what we're suggesting is that the markets are not functioning in a normal fashion.
IMO this will have several effects:
Things you may not know: Market makers makeup perhaps almost half the volume in the market on any given day. So you trade a stock, it goes to a market maker who buys it, and sells it in lots for a couple nickels here and there. They will fuck you if possible to put braces on their kids teeth and shoes on their feet. This is how it works.
1.) People who lose confidence in their ability to make a trade and be paid for it, will not risk losses. They will simply go home. Perhaps with all of their valuable but less liquid goods.
Underlying values will plummet because nobody will be willing to buy unless at fire sale prices.
2.) Nobody to buy=nobody to sell to. Unfortunately, there is nobody right now to make the handoff. Bid/Ask on some of the options I follow are onerous. I was looking to roll out covered calls I wrote on AMGN. They wanted like 0.50 time value on expiration day and the stock was down 2 bucks. Forget it, I'm not taking that deal. I'll lose the stock before I touch that with a ten foot pole. Oh and fuck you mr. market, it's in a retirement account I'll buy it back on thursday and screw your mother too.
Nobody will take large positions if they can't hedge them. Liquidity will dry up, and market participants will just wait.
3.) People had perhaps a billion bucks in SKF. Some of them were locked out because they couldn't trade. Some like me wanted to sell puts yesterday, but it was closed for business. You think I'm not going to think twice about putting my money into that when the feds are going to come in and screw me?
People don't play in a rigged casino. They go to a different one.
4.)People who have existing positions are going to stew over the weekend. The problem is, risk. If I thought my position was hedged, but I might get $crewed because because I won't have anybody to sell to, and I'm in an untenable position, I'm going to liquidate. No if's ands or buts. It's hard to explain to people you manage money for that you let a small loss turn into a big one.
We're looking at this, and saying,,, this could easily cause a run for the door, and the same pair of wingtips that were trampling your ass to get in yesterday will be putting their heal up your nose on the way out.
Now if they can shore up the derivatives market and spreads get tighter, and the credit markets will miraculously recover and no big hedge funds explode,,, we might have a normal week next week. But,,, likewise, people with itchy trigger fingers might start shootin.
Maybe that's just our imagination talking. But... i think you get the picture.
V |
