Whew, we’re back to good.
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’.
