I must tell you that every day I walk into work and turn my quotes on I get a little more flabbergasted and a lot more stunned. This was the feeling I got when I used to walk into work in early 2000 watching the NASDAQ go berserk day after day. We all know how that ended up and this time will be no different. I remember many traders just resigned to the fact of massive green opens that any and all information good or bad was used to run up global equities.
They all walked in and bought. Mindless buying without any thought. Buying because you had to buy. The Fed was on your side remember. Never fight the tape or the Fed EVER! Why wouldn't anybody take this advise? After all the Fed had opened up the liquidity tap because god forbid the Y2K would level the economy. You just had to own Telecom Infrastructure, Semiconductors, and any Internet Stock that had .COM at the end of it. Sprinkle some human genome names and you had an all out cluster^&%k of ignorance. What many investors don't remember was that the broader markets stopped going up a month before the NASDAQ imploded. The internals of the market had already turned, what we heard from the monkeys on Bloomberg and CNBC was that the economy was changing. This was an new era.
What we saw was indiscriminate buying of all NASAQ names.
They bought Ariba. They bought Infospace. They bought Yahoo. They bought Commerce One. They bought VerticleNet. They bought PMC Sierra and KLA Tencor. They bought Celera. They bought MicroStrategy. On and on it went. Money was flowing out of slow industrial names and into fast tech. The NASDAQ finally ran up to 5132.50 on March 10th 2000 dropped to below 4500 real quick then ran back up over 5000 on March 24th. That was an incredible two weeks of trading trying to figure out who the inmates were in the asylum. As the old women so aptly stated in Titanic, that was the "Last time the NASDAQ ever saw daylight." The tech heavy NASDAQ crashed from over 5000 on the 24th all the way to 3265 on April 14th. It finally bottomed in October 2002 near 1100.
What we saw was how liquidity in its simplest form can not only create bubbles, but also sustain them. As Rick James has stated - "Cocaine is a powerful Drug." Liquidity is the drug of choice on Wall Street. Back in 2000 there was far too much liquidity chasing too few tech names. It was a vulgar display of market power that took the NASDAQ to over 5100, but it was even more vulgar the correction to 1100. What goes up must always come down. Liquidity is like leverage. When its in your favor, all is good. When leverage and liquidity go against you like LTCM in 1998, the power of unmitigated selling pressure hits you in the grill. When their is no more booze left the party is over. The party ended for LTCM in 1998. The Halcyon days for the NASDAQ ended in 2000. Both of these bubbles were fed by speculation backed by liquidity and leverage. The Fed policy leading up to those epic collapses was in one single word - ACCOMMODATIVE
The "Quant Quake" we had in August 2007 was primarily a liquidity driven Algo/Program trading phenomena. It was a very narrow market that was leading the averages. Statistical arbitrage programs were controlling the market. These Stat Arb programs have a mean reversion strategy that tends to dampen market volatility. Stat Arb made the market more safe than it was. It was masking major problems. When a narrow market leads the averages its a recipe for a crash. When the Stat Arb programs needed to unwind the entire market unwound with it. Just like in 1997 and 1998 with the Asian and Russian currency crisis, liquidity and leverage led a narrow market. Obviously the nitwits who were buying Commerce One and running it up to 500 bucks had not learned their lesson in NASDAQ ville in 2000. Why learn the lessons when the ponzy scheme gets new buyers? Every single market correction and crisis has its brand new entrants but the characteristics are the same. Too much liquidity supplied by the Fed, too much speculation fed by leverage, and to narrow a market to implement the strategies. It all works as long as the candy is still in supply by the Fed. The Fed is single handily the most destructive and perverse institution in the history of the world.
http://tradersutra.blogspot.com/2009/07/markets-evolve-uncoilget-used-to-it.html
What we come back to inevitably is this. The Federal Reserve has never had a plan to grow and sustain a financial system other than printing money to feed speculative behavior. NEVER! They have no answer other than to print money. Its no different when the GOP says "If lowering taxes doesn't do the trick, then we are all out of ideas." If drunken money printing doesn't work you are on your own is the Fed's only mandate and creed. They will print money and then print some more. After they have printed some more they will print even more. This will go on until toilet paper and the USD are one and the same. Ben Bernanke is fully capable of this ludicrous behavior because the Banks are pulling his strings. The banks are the inmates in this asylum and they are 100% dead set on taking this economy over the cliff at any cost. Look at the way they have handled the foreclosure crisis. Look at the way they have fought tooth and nail over any type of financial regulation. Look at the way they killed mortgage finance in this country. They simply don't care. Wall Street doesn't care about anybody except Wall Street. Calling these guys Psychopaths is an insult to Jack Nicholson.
What we have today is a disconnected stock market. It is disconnected form the broader economy on such a large scale that even for someone like me who has lived through past bubbles can't wrap his thoughts around it. It's like the stock market wants a housing double dip. It wants more unemployed workers. It wants more gridlock in DC. It wants more people on food stamps. It wants the to see the economy go into the tank. It wants more personal bankruptcies. It wants this because as long as the real economy is in the tank and the country is falling off the cliff, the Fed will keep rates at zero and keep printing. As long as tens of millions of Americans are jobless and even homeless, the Fed will keep supplying Wall Street with its drug of choice. This will keep Wall Street and the financial economy in charge. This will keep the wide disparity in incomes and wealth. This will keep the elites in charge. This is really the grand plan. The total destruction of lower and middle class America to the benefit of the Financial and Industrial elite. As soon as this economy starts creating jobs and real growth, the stock market will start to head south. The powers that be want to totally gut and loot the country. They have the toxic people, platform, and the policy to do it.
I have totally given up on DC to figure out and solve problems in our once great country.
They should throw all of our elected officials into the dumpster.
There are only three ways this country figures out problems.
1-Lower Taxes
2-Print Money
3-Wars
This is the sorry state of the union on election day. Again, we all should vote to throw every one of these bums out on their carcass. It won't happen today, 2012, or even in my life time.
A man can dream.
What will happen on that solemn occasion?
I figure another massive green open because at the end of the day when Rome Is Burning Wall Street is churning. When the real economy is dying Wall Street is crying YIPPEE!
Of course when there is no government or anything left to loot and rape, the Fed has to keep rates at zero and continue to print correct?
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