Did you see the Nicole Kidman film ten years ago called The Others?

A woman becomes convinced her house is haunted. In case you’ve not seen it, I’ll save the twist, but it’s the twist that matters. Things are not as they seem.

Crack WSJ markets writer Tom Lauricella asked in a page one article Oct 18 if markets are cracked. Traders he surveyed said building positions in stocks is getting harder. Liquidity is thin. Spreads are rising. Getting trades done – completing an order to buy or sell shares within projected price ranges – is challenging now in the most liquid names.

In the movie The Others, the problem is perspective. The answer to what’s going on depends on how you look at it. Since we’re limited by the camera and the perspective of the central characters, the reality of the problem doesn’t manifest itself till near the end.

In markets, it seems like liquidity is the problem. But what if it’s a matter of perspective? Classically, liquidity is capital. Today it’s somebody on the other side of the trade. Are they the same? No. What’s on the other side of most trades? A machine. Why is it there? Incentives. It’s not there because it’s committing capital. It’s there because it’s paid to be there. Continue reading →

Last week in Miami, I took part in a panel discussion about modern trading realities. The weather Thursday was like it is in Denver now, about 60 degrees. Those of you south or north who need to warm up, come visit. I clocked some hours on the bike Saturday and Sunday. It wasn’t sunburn weather, but on bikes in December at 5,000 feet? Life’s good.

Getting back to trading, how come some investors rail at churn trading, while others love machine intermediation? Somebody must be wrong, right? Continue reading →

Mother Nature and Denver last week were like a samba episode of Dancing with the Stars, twirling furiously. In fact, snow torpedoed my trip to Boston, but only after an hour floundering through a foot of slush to the airport at an average speed of 25 mph. And today it’s 70 degrees on the Front Range.

Switching gears, I owe a mea culpa. We’ve berated the exchanges for fueling conditions that constrain real investment – fragmentation, rebates, direct access, sponsored access, high-frequency trading, flash orders etc, et al, since data and transactions are keys to exchange prosperity. But Duncan Niederauer’s interview in the weekend Wall Street Journal (see link below) was the best call yet for return to capital formation in the equity markets. I am now cooking up a comfort-food casserole of crow in the crock pot.  I did drop a note to Mr. Niederauer saying so, too.

Continue reading →