Thursday, April 16, 2009

The missing quants

This story that the quants aren't participating in this rally, and thus it is doomed to fail is just specious; and I find it amazing that it is getting so much ink.

Barclays Matthew Rothman said that he knew only one quant manager out of 80 that was up since March 9th. His quote, "It is fair to say that just about everyone is bewildered and trying to understand when this rally will end.."

Merrill Lynch analyst Mary Ann Bartels is all up in arms because "Hedge funds are an important source of liquidity for the markets - particularly true of quant funds employing high-frequency algorithmic and programming trading strategies. A big drop in HF presence in the equity markets could result in rising volatility.

Duncan Neiderauer, the chief of the NYSE said that "real money" investors were on the sidelines, and it was just short term traders moving prices.
http://www.ft.com/cms/s/0/ae73a390-29e6-11de-9e56-00144feabdc0.html

JP Morgan quoted Zero Hedge yesterday saying the hedge fund exposure by quants was so low, that it could lead to a spike in volatility.

And Zero Hedge's article, that started this imbroglio on April 10th:

"Anyone who is doing anything sensible right now is either losing money or is out of the market entirely." These are the words of a quant trader, who is seeing something scary in the capital markets. Scary enough to merit a warning that we could be on the verge of another October 87, August 2007, or January 2008. Why quant funds? Or rather, what is so special about quant funds? The proper way to approach the question is to think of the market as an ecosystem of liquidity providers, who, based on the frequency of their trades, generate a cushioning to the open market trading mechanism. It is a fact that the vast majority of transactions in the market are not customer driven buy/sell orders, but are in fact high frequency, small block trades that constantly cross between a select few of these same quant funds and program traders.
http://zerohedge.blogspot.com/2009/04/incredibly-shrinking-market-liquidity.html

Whatever.

You'll hear more, until you understand this is just nonsense.

Those that missed the bottom, or don't know why stocks are going up, come up with clever and sophisticated reasons to explain why the market is wrong.

Just like a lie.

The truth is never complicated.

But no one on Wall Street seems to be able to say "I was wrong" or "I missed the bottom."

Instead, we get stories like these.

From the same people, who missed the bottom, and have a self interest in stock prices coming down, because they missed it, or are short!

And if only one of these quants funds is up since Marth 9th, how much firepower then, is on the sidelines, who will soon be forced in?

And that my friends, is the black swan event that the bears are missing!

And of course the bears can't recognize it---because the bears are the market's next black swan!

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