John At The Center

When the inevitable silver crash happened, it took down other commodities like oil with it. That’s because of all the speculation in the market, and the fact that funds which speculate in silver tend to be exactly the same funds speculating in oil. When you get a big margin call in silver (and margin requirements on silver had just been raised before the crash), then you have to sell some of your other holdings to meet that call. And your most liquid holding is likely to be in oil.

At times of volatility, correlations move towards 1. We saw that in every market during the crisis, and we saw it again in commodities on Thursday. Which is why protecting yourself with diversification is so dangerous. Just when you need the protection, it disappears.

via Why commodities crashed | Felix Salmon.

The move was certainly accelerated by the rise of algorithms and high-frequency traders, who have moved quite aggressively from stocks into commodities of late. These black boxes can go from being very long to very short in an alarmingly short space of time, and I suspect that many of them made money, rather than lost it, in the volatility.

via Why commodities crashed | Felix Salmon.

You can see why a young guy out of college might get a kick out of working here. And why a Phi Beta Kappa who studied physics and neuroscience at Harvard might have had a hard time getting in the door. Imagine the psychological impact of having that kind of money and machinery at your fingertips. You must feel powerful. Too powerful, even, like a young pilot whos just been given the keys to his first F-35 Lightning II tactical strike fighter. A mixture of relish and trepidation.

via On the Floor Laughing: Traders Are Having a New Kind of Fun – James Somers – Technology – The Atlantic.

By contrast, tech stocks are significantly less frothy than they’ve been in years. Historically, shares of technology companies have traded at about a 30 percent premium to the broad market, based on their P/E ratios. That’s because tech companies have traditionally enjoyed faster earnings growth than other types of businesses. Today, however, technology’s P/E is on par with that of the overall Standard & Poor’s 500-stock index.

via Technology Stocks May Become an Unlikely Haven – NYTimes.com.

According to Sprenger’s research, the sentiment rankings that his system extracted matched the ebb and flow of the Standard & Poor’s 500-stock index fairly closely, and appeared to predict movements in the market by more than a day. The researchers said that any investor who bought or sold using their analysis in the first half of 2010 would have achieved an average rate of return as high as 15 percent. At TweetTrader, which Sprenger set up recently with some fellow students, investors can track the sentiment rankings of various stocks and indexes based on the systems used in his research.

via Can Twitter Help You Predict the Stock Market?: Tech News and Analysis «.

Roger Lowenstein writes in Newsweek about the new spotlight on Warren E. Buffett: “It is tempting to idealize such a figure, and Buffett is partly to blame, at times glossing up his image as a prairie sage. When he feels threatened, he is not above a little dissembling. This is a minor flaw, but a flaw all the same.”

via Buffett’s Flaw – NYTimes.com.

So clearly at least one of the sellers was setting their price algorithmically in response to changes in the other’s price. I continued to watch carefully and the full pattern emerged.

via Amazon’s $23,698,655.93 book about flies.

“When everyone ran for the door in the crisis it changed people’s desire to invest in things that aren’t listed” on an exchange, says Anton V. Schutz, manager of Burnham Financial Funds, who says he no longer buys issues that aren’t listed. “Even deeper markets than this haven’t come back after the crisis.”

via A Hot Idea Falls Short at Goldman – WSJ.com.

In 2007, Goldman set up a new, private marketplace open only to institutions and ultrarich investors. There, they would be able to own and trade shares, which wouldn’t be registered with the Securities and Exchange Commission. The attraction for listing companies: avoiding many of the disclosure and regulatory requirements of public stock markets, as well as the pressures that come with dealing with public investors.

“We need to go to magnetar and see if we can buy a bunch of cdo protection… Can tell them we have a protection buyer, who is looking to get into this trade now that spreads have tightened back in.”

via Goldman Traders Tried to Manipulate Market in 2007, Report Says – Businessweek.

The New York Stock Exchange and Deutsche Borse are planning a move to a single cash equities trading platform, understood to be based on Red Hat Linux, in a crucial step towards saving €79 million (£64 million) in annual IT costs and delivering robust, fast messaging.

via NYSE and Deutsche Borse merger chiefs size up single Red Hat Linux trading platform – ComputerworldUK.com.