Why Investors Are Leaving The US Stock Market

Last May 2010 I wrote about the May 6th "flash crash" (here).  My belief continues to be that, "This was a premeditated demonstration of power over the market that was so sophisticated that it was unforeseeable and perhaps inconceivable upon which case the only possible response is capitulation to the victor."  The bullies were asked not to do this to the whole market all at once but to please just do it to "little pieces of it at time".  You see we need the bullies because they are providing liquidity to an otherwise desert dry (volume wise) stock market so we must let them extract their pound of flesh from retail investors, insitutions and pension funds.

On September 27, 2010, the target was Progress Energy and everyone stood by and watched.  No one will say anything. Here is the chart (in milliseconds) of what happened at 9:57 and 42 seconds AM.

Chart Courtesy of Tyler Durden

First: Please note the time stamp on the chart.  All of this happened during a millisecond slice of the 42nd second of the 57th minute after 9am.  

Second:  Anyone with stop loss orders got taken to the cleaners.  Their orders went to immediate execution.

Third:  Someone was buying at $4/share (down from $44/share) and had orders sitting there waiting to be executed.

Fourth: In the blink of an eye, the price returned to the $44/share mark.  Bagging a 1,000% gain.

This is the work of high frequency trading systems using quote stuffing techniques.  It happens everyday to somebody's stock.  And this is why nobody wants to play anymore.

Read and remember this: http://tedbits.blogspot.com/2009/07/united-states-district-court-southern.html

I think whatever this was, it slipped out into the hands of some very clever, now powerful people.  I hope they are only in it for the money.

Carry Trade for the Common Man - Do Something Patriotic

I discussed the mechanics of carry trade in this post earlier in 2010: http://tedbits.blogspot.com/2010/02/some-carry-on-while-others-get-carried.html

The stock markets of most countries are going idle and brokers need to stimulate trading so they can earn commissions.  I heard a radio commercial today about borrowing on margin.

1. Let's say your broker will lend you 5X your collateral at 1%.  This was the interest rate advertised on the radio commercial!
2. So suppose you have $200, this allows you to borrow $1,000 @ 1%.
3. Use that $1,000 to buy some form a relatively safe and stable stock that yields 5% dividends (there are literally dozens to choose from).
4. Assume further that in a year, the price of that stock is the same price at which you bought it (no loss no gain).
5. You would make $50 on your $1,000 and still have the original $1,000.
6. Sell the stock and pay back the broker $1,010 dollars (principle + interest) leaving $40 gain.
7. Set aside $20 of the $40 for taxes.
8. Keep $20 for yourself. ( I did some rounding here but you get the idea )

Sounds like a lot of work for $20.  But what if you multiplied all these numbers by 1,000,  now that gets interesting don't you think?

Plus you will have earned $20 per 1,000 for your politicians so that they can fund wars or give it to their friends.  How patriotic of you.

Can't muster up the collateral?  Get a bunch of friends to go in together.  People do it all the time for lottery tickets.  They only difference here is that your odds of winning are near 100%.

If you have a financial adviser and they have not suggested this to you, maybe you should print this out and discuss it with them.

Think if everyone in your country started doing this!  Millions of people!  The coffers of your governments would get filled with tax money and you would have money to spend on things to stimulate your economy and grow jobs.

US Gov Debt Rating Cut to AA by New Global Rating Agency

In July, I wrote about For Whom Da-Gong Tolls. Basically this was a warning of the consequences if the dominance of US rating agencies were diminished.   Well, it has only taken 2 months for the impact to be felt.

Here is the latest from Da-Gong Global Rating Agency:

AAA  - Norway, Denmark, Luxembourg, Switzerland, Singapore, Australia and New Zealand.
AA+   - Canada, Netherlands, China and Germany
AA - United States, Saudi Arabia

US rating agencies insist that US government debt be rated AAA.  Da-Gong disagrees, "Americans may not like to hear the truth, but there is no gainsaying the massive budget deficits, the mounting national debt, the current economic weakness, the expansion of entitlements and the coming wave of retiring baby boomers".

China has been tempering its purchases of US Government debt forcing the US Federal Reserve to buy the treasuries that China won't.

My prediction-- one of two things is going to happen:
(1) Interest rates on US debt will start increasing dramatically as treasury buyers want better insurance for the risk they are taking thus adding more burden to the US debt (this is a deadly embrace).
(2) The US will cause or allow something bad to happen in the world which forces everyone to the only place of safety they know-- The US dollar.  Thus counteracting Da-Gong's downgrade of US debt.

My bet is on option #2 because it has already had a successful trial run--> The overblown implications of a default of Greek Sovereign debt caused a "flight to safety", people ran to US Treasuries and US interest rates fell.

What do you think?