That seems the attitude about market gyrations in August. Prices recovered. Heck, we should’ve skipped the mess and stayed on the Cape.

Across our client base, we saw few rational-price changes between Aug 1 and Aug 12. Rational investors were not responsible aside from stop losses triggering reactions. Trading data do indicate sizeable shifts in assets by global risk managers.

We talked about that last week. Responses to currency fluctuations. Institutions transferring risk by moving money continuously via electronic markets from bonds, to equities, to derivatives, to currencies. With fear of a currency meltdown rising, risk managers engaged in random, computerized, global buying and selling to discourage everyone from running to the same side of the boat and capsizing it.

We’re convinced that techniques developed after 2008 were employed to blunt this “tail risk” crowd behavior. That’s the chance that everybody does the same thing at the same time, destroying global portfolios in a mad rush. Computers randomly bought and sold. The lack of a trend reduced the risk of a rout.

By the way, we’re sponsoring IR Magazine’s November Think Tank in New York. Our segment is on Tracking Trading: Separating the Signal from the Noise. Joining me on the panel is Joe Saluzzi of 60 Minutes “High Frequency Trading” fame. Don’t miss it.

Here’s what I want you to ponder, IR folks. One major client averaged 377,000 trades daily and nearly $2.4 billion in dollar-volume each day, more than double norms. Who made that extra $1 billion daily? Where did it come from?

That’s  one example. We saw high-frequency percentages over 71% (and as low as 56%) in our mega-cap clients last week, but HFT percentages were high everywhere, even for the smallest clients.

As we’re fond of saying, markets tromp about today in two shoes. One, the asset; the other, the hedge. So if currency fluctuations prompted the move, and HFT soared, is the second shoe effectively a way for central banks to bleed excess cash off the stagnant global table via high-frequency trading?

The biggest HFT firms were active, to be sure. Hudson River, Sun Trading, Two Sigma, Quantlabs, Getco, RGM, Tradebot. But so were the biggest global broker-dealers and program traders including Barclays, Deutsche Bank, Goldman Sachs, Morgan Stanley, BofA Merrill Lynch, Citi, Credit Suisse, Latour Trading.

The two groups were virtually indistinguishable in their behaviors. They were both engaged in HFT. Did central banks transfer billions of dollars out of circulation through broker-dealers and HFT?

We track data and correlate our conclusions to known, identifiable metrics. And we’re just sayin’.

I’m not sure that’s funny. But it segues to the stock market. So let me tell you a story about a severed foot in a sock.

Nets have been cast wide to discover what went wrong in the markets last week. There were hearings today before the House Subcommittee on Capital Markets. There have been wringing regulatory hands. Scott Patterson postulated in the Wall Street Journal that a Black Swan waddled through, courtesy of a tail-risk-timed futures bet by a Santa Monica hedge fund.

Looking at client data, the reason why the mystery cannot be solved is because there is no mystery. Our conclusion about trading on May 6-7 after studying prodigious data: In the absence of value and real buyers and sellers, machine-driven markets may collapse. This indeed is tail risk or a Black Swan – severe divergence. But markets functioned as machine markets will, and it was nobody’s fault.

Here’s why. High-frequency systems generally furnish shares and hold no positions. When they trade with each other, the trend of the crowd – general market sentiment – is magnified, be that fear or greed. High-speed trading systems don’t represent a thoughtful search for value; they’re the other side of the trade. Period. And if high-speed systems are BOTH sides of most trades, market reactions can be extreme.

This is how Accenture can briefly trade for a cent. Registered market makers put in wide bids and offers so they can transact between. If you intend to trade inside the best bid or offer, you might, for a $50 stock, set your offer at $100 and your bid at $0.01. If your bid suddenly becomes the only one and some panicked body enters a market order to sell, the trade will execute at one cent. Blaming traders for getting out of the market is like excoriating the signal man on the track for stepping away from in front of the train.

Most days, there is no trend. There is continuous reaction by speculative systems to actions from risk managers and investors. Passive, high-frequency market-making is speculative no matter what anyone says. It’s trading for trading’s sake. Period. When speculators encounter markets devoid of actual buyers, sellers, or risk managers, extreme bids and offers set prices. And the Dow drops 1,000 points in minutes.

We’ve been saying since 2008 that the market is a synthetic construct susceptible to a giant tear in the continuum. Regulators and even the exchanges are looking in the wrong place for answers. Rather than asking who screwed up, we should be saying, “Holy cow. The foot in the sock is severed.”

