Maybe we should leave more often. Out just one week, and both silver and Osama Bin Laden’s house go on the auction block.

Sunday night after flying back from Antigua by way of Newark, I reviewed a week’s worth of client stock alerts for perspective. Stepping through a side exit and closing the door on life’s cacophony for a week, time stops. The return, the jolt of the madding crowd, is revealing. It’s amazing what you see.

More in a moment, but I promised some of you I’d share what we saw beyond the Truman Show. Apparently you can’t get from Denver to the French West Indies in a day on one airline, Continue reading →

Karen and I are getting in boat shape ahead of a trip to Antigua (Motto: “Don’t ever say the name ‘Allen Stanford’ around here”). But we’ve encountered obstacles to the cycling part of the regimen: Wind and fire. One more, such as earth, and we’ve have a good name for a rock band. It’s been bone-dry and breezy on the Front Range, and already several range fires have burned black swaths.

Speaking of fires, we’re marching through them with the Issuer Data Initiative. The Number One Need is more names behind it. If you haven’t committed support for better trading data, do so today. Your peers will thank you someday, and you can remind them then that they owe you.

Before we get to what happened Mar 16-21 in trading markets, a word on BATS Exchange. The Kansas City operator of the third-largest American trading venue has made no secret of its interest in listing companies for public trading. BATS made it official today, announcing plans to offer IPOs another path to global liquidity.

Provided BATS offers competitive listing prices and good data, it can compete. We hope exchange executives will consider the key data points in the Issuer Data Initiative. BATS has a reputation for data excellence already, providing a great deal of free data to its trading clients.

We see too that BATS filed a proposed rule change with the SEC last month that will require customers to mark trades as principal (for their own accounts), agency (on behalf of others) or riskless principal (buying from or selling to a customer). See, issuers? Exchanges file rules to change how things are done. Issuers are participants in markets too. If they want something changed, they too can ask.

What drove trading markets roughly March 16-21 also speaks to the importance of good data. Somebody always must execute the trade and report it. That’s the way we all know the volume for any stock. On March 16, the G-7 countries announced a concerted effort to devalue the Japanese yen by flooding markets with currency. March 16-18 also included the monthly options-expirations cycle, and S&P quarterly index rebalances.

During the same period, we observed uniformity in trading activity for a set of “primary dealers” that work with central banks in the United States, Europe and Japan. Across the market-cap and sector spectrum, the same behavior occurred for this set of primary dealers.

We surmise that central banks armed these large brokerages with cash, which is how central banks engage in “quantitative easing.” The brokerages, also all commercial banks today, deployed it by buying securities from selling institutions. It had the desired effect, stabilizing equity markets and reducing upward pressure on the yen.

We’ve seen that many stocks have returned to their pre-March-10 “rational price” levels. But the behaviors producing those prices aren’t rational. If these were riskless principal transactions, do governments now own a bunch of equities with taxpayer dollars? Or were these all principal trades and so the brokers now have high levels of inventory?

Let’s suppose it’s the latter. Fine, so long as markets rise. Brokers can sell inventory as more buyers return to equities. It’s bad, however, if, say, Portugal defaults, causing the Euro to weaken and the dollar to rise. US equities would slide, and brokers would dump inventory to protect themselves as markets fell.

So everybody get out there and buy something made in Portugal.

We were in Lake Jackson, TX, last week for Karen’s HS reunion. South Texas is a sweat lodge this time of year, but the Saint Augustine grass lies lush and luminescent under the sycamores and live oaks. And we saw not one tar ball on Surfside Beach in Freeport.

A word on trading: We expected money to move after options expirations, but changes to program-trading plans came early, on July 14, we observed in the data. So with expirations July 15-16, markets were shellacked when money shifted to other assets. The past two days have given us massive arbitrage around this shift and ahead of tomorrow’s volatility expirations. Thus, the week could end on a rough note, we fear. Continue reading →

Global Statistical Arbitrage is not nearly so good a name for a rock band as the one my lovely Karen quipped after cleaning the glass on a patio door where the cat presses her nose: Snot Mark.

Snot Mark is also a tempting description for what’s happening behind share prices and volume, at least at times. But Global Statistical Arbitrage is more accurate, and widespread. Continue reading →

Spring finally tossed its verdant cape over the Denver Front Range. We saw it firsthand on our bikes from Sedalia to Palmer Lake last weekend, our first 40-plus miler of the year. It’s been too cold! We know you Californians among us are already past the early and midseason allergens.

Meanwhile in Manhattan, down on Old Slip between Water and South streets there hums and whizzes a sharp shop of folks whose cares are far removed from the seasons. And apparently geography too, for Hudson River Trading sits just off the East River. Continue reading →