liquidity is contracting again, not to say there was a lot of liquidity the last 2 years in comparison to the last ten. Tim Barakett, Paolo Pellegrini, Stanley Druckenmiller.... all unwinding their funds recently. Mind you, these guys aren't quants, but you can see liquidity is coming off the table. As for quants, its a bet you make for either risk averse, uncorrelated returns or returns that merely beat the Market, albeit with the illusion of consistency.. ie high sharpe ratios. But in volatile times these types of trades unwind badly like carry trades, subprime bets, basis trading, and other types of tiered long / short strategies that are really just an implicit bets on liquidity being there.
Why does anyone want to invest in equities trying to get 8 percent a year when the market moves up down 10 percent a month. makes no sense.
ding ding we have a winner. i have been saying that for years. i took my ira and trade that as well as trade my own prop account. my ira has been avg. between 8 to 12 percent a year over the last 3 years. before that it was down 5 percent over the last 7 years just buying and holding. if you invested 10k in the s p in 1998 that same 10k would be worth a little over 11k now. that same 10k trading it back and forth long and short puts would be around 40k to 50k based on the percentages shown above. problem is middle american doesnt have the time to trade their retirement accts. they are hoping mr market smiles on them over time and produces that nest egg. those days are over compounding on top of compounding. the u.s. is like msft totally blown out, developed, incapable of rapid growth anymore. let me see by of show of hands anyone think msft will have a trillion dollar market cap some day. dont think so. and the nyse wont see 30k in my lifetime and i am in my mid 30s. thats where the nyse will have to be in 30 years or so to get that same kind of windfall for my retirement that my parents and grandparents were rewarded with.
Anyone else out there personally enjoying this dry-up of liquidity (equities)? It's damn thin out there but hell things can and do move.
The entire world has become almost completely dynamic. China is a hybrid Communist/Capitalist system. Brazil etc have tons of natural resources with a modest educated population with a huge appetite to consume. India turns out engineers and computer programmers on an assembly line. Iran is about if it doesn't already posses nuclear capability. The list is endless. So given the context above, one wonders, should earnings become more or less volatile? I suspect that the answer is that in the short term they have become more volatile, but as soon as the US stabilizes, one would think that earnings will reach a new plateau. The point I am trying to make is that the situation is fluid, with probably no precedent in world history. People need to be fluid as well, moving funds with more rapidity than they are used to. In this thread I try to show how an investor might approach this: http://www.elitetrader.com/vb/showthread.php?s=&threadid=175250 without falling for perils like this: http://www.elitetrader.com/vb/showthread.php?s=&threadid=180234 Those that see how things will be instead of how things are, will be the [new] winners, whether trading, or running a company, or whatever.
And many managers who jumped into this field during good times plugged similar investment criteria into their models. In other words, the computers were making the same bets, and all won or lost in tandem. âThey were all fishing in the same pond,â Mr. Dennison said. If they all did practically the same thing and still blew up, that seems to mean two things: 1) The existence of one made all the others redundant. 2) there is hope for the little trader...