GET ME OUTTA HERE......!!!

Oh dear. Someone has been hurt. Perhaps mortally so. I don't know "who" or "why", but what I do know is that someone is puking or being forcibly puked in Japan, and they are selling assets with little respect to price. It is likely that it is a large long vs. short portfolio since the volume pick-ups - which have been significant on both the likely longs (value biased under-performers) and outperformance of likely shorts (poorer value out-performers with tinges of higher short interest) in a replay of late summer action. It could be a hedge fund for such sub-strategies have been pedestrian performers at best, or, with the capital calls going round the IBs, and universal banks, the marginal utility of balance sheet usage and warm highly-paid bodies may have been given over to cost-cutting endeavors that in turn may have led one or some to shutter an operation with a reasonably sizable position. More interesting is - like August - is not so much the marginal increase in volume, but rather the evaporation of liquidity on the other side (talking mostly bids here), which leads me to believe that this someone was a significant liquidity provider, or reversion-oriented pseudo-market-maker, which - as we saw in August - turns into a rout when such a participant turns and retreats from the undertaking in favor of demanding liquidity to exit.

This is NOT to be confused with the puking of stock-specific consumer-discretionary and earnings disappointments in the USA (TIF, WSM, CPKI, DKS). These are event-driven moves, that are exacerbated by the number of traders and quantitative strategies pursuing similar return. While these (call them divergent strategies) have been small rays of hope in otherwise lame quantitatively-based pursuits, they, too, face the same problem [as August] of overcrowding trades at a time when valuation dispersion is rather elevated on the tails.


As for what it means for Japan, I will note there are an increasing number of investable and real companies (albeit of lesser size that are being caught in the global small-cap slaughter) with real businesses which are victims of recent moves and trading at depression -implied levels of large discounts to book, very low (less than 5x) ev/ebitda, and a reasonable chance of continued earnings stability. At least for those on the vanguard of share-price destruction, they are probably nearer to their intermediate term bottoms than not.