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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: Dr. Voodoo who wrote (81212)	9/23/2008 8:34:28 AM
From: Casaubon	Read Replies (1) \| Respond to of 94695

In LEH case and others, because short sellers entered the market, the market remained liquid probably longer than it would have without them. The situation is analogous to two chemical principles; kinetics and thermodynamics. Kinetics determine the rate that a rxn happens. This instance is analogous to your liquidity situation (ie control of the rate of decline). However here, what is most important is the concept of thermodynamic equilibrium. Equilibrium is the price achieved when buyers and sellers meet. It doesn't matter if prices overshoots to the upside and, it doesn't matter if prices overshoots to the downside; ultimately the thermodynamic equilibrium point will be found and the transaction will take place at fair value, based on that equilibrium point. Introduction of a market maker that can instantaneously control the actual supply of stock that is in existence, shifts the thermodynamic equilibrium point. At best, this situation resolves over time. Even this is detrimental to the seller because the supply of shares available for sale were artificially inflated, which has the effect of depressing fair value. At worst, the supply of shares in existence is permanently inflated, as was the case in the Overstock debacle. You can refuse to believe there is a real effect on the actual supply of shares in existence but, the evidence points to the contrary.