S&P 500 index: can you find the May 6 bungee ride?Gordon T. Long, "Confirming the Omen of May's Flash Crash"
[excerpt:]
The highly discussed and quickly forgotten Flash Crash [of May 6] was an omen of what lies ahead for the financial markets. It was a uniquely distinctive occurrence relative to anything we've ever experienced. Likewise, what we're about to witness will be startling and never before observed by this generation of investors. After only 30 days the Flash Crash signal has become unambiguous and historians will wonder why the public didn’t react sooner to its clarion call....
It's readily apparent that present-day markets have built across-market dynamic hedging machinery with a hair trigger. This trigger is designed to launch unimaginable trading volumes in less than 250 microseconds, across global exchanges, operating under different and still uncoordinated rules. The activation could be any number of events but my sense is it will stem from the dramatic contraction in money supply. Despite massive central bank actions, money supply as measured by MZM, M1, and M2 is still decelerating and, in the case of the difficult to obtain M3, is contracting....
When a highly leveraged system is built on the basis of liquidity and liquidity is shrinking, it's only a matter of time.
It's readily apparent that present-day markets have built across-market dynamic hedging machinery with a hair trigger. This trigger is designed to launch unimaginable trading volumes in less than 250 microseconds, across global exchanges, operating under different and still uncoordinated rules. The activation could be any number of events but my sense is it will stem from the dramatic contraction in money supply. Despite massive central bank actions, money supply as measured by MZM, M1, and M2 is still decelerating and, in the case of the difficult to obtain M3, is contracting....
When a highly leveraged system is built on the basis of liquidity and liquidity is shrinking, it's only a matter of time.
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