For a brief, terrifying period on May 6, we stared cold truth in the face: Nobody saw widespread value, even as the market dropped 1,000 points. That should wake us up.

Our markets don’t have any clear value. There is something radically wrong when liquidity is the only thing propping them up. Here’s an analogy: picture four people at a card table. One has a large stack of dollar bills. The other three are poised. Each time the one lays a dollar on the table, the other three slap to grab it and the fastest keeps it. When the dollars stop coming, the game dies.

Now consider what happened yesterday. Markets popped back when Europe devalued its currency. That’s what pumping $1 trillion worth of Euros into the system is. When markets respond favorably to devaluation, prices reflect inflation, not value.  Our global market and economic construct is predicated on liquidity in place of value. Sooner or later you run out of liquidity and the whole thing crashes down. No amount of printing and dumping more into the system is ever going to fix it.

That’s the bad news. There’s good news too. We saw vast disparity in client data. There was no discernible pattern, because it was, to quote funny man Jeff Foxworthy, “pandelerium.” But here’s the interesting thing: we saw strength in the market structure of clients with firmer commitment from informed money. Value matters. Resilience stems from value in the eye of a beholder, not from automated quotations.

We’re at what Barack Obama would call a teachable moment: The sustainable basis for healthy, vibrant markets is the infinite variety and intelligence of the opinions of buyers and sellers transacting with currencies of constant value.

If we want our IR jobs to count for more again, our governments must stop this insane, insatiable stream of liquidity from central banks. Yes, it would hurt for a bit, but imagine the grand and verdant vistas of value beyond the shadowy valley. We’re all in this muddy liquidity puddle together, be it with Yen, Euro, Dollar, Sterling, Loony or whatever.

Let’s put our foot down about this. Or we’ll be left with a severed one in our stocking. Again.

First, these markets. Real, or more statistical arbitrage? Checking the data, something very unusual occurred last week. On November 4 in our data, the volumes we call electronic and speculative were dead, spot-on, even, at 35.8% of the total, each. That day, divergence in major market measures ceased, and volumes turned bullish. It stood out to us.

Now maybe it’s coincidence. Or it may be that risk-management systems that statistical arbitragers had rocking like a boat twice last month found harmonics. Think of a guitar string coming into tune and your music teacher nodding approval. You may think this stuff is so much financial balderdash. Well, it’s responsible for a very great portion of daily volume. So don’t brush it off like dandruff. But bottom line, money felt more confident, and it showed up on electronic platforms, not in programs. But it’s more like betting than investing.

In general, we’ve observed a return to normal market structure across the bulk of our client base. Twice in October (Oct 1-2, and October 28-30) markets were in danger of swinging wildly out of whack, but healed themselves. It’s disconcerting that it happened twice so quickly. It’s comforting that it happened. Still, market structure is in constant flux. A graph can turn positive for a few days and then develop instant weaknesses. This happens for one undeniable reason: trading is reactive, not committed. That condition remains a deep-seated threat that regulators seem not to recognize.

You might gather now that “tail risk” has something to do with hedging. Vineer Bhansali at PIMCO funds, an expert on tail risk, says it’s “risk posed by rare events.” How institutions manage for these outliers on the edges of bell curves – tail risk management – affects vast clusters of equities.

Now, stay with me, IROs. What we’re getting to here is another reason why your stock may lack staying power on good results or news, seeming instead to constantly fluctuate. Bhansali explains that traditional risk-management techniques often fail to accurately estimate the frequency and size of “left tails,” or catastrophic events. Since everybody is acutely aware of bell curves and trend following, and not wanting to be the one who lost the institutional jewels to a bad hedge, we find that trading stays in the heart of bell curves and spends less time playing around the edges of the curve where the tail can lash left suddenly and leave you in the soup line.

So part of what happens is this: your results produce an immediate stock bounce, followed by an immediate retreat, as everybody supposes their investment is in the middle of the bell curve now, and it’s time to take profits. This is a new phenomenon. It did not exist a year ago, before Lehman’s demise. And if Lehman and all the rest had in fact demised as they should have, we probably wouldn’t be experiencing this phenomenon now.

All hedging reflects value uncertainty. When it occurs every other day, the degree of uncertainty is so great as to constitute an almost complete absence of any certainty at all.

That’s meant to make you chuckle. How do we fix it? U-turn back the other direction, away from whatever we’ve been rushing at for a year, like a vortex down a drain. And by the way, this does not mean markets will falter. We can continue on for some time. But sooner or later some little tail will flick left, right in the heart of the bell curve. And no one will be expecting it.