Even the hedge funds are shaken by HAL9000. Which is ironic since some of the top hedge funds are HAL9000. (but a few of course are not) [May 18, 2010: NYT - Speedy New Traders Make Waves Far from Wall Street] [Aug 28, 2009: WSJ - Meet Getco, High Frequency Trade King] But those that still employ humans without computer science PhDs and try to invest with methods like asset allocation or fundamental analysis or top down analysis or stock picking (haha, old fashioned) are suffering. It's really quite simple - either [a] invest in U.S. Treasuries (risk off!) or [b] anything else in the world (risk on!). [Jun 29, 2010: Correlations Among Asset Classes Reach Ever Higher Extremes as HAL9000 Algos Dominate Life] And change your decision every morning based on the headlines and futures. Hello? It's 1st grade logic - who doesn't understand it. ;) Also remember, anything over 1/4000th of a second is now considered 'long term'.
On a related note, one of the guys on Fast Money had some interesting analysis from a 3rd party firm I had never heard of. 99 stocks/ETFs make up 50% of all volume in the markets nowadays. Chew on that for a moment.
So HFT makes up something like 70% of the volume.... and 99 stocks/ETFs are half of all volume. Which is just a confirmation of what long time readers will know I've marked as a 'changing nature' in the feel of the markets essentially from when this blog started in 07. I've called it monolithic trading or 'student body left' trading for years - now it's becoming consensus and the statistics are bearing what I've sensed to be true.
p.s. SPY ETF is now 10% of all volume each day. Why bother with individual stocks anymore kids? We're all SPY traders now...preferably traded at least 3000 times in a second if you have the hand eye coordination.
I, for one, look forward to the day when I am the only human still trading. Maybe at *that point* (and not a minute before) we'll look around and ask what we have done to our casino market... meanwhile HAL9000 will tell us he is just providing liquidity and to stop the whining. 010111000011! (translation: Outdated humans!)
- Hedge-fund managers, Wall Street’s best compensated and supposedly smartest investors, are dazed and confused. Reeling from the worst second-quarter performance in a decade, hedge funds have scaled back trading as they struggle to figure out where markets are headed amid sometimes vicious crosscurrents in stock, commodities and other markets, according to brokers and managers.
- “There’s a degree of being frozen in the headlights, of not knowing what sectors to emphasize, of what securities to emphasize,” said Tim Ghriskey, chief investment officer of Solaris Asset Management LLC, a Bedford Hills, New York-based firm with $2 billion in hedge funds and conventional stock funds. (answer: none of them - they almost all trade together)
- “For many people, it’s a frustrating market given the high volatility and low volumes,” said Aaron Garvey, portfolio manager at MKP Capital Management LLC, a New York-based hedge fund overseeing $3.5 billion. “We are seeing strong opposing forces in the markets, which makes generating strong convictions difficult for the medium- and long-term.” (again, long term is anything in excess of the blink of an eye)
- Prime brokers such as Credit Suisse Group AG and JPMorgan Chase & Co. that service hedge funds report that managers are borrowing less money and are sitting on more cash. “People are in cash for the most part and nobody’s really taking out any big bets,” said Blaze Tankersley, chief market strategist at Bay Crest Partners LLC, a brokerage firm in New York. “Nobody wants to take risk in either direction. It’s a weird time in the market.” (can you blame them? each day is completely inconsistent with the previous. Large end of day selloffs are met with premarket futures upward magic the next morning, making no sense historically. Or vice versa. When all rules you learned for years upon decades no longer work - you are frozen in headlights. Adjust or die humans - think like HAL or be eaten by his larvae)
- U.S. stock market trading last month had its steepest June decline in at least 13 years.
- “This is much more than a summer lull,” said Sam Hocking, global head of prime brokerage sales at BNP Paribas SA. “Given the uncertainty out there, many hedge funds have felt it wise to pull back and take risk off the table.”
- Hedge funds declined 0.94% in June and 2.79% in the three months ended June, the worst second-quarter performance since 2000 when the industry lost 3.42%
- “It’s all about capital preservation at the moment,” said Amit Shabi, a Paris-based partner at Bernheim Dreyfus & Co., which farms out client money to hedge funds.
- Almost half of the 2,000 funds that make up the HFRI Fund Weighted Composite Index ended the first quarter of 2010 below their high-water mark, or peak net asset value, meaning they can’t charge investors performance fees. (gonna be some peeved trophy wives in CT; mama needs some new Manolo Blahniks)
Now everyone is speaking my language... student body right trading is in the air everywhere.
- There’s “a high degree of correlation among stocks, so it’s not the best environment for stock picking, or sector allocation,” said Solaris’s Ghriskey. “Investors are not moving money around between sectors, nor are they aggressively moving between fixed income and equities.”