October 9, 2013

Daily Self Help

We saw Gravity last weekend and like so many others I immediately thought of the equity market.

Karen hates how movie trailers today tell the whole story (guess it saves one having to see films), so I’ll offer but a glimpse. At the start, George Clooney is jetpacking around, doing loops and flips in space as colleagues work outside the space shuttle. Brief puffs from the machine’s nozzles juke him this way and that. Nimble.

Last week it was Friday before the equity market managed to finish a trading day without an exchange declaring Self Help. “Self Help” is regulatory language that permits one exchange to skip another when routing orders because that exchange’s systems aren’t responding normally.

We started to joke here about Daily Self Help, the excuse to avoid somebody else because they weren’t behaving normally. On Aug 22 this year when the Nasdaq halted trading for three hours due to data issues, it began with the exchange declaring Self Help against NYSE Arca.

Last week, options markets repeatedly declared Self Help against equity markets, and vice versa. We infer the presence of abnormalities related to simultaneous trading in both equities and options, what are called “complex trades.” It’s got to be something more than stocks because equity volumes have been light.

We find the palimpsests – overwritten images – of Self Help in equity data too. Even now if you visit Google and type in your ticker and view historical quotes, you’ll find that data for Sep 23, 2013, is missing. Until two days ago, Sept 26-27 were absent too, lately backfilled. Google’s data are supplied by a third party like Thomson Reuters.

Switching gears for one more image, we love Venice, the Italian city built on water. Napoleon called the Piazza San Marco, that sweeping plaza casting its gaze beyond San Giorgio Maggiore toward Lido in the shadow of St Mark’s basilica, “the most beautiful drawing room in Europe.”

But peer as you pass them on the Grand Canal and you’ll see how the sea laps at casements on floors of decorated edifices that have sunk toward the sea. There is a fine line between the splendor and the sewer.

The market now gives off that disquieting aroma in hisses and puffs. One can shrug off persistent data errors, continual hiccups and sputters and flashes and blinks back behind the scenes. Outside a tough start to the week as the fiscal incompetence of the government we’ve seated in Washington DC rattles the trestle, the market train rolls on.

But what keeps it moving are hisses and puffs like George Clooney’s jetpack. It doesn’t take much to shift the market any which direction. We see that in the price-setting data every day. There’s a lack of continuity in bottom-up investing, indexes and ETFs, fast money – in other words, in everything. A spurt here and there and the market rises, falls.

It’s when the trestle trembles that we see the veneer, with its hisses and puffs, water lapping near the grand edifice. We’ll get past that. But sooner or later, a jetpack market on daily Self Help has to be fundamentally redrawn.

I think I’ll go watch a movie.

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