth of volume in the first 15 minutes. No one knew where it came from, and eventually a fat finger was blamed (well something had to be right?).
The same thing (albeit in slightly differing volume and veracity) was then repeated in the ensuing 2 trading sessions.
No one has fingers quite that fat!
More so, following each selling spree, the price recovery was quick and rife for the picking by ballsy bottom feeders.
How does one apply the EMH here exactly? Take notes kids, there’ll be a quiz later.
On that same Friday, elsewhere in markets land… a latent news story was in the making and breaking. Courtesy of Katie Martin (@katie_martin_FX) of WSJ fame and the various articles she and her journalist brethren published (http://t.co/vVEQXelwgE) that afternoon and since we were soon to learn that along with UK and European authorities, the US had now too, joined the Hunt for Red October. Yes, they were on the trail of a rogue submarine captain responsible for profiteering from an activity that was designed for nothing but that very thing, profif***teering. Captain Johnny Spoteffeks (name courtesy of the team at Macro Man @Macr0man) and his rogue crew known as “The Cartel” have been made the public face of what supposedly is a scourge on our markets and worse still (draws hushed breath) our society… Once again, I call… Bollocks!
Not only has this been happening for years, but this is what the system is designed to do. Exactly what it’s designed to do. Those with the bigger size, get more sway and thus greater influence on final outcome and price. If the interest to sell something, is greater than it is to buy, C’mon do the maths with me… then what happens… Yes, eureka, the price goes down!
The lads at Team Macro Man do a brilliant job of cutting to the core on this very subject here http://macro-man.blogspot.co.uk/2013/10/fx-fix-fix.html
Now this WILL be in the quiz kids, if the sky is blue, then the water must be….?
Every market and tradable financial instrument has been tainted in one way or another over the years. The last bastion to fall (or at least fall into the public eye) is FX. No amount of persecution or prosecution for that matter has deterred or retarded the behaviour thus far, and I don’t for even a minute believe that it will do so now.
Is this some petty, too little too late, attempt on the part of authorities to play catch up for the monumental errors they made in the lead up to 2008? If so, then I say to you, kids, you’re barking up the wrong tree. You made callous mistakes back in the day and you’ve done nothing in the interim to either develop your credibility or the means by which to stamp out and disaffect this type of behaviour.
For the lazy (or perhaps efficient) of you, the point of today’s lesson is;
The deck is loaded, the Nobel committee members, equally so.
A prize needs to be awarded, otherwise its sole purpose defeated.
So too, a market needs to be traded, otherwise… what the hell have I done with the last 20 years of my life?