Thursday, March 24, 2011

Debunking another BS rumor

Today two large macro funds over here have gone wildly long s&p. Not long. We talking 250% net long. It looks like concerted action on gdp dgrades from gs and bofa are the letter delivered to ben on qe3. Huge directional bet with new capital put at work. Most likely the two institutions are coordinating action with offices in connecticut. Check inflows of blue chip hedge funds in jan feb. Apply 2.5 leverage. We are talking about some 40-60bn put at work primarily on eminis at the moment. Whether some external force will leave them high and dry i don't know. But if anything seemed to be at least not too irrational up to now, in this third wave, be ready for real rock and roll. - an apparent rumor on from a European trading desk...
First the ES traded the typical 1.8 million contracts. As this is the workhorse of the indexes...we are talking about $108 billion of total flow. Additionally, the large SP contract traded only 4,300 contracts for $1 billion of flow. The SP contract trades 60,000 to 100,000 contracts regularly so who came up with this idea must not be checking basic facts - there was no room for a $60 billion trade with out some evidence of it and volume expansion. In addition to this, volume has been significantly sub par during the previous raly days, one would thought the idea of two players acumulating over 1.1 million ES contracts would have caught on and triggered some contagious buying...but nothing is visuble in this very low quality and lw volume tape. So, We did not get the volume that could possibly reflect thus trade. However, yet again professional sellers sold the highs while the dollar put in a higher low and an a-b-c move down. If someone wants to believe that the BURNanke can get away with QE3 right now at the risk of getting himself drawn and quartered and run out of town and that person wants to go long $60 billion of ES contracts...believing that QE3 can make heaven out of horse manure, then I am quite happy to short it to them.
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