Categories
Economics

Cassandra Is Sooooooo Correct

Nihon Cassandra is more of a stock market investor than macroeconomics type. In other words, she isn’t really into bonds. In her own charming words,

So long as my distribution is skewed-right, and the tail not overly kurtotic, I am sanguine.

Recently, Cassandra excoriated herself for failing to predict our current global macroeconomic malaise, specifically, the odd lack of self-preserving behavior by those who have the most to lose. I think she is being unnecessarily harsh, as she understands far better than many others do, even now.

It was a close call. From September 2007 through 2010, the masters of financialization escaped ruin by the skin of their teeth. Saving the system, at public risk and expense, was useful to asset holders, e.g. the AIG crowd, Goldman Sachs and friends, Stevie Cohen, Walmart family scions, Icahn, Einhorn, Pritzkers, Koch brothers, Larry Ellison, Larry and Sergei Google, Mark Z, Jeff Bezos, Bill and Melinda, other much less publicly known owners of nation-sized yet privately owned wealth.

Cassandra expected that the excesses leading up to the 2008 financial crisis, e.g. over indulgence in luxury goods, real estate and high-end everything, would be known later as “Peak Inequality”. If the authorities were to bail out highly-levered asset-owners (enriching them further in some cases e.g. the notorious AIG bonuses payments), Cassandra expected that the State would promptly devise a way to recapture most of this taxpayer-funded largess.  In return, a modicum of social stability, sustained by an orderly market economy, would be assured.

In the aftermath, the Federal Reserve and fiscal policy makers would realize how fragile consumption was. They would not raise taxes nor cut government spending precipitously. Bad actors would fall from grace. Attitudes would change. All of us would feel chastened, and act accordingly.

In other words, prevent a nationwide populist revolt due to massive betrayal of public interests.

Trade recommendation for the integrity market: Sell calls

Cassandra, and I, expected that the 0.1% of the 0.1% would have been grateful. They were not. They are not now. Integrity is a market for perma-bears. Various practices associated with rapacious greed, including regulatory and legislator capture, have continued unabated. Inequality continues its incessant rise. Economic recovery is scant, yet deficits grow absurdly. Political divisiveness spreads. There is no end in sight to the public loss of confidence in,

  • elected government and
  • due process as a consistently effective means of fairly resolving disputes

Since Cassandra has clearly-stated content re-use rules, I recommend that you navigate over to her blog, and read her post directly. Focus on the final six paragraphs, and don’t forget to read the comments.

* I question the usefulness of higher marginal taxes or changes to capital gains taxes. Tax laws have power over the “poorer wealthy”. It does little good to raise taxes on small businessmen, physicians and others whose income is between $100,000 and $1,000,000 (net worth between $100,000 and $5,000,000). The real control of capital is concentrated among those with one or more magnitudes of order greater assets than that.

Categories
Economics

Message of the market

Joe Saluzzi tried to get the word out. He really did make a good faith effort. This was one of his numerous appearances on Bloomberg, Fox Business News, CBS etc. The mainstream news media did not ignore him. He was interviewed for about 10 minutes in each station’s Manhattan studio. Each appearance was broadcast live. Receiving that much air time is unusual.

Joe Saluzzi comments on problems with the stock market
The temporal backdrop for this interview was particularly good. I enjoyed watching the market tickers running across the screen. They were triple stacked, and occupied a lot of screen real-estate! The results of a New York State election were reported around the 5 minute mark. I am no longer familiar enough with the NY-NJ-CT area to gauge the significance, but phrases like, “concedes the election” are portentous.

I’ve followed Sal Arnuk, @ThemisSal on Twitter, since 2012. He is Joe Saluzzi’s business partner at Themis Trading. That isn’t how I found this video. Rather, I was reading an Amazon book review, about one of Ernest Chen’s algorithmic trading books. That led me to R. Ryley’s Message of the Markets blog.

The following excerpt is from an anonymous comment on Ryley’s blog post, faithfully reproduced here under Creative Commons License by-NC-ND and replete with all-cap’s

YES. THIS IS THE MOST IMPORTANT NEWS CLIP IN THE PAST SIX MONTHS. THE THEFT OF GOLDMAN SACHS’ MICROSECOND TRADING CODE HAS FURTHER REINFORCED THIS MAN’S COMMENTS… [Such] CODE* CAN BE USED TO UNFAIRLY MANIPULATE THE MARKET IN A WAY THAT GIVES AN UNFAIR ADVANTAGE TO WHOMEVER POSSESSES IT… THEN FACTOR IN THAT 49% OF MARKET ACTIVITY IS PROGRAM [trading], WE KNOW THAT THE IMPACT…IS MATERIAL. IN OTHER WORDS, MANY MARKET PARTICIPANTS, INCLUDING RETAILERS, ARE BEING CHEATED.

In retrospect, it doesn’t seems so strange, e.g. US Taxpayers Pay For SEC to Arrange Early Release of Data to High Speed Trading Firms.

* I am not certain, but believe that Anonymous refers to the circumstances that led to former Goldman Sachs programmer Sergey Aleynikov’s conviction in 2011.