Tuesday, August 05, 2008

Just an Ordinary August Day

On a day when oil prices plummeted, P&G announced better-than-expected results from passing on higher prices to consumers, and the Fed did nothing, the relief rally that ensued did NOT witness Exxon-Mobil (the he largest company by market cap) turnover the most in value, nor P&G, nor Walmart, despite the S&P 500 Consumer Discretionary Index jumping the most, perhaps in the calculation life of the index. It wasn 't even the shorts falling over themselves to cover their shorts in Citicorp. Rather, it was Potash Corp of Saskatchewan, that Canadian province that makes Indiana look hilly, turning over almost twice the value of the next highest by value. Of course the talking heads will (after-the-fact) point to nebulous investor fears that fertilizer prices have peaked. But this isn't the real story. Potash - The Shares - are but a dog chewy-toy.

I believe the real story is - as I've written before inFeedback Trading's Hollow Victory, about the changing structure of the market: the evolution of momentum and feedback-trading strategies, the slaughtering of genuine liquidity providers, the morphing of former risk-trading capital into front-running order-sniffers, the Darwinian success (until mid-July) of momentum and trend-following strategies at the expense of value-oriented and contrarian pursuits and counter-trend programs. And as prophesized, the really interesting action begins when the Darwinian victors - having squeezed competitors to death - finding themselves atop the mountain - desire to exit. All the more so when, it happens in a pari-passu rush for the doors.

Maybe fertilizer have peaked. Maybe peak oil and increasing wealth in Asia will forever change the economics of energy-dependent agricultural inputs. Maybe as my friend Greg Newton at Naked Shorts suggests, the best cure for high prices is high prices. I actually haven't a clue. But I do know liquidation when I see it, and we ARE structural seeing a shake-out of the most egregious of the last 18-months of mimetically induced accumulations - irrespective of whatever the longer-term fundamental continuity of their underlying stories. Fat-tail indeed!!

1 comment:

James said...

Great post Cassandra. Ive been using a trend following system for the last couple of months that tracks about everything and it has worked really well for oil and the CRB index . Luckily I begin to cover when the financials went bid and actually got short. The fast money is in commodities and they are one vicious dollar short squeze away from a meltdown.

I think we're on the cusp of a regime change in the markets.