Does Goldman Sachs manipulate stock marlets? pretty obviously the facts do say so

Besides the obscure fact that the low was 666 ( which is not a coincidence) we also had very abnormal or very evident signs of market manipulation by options as we never had an ISEE
of 220 at a low that rather would mark an high. It means far more calls
were bought than puts at the low which never happens unless someone
knows this will be the low. Which was fabricated by News from
Citi and JPM over the weekend .
Interesting in the timing of the tops around this week is that Goldman reports earnings this week
actually
tomorrow and will sell stocks to repay TARP funds as well right now,
which indicates the top this week is very likely just by this fact.

Excerpt from

http://www.goldmansachs666.com/

NOTE: A
dozen of you sent me the recent link to Zero Hedge. Thanks. It makes a
great point of how Goldman Sachs controls stock trading and the
markets. Here is an excerpt from Zero Hedge and a link to the full
article is below.

The Incredibly Shrinking Market Liquidity, Or The Upcoming Black Swan Of Black Swans – Posted by Tyler Durden to Zero Hedge

. . .

A
very interesting data point, also provided by the NYSE, implicates none
other than administration darling Goldman Sachs in yet another
potentially troubling development. The chart below demonstrates the
program trading broken down by the top 15 most active NYSE member
firms. I bring your attention to the total, principal, customer
facilitation and agency columns.

http://zerohedge.blogspot.com/2009/04/incredibly-shrinking-market-liquidity.html

(Chart shows Goldman Sachs at three times the level of the next firm, Credit-Suisse and almost 10 times Citi) For link to chart and article –

“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.

Let’s back up. I recently posted a chart which tracks equity market neutral strategies: in essence a cross section of quant funds for which there is public performance tracking. The chart is presented below.

There is not much publicly available data to follow what goes on in the mystery shrouded quant world. However, another chart that tracks the market neutral performance is the HSKAX, or the Highbridge Statistical Market Neutral Fund, presented below. As one can see we have crossed into major statistically deviant territory, likely approaching a level that is 6 standard deviations away from the recent norms.

What
do these charts tell us? In essence, that there is a high likelihood of
substantial market dislocations based on previous comparable
situations. More on this in a second.

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.

This is a market in which the big players are Renaissance Technologies Medallion, Goldman Sachs and GETCO. Whereas the first two are household names, the last is an entity known primarily to quant market participants. Curiously, the Philosophy section in GETCO’s website exactly captures the critical role that quant funds play in an “efficient” market.

What’s good for the market is good for GETCO

GETCO’s strategy is to align our business plan with what is best for the marketplace. We
earn our revenues by providing enhanced liquidity and efficiency to
electronic financial markets, which in turn results in lower costs for
market participants (e.g. mutual funds, pension funds, and individual
investors).

In addition to actively trading, we partner with many exchanges and their regulators to increase transparency throughout the industry and to create more efficient means for the transference of financial risk.

A good example to visualize the dynamic of this liquidity “ecosystem” is presented below.

In
order to maintain market efficiency, the ecosystem has to be balanced:
liquidity disruptions at any one level could and will lead to
unexpected market aberrations, such as exorbitant bid/ask margins,
inability to unwind large block positions, and last but not least,
explosive volatility: in essence a recreation of the market conditions
approximating the days of August 2007, the days post the Lehman
collapse, the first November market low, the irrational exuberance of
the post New Year rally, and the 666 market lows.

The
above tracking charts indicate that something is very off with the
“slow”, “moderate” and “fast” liquidity providers, indicating that
liquidity deleveraging is approaching (if not already is at) critical levels, as the vast majority of quants
are either sitting on the sidelines, or are merely playing hot potato
with each other (more on this also in a second). What this means is
that marginal market participants, such as mutual and pension funds,
and retail investors who are really just beneficiaries of the liquidity
efficiency provided them by the higher-ups in the liquidity chain, are
about to get a very rude awakening.

Also,
it needs to be pointed out that the very top tier of the ecosystem is
shrouded in secrecy: conclusions about its state can only be implied
based on observable metrics from the HSKAX and HFRXEMN. It is safe to say that any conclusion drawn based upon observing these two indices are likely not too far off the mark.

Skeptics at this point will claim that it is impossible that quant
and program trading has such as vast share of trading. The facts,
however, indicate that not only is program trading a material component
of daily volumes, it is in fact growing at an alarming pace. The
following most recent weekly data from the New York Stock Exchange puts things into perspective:

According
to the NYSE, last week program trading was 8% higher than the 52 week
average, which on almost 4 billion shares is a material increase. It is
probably safe to say that the 1 billion in program trades last week
does not account for significant additional low- to high-frequency
trades originated at non NYSE members, implying the real number for the
overall market is likely even higher. Some more program trading
statistics:
principal
trading is running 21% above 52 week average, agency trading is 11%
below average, while NYSE weekly volume is running about 9% below 52 wk
average.

