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High-Frequency Theft

Daily Rap 04-01-2014

Overnight equity markets were once again slightly higher and debt markets slightly lower. Our market was strong out of the blocks, led by the Nasdaq, which gained over 1% to about 0.75% for the Dow and S&P. Those early gains were almost it for the day, but the indices made slight new highs in the last hour.

Away from stocks, green paper was mixed, fixed income was lower, oil lost 2%, and the metals were slightly lower.

High-Frequency Trading Reaches the Flash Point Yesterday I obtained a copy of Michael Lewis's new book, Flash Boys, and though I've only read about two-thirds of it, I am confident in recommending that everyone with any interest in financial markets (which should be every Rap reader) read it. I will have more to say tomorrow after...more


Last year's posts for Ask Fleck

Q: Hi Bill,

Noticing a lot of money seems to be heading to emerging markets in 2014 with VWO (and many of its components) bouncing off lows the way US mo mos were bouncing until 2 weeks ago.

My guess is that in addition to buying IBM and CAT, the 100% invested crowd is plowing into lower PE Asian stocks (mostly). Does this fit anywhere in your puzzle or would you consider the move just reactionary noise - even though it's been decent in a few markets? I suppose the news doesn't hurt either with some looking for good news out of Indian politics (quelle surprise) and perhaps markets like Indonesia being cheap(?) with a younger population.

Sorry for the question and out loud thinking

Thanks for all you do!

Fleck: I have no idea how much rotation may be going into emerging markets, and if we knew that was taking place, what would we really know?
(posted: 3/31/2014)


Q: Fleck,
John Butler made an interesting comment in his recent interview with the Financial Sense Newshour. He said, when you look at the Fed's balance sheet, one can argue that the Fed really isn't pulling back on its stimulus to the markets at all. In fact, Butler explained, it may actually be loosening instead:

"The Fed may be tapering its purchases in nominal dollar amounts but in terms of the amount of interest rate risk it is assuming vis-à-vis the private commercial banking system, actually the Fed is continuing to assume additional interest rate risk at an elevated rate. And so from a bank balance sheet or liquidity management perspective, Fed policy is no tighter today than it was last year. And I can't stress this point enough: It's just as loose today as it was pre-taper...and arguably looser depending on how you define interest rate risk."
Your opinion ? And if accurate does this end when the Fed gets to zero - assuming that actually happens ?

Fleck: Well, the Fed isn't tightening, it is still printing money, just less. Thus, at the margin it is less loose. The Austrian School economists argue (and I agree) that a period of misallocated capital like we are in needs even more additional credit or the boom ends. The Fed is still super easy, but not easy enough to avoid a stock market crackup. We should all note that no one has ever seen what we are going through before, so there is more risk to conjecture than usual.
(posted: 3/31/2014)


Q: Fleck- In your opinion, what are the odds of further decline in gold and gold stocks after a short term bounce right here?

Fleck: I can't handicap that for you. I think we are in a new bull market, thus the correction ought to end pretty soon and not go too much lower, BUT THAT IS A GUESS. You have to have a plan yourself to manage your risk. I'm sorry, but I don't have a super strong opinion about the near-term price action. Please see the other post on this subject.
(posted: 3/31/2014)


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