A very
interesting data point, also provided by the NYSE, implicates none
other than administration darling Goldman Sachs in yet another
potentially troubling development. The chart below demonstrates the
program trading broken down by the top 15 most active NYSE member
firms. I bring your attention to the total, principal, customer
facilitation and agency columns.

Key to note here is that Goldman’s program trading principal to agency+customer facilitation ratio is a staggering 5x, which is multiples higher than both the second most active program trader and the average ratio of the NYSE, both at or below 1x. pike over thThe
implication is that Goldman Sachs, due to its preeminent position not
only as one of the world’s largest broker/dealers (pardon, Bank Holding
Companies), but also as being on the top of the high-frequency
trading/liquidity provision “food chain”, trades much more often for
its own (principal) benefit, likely in tandem with the other top dogs
on the list:
RenTec, Highbridge (JP Morgan), and GETCO.
In this light, the program trading
s
e past week could be
perceived as much more sinister. For conspiracy lovers, long searching
for any circumstantial evidence to catch the mysterious “plunge
protection team” in action, you should look no further than this.

Following on the circumstantial evidence track, as Zero Hedge pointed out previously,
over the past month, the Volume Weighted Average Price of the SPY index
indicates that the bulk of the upswing has been done through low volume
buying on the margin and from overnight gaps in afterhours market trading.
t.The VWAP
of the SPY through yesterday indicated that the real price of the
S&P 500 would be roughly 60 points lower, or about 782, if the low
volume marginal transactions had been netted out
And
yet the market keeps on rising. This is an additional data point
demonstrating that the equity market has reached a point where the
transactions on the margin are all that matter as the core
volume/liquidity providers slowly disappear one by one through ongoing deleveraging.

Unfortunately for them, this is not a sustainable condition.

As more and more quants
focus on trading exclusively with themselves, and the slow and vanilla
money piggy backs to low-vol market swings, the aberrations become
self-fulfilling. What retail investors fail to acknowledge is that the quants
close out a majority of their ultra-short term positions at the end of
each trading day, meaning that the vanilla money is stuck as a hot
potato bagholder to what can only be classified as an unprecedented ponzi
scheme. As the overall market volume is substantially lower now than it
has been in the recent past, this strategy has in fact been working and
will likely continue to do so… until it fails and we witness a repeat
of the August 2007 quant failure events… at which point the market, just like Madoff, will become the emperor revealing its utter lack of clothing.

So what happens in a world where the very core of the capital markets system is gradually deleveraging
to a point where maintaining a liquid and orderly market becomes
impossible: large swings on low volume, massive bid-offer spreads, huge
trading costs, inability to clear and numerous failed trades. When the quant deleveraging
finally catches up with the market, the consequences will likely be
unprecedented, with dramatic dislocations leading the market both
higher and lower on record volatility. Furthermore, high convexity
names such as double and triple negative ETFs, which are massively disbalanced
with regard to underlying values after recent trading patterns, will
see shifts which will make the November SRS jump to $250 seem like
child’s play.

For readers curious about just how relevant liquidity is in the current market, I recommend another recent post
that discusses DE Shaw’s opinion on the infamous basis trade, in which
their conclusion was that establishing a basis trade, which is
effectively the equivalent of selling a put option on market liquidity,
ended up in massive financial carnage as the market rolled from one
side of the trade to another. Is it possible that what the basis trade
was for credit markets (most notably
Citadel, Merrill and Boaz Weinstein), so the quant unwind will be to equity markets?

So when will all this occur? The quant
trader I spoke to would not commit himself to any specific time frame
but noted that a date as early as next Monday could be a veritable
D-day. His advice on a list of possible harbingers: continued deleveraging in quant funds as per the charts noted above, significant pre-market volatility swings as quants rebalance their end of day positions
, increasing principal program trading by Goldman Sachs on decreasing relative overall trading volumes, ongoing index VWAP
dislocations. One thing is for certain: the longer the divergence
between real volume trading/liquidity and absolute market changes
persists, the more memorable the ensuing market liquidity event will be.
At
the end of the day, despite the pronouncements by the administration
and more and more sell-side analysts that the market is merely chasing
the rebound in fundamentals in what has all of a sudden become a
V-shaped recovery, the “rally” could simply be explained by technical
factor driven capital-liquidity aberrations, which will continue at
most for mere weeks if not days.


Key to note here is that Goldman’s
program trading principal to agency+customer facilitation ratio is a
staggering 5x, which is multiples higher than both the second most
active program trader

and the average ratio of the NYSE, both at or below 1x. The implication
is that Goldman Sachs, due to its preeminent position not only as one
of the world’s largest broker/dealers (pardon, Bank Holding Companies),
but also as being on the top of the high-frequency trading/liquidity
provision “food chain”, trades much more often for its own (principal)
benefit, likely in tandem with the other top dogs on the list: RenTec, Highbridge (JP Morgan), and GETCO. In this light, the program trading spike over the past week could be perceived as much more sinister.
For
conspiracy lovers, long searching for any circumstantial evidence to
catch the mysterious “plunge protection team” in action, you should
look no further than this.



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~ by behindthematrix on April 13, 2009.

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