Assiduous Reader PL sends me an interesting link, unlike you other bums who never send me NUTHIN’: this one is about so-called hunt and destroy algorithms:
In stock trading, twin practices have coexisted for ages. First, a large number of investors enter stop-loss orders to protect themselves. Second, such stop-loss orders become sitting ducks for some professionals.
In the past, it was a common complaint that market makers and brokers tended to run the stops. These days hunt-and-destroy algorithms have evolved to run down the stops. Such algorithms simply try to guess where the stops are grouped, and if stops are hit, the algorithms take advantage, first, by short-selling and then buying to cover. The complexities are overly simplified here to illustrate the point.
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We take precautions to make sure that our subscribers do not become victims of such algorithms. Further, as part of our tactics, we help our subscribers profit from buying into artificially depressed prices that occur from such algorithms.The following are the elements of the ZYX Change Method Trade Management Guidelines:
- •Not placing stops in the zones where others can easily anticipate. In other words, do not becoming a sitting duck.
- •Not using stops as the primary risk-control mechanism.
- •Anticipating the stops would be run and exiting trading positions before such occurrences as well as reducing the size of long-term investment positions before such occurrences. Notice the distinction between trading positions and long-term investment positions.
- •Stepping up and buying when prices are artificially depressed because of stop-loss orders getting hit.
Seems to me that a much better strategy is not placing stop-loss orders at all. If you’re willing to sell at $24, why not sell at $25? Stop-Loss orders were responsible for the excesses of the Flash Crash, although you won’t hear any regulators admitting that.
The Europeans are still dithering on bank bail-outs:
A European Commission proposal for bank rescues recently leaked to the Financial Times suggests that euro area officials may not be ready after all to break the destructive loop between banks and their sovereigns.
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If the commission’s proposal becomes policy, this would be terrible news for markets and the euro. The burden of supporting rotten banks will still be able to bankrupt states — see Spain, Ireland and Cyprus — and rotten states will still be able to bankrupt otherwise healthy banks — see Greece.
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The European Commission’s latest plan attempts to keep Germany happy that it isn’t underwriting bankrupt banks in the Mediterranean, while still producing the direct euro area bank capitalization that countries like Spain so desperately need. It does so by saying that countries that have to resort to the European Stability Mechanism to recapitalize their banks would have to guarantee the fund against making a loss. This shares the same flaw as previous proposals: It fails to break that destructive loop between banks and their governments.The bottom line is that if a country is bankrupt and needs direct bank recapitalization from the euro area’s common fund, then that same bankrupt sovereign would still have to serve as the final backstop for its banks, as it indemnifies the euro area fund for any losses.
So what, in terms of the fundamentals, would be different under the European Commission’s latest proposal? Not much. The proposals can of course change, but for now it should become that much harder for optimists to delude themselves that the negative feedback loop between banks and sovereigns is about to be cut.
It seems clear that Europe will have to move to a market-based system, in which sovereign debt is held by pension funds and other market bodies, rather than the banks … but this is contrary to the new liquidity rules and other instruments of financial repression, which seek to ensure that the banks will always buy sovereigns in great hulking gobs.
It was a mixed day of spring-back for the Canadian preferred share market today, with PerpetualPremiums gaining 2bp, FixedResets off 13bp and DeemedRetractibles winning 27bp. For the last two classes, these figures represent about half of yesterday’s change, when RBC roiled the market. Volatility was high again today, with many issues rebounding about half their Monday gain or loss. Volume was extremely high.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.0000 % | 2,497.4 |
| FixedFloater | 4.30 % | 3.61 % | 30,948 | 18.16 | 1 | -1.3393 % | 3,783.4 |
| Floater | 2.79 % | 3.01 % | 63,706 | 19.71 | 4 | 0.0000 % | 2,696.5 |
| OpRet | 4.63 % | 0.94 % | 51,803 | 0.38 | 4 | 0.1051 % | 2,597.0 |
| SplitShare | 4.61 % | 4.58 % | 45,083 | 4.32 | 2 | -0.0601 % | 2,889.8 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1051 % | 2,374.7 |
| Perpetual-Premium | 5.26 % | -2.31 % | 74,577 | 0.13 | 30 | 0.0155 % | 2,343.2 |
| Perpetual-Discount | 4.86 % | 4.87 % | 137,857 | 15.70 | 4 | 0.3879 % | 2,643.1 |
| FixedReset | 4.91 % | 2.91 % | 218,101 | 3.65 | 78 | -0.1310 % | 2,478.7 |
| Deemed-Retractible | 4.89 % | 2.07 % | 116,677 | 0.35 | 46 | 0.2730 % | 2,427.6 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| MFC.PR.I | FixedReset | -2.22 % | Up 2.27% yesterday.
YTW SCENARIO |
| CM.PR.K | FixedReset | -1.98 % | Up 2.06% yesterday.
YTW SCENARIO |
| PWF.PR.R | Perpetual-Premium | -1.38 % | Up 2.99% yesterday.
YTW SCENARIO |
| BAM.PR.G | FixedFloater | -1.34 % | Up 1.13% yesterday.
YTW SCENARIO |
| SLF.PR.G | FixedReset | -1.07 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 24.86 Bid-YTW : 3.40 % |
| IFC.PR.A | FixedReset | -1.03 % | YTW SCENARIO Maturity Type : Hard Maturity Maturity Date : 2022-01-31 Maturity Price : 25.00 Evaluated at bid price : 25.83 Bid-YTW : 3.37 % |
| IAG.PR.G | FixedReset | -1.03 % | Up 3.82% yesterday.
YTW SCENARIO |
| HSE.PR.A | FixedReset | -1.03 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-01-15 Maturity Price : 23.65 Evaluated at bid price : 26.01 Bid-YTW : 3.09 % |
| POW.PR.G | Perpetual-Premium | 1.02 % | Down 1.68% yesterday.
YTW SCENARIO |
| MFC.PR.C | Deemed-Retractible | 1.12 % | Down 2.62% yesterday.
YTW SCENARIO |
| NA.PR.L | Deemed-Retractible | 1.12 % | Down 2.23% yesterday.
YTW SCENARIO |
| MFC.PR.B | Deemed-Retractible | 1.14 % | Down 1.40% yesterday.
YTW SCENARIO |
| TRP.PR.C | FixedReset | 1.19 % | Down 1.40% yesterday.
YTW SCENARIO |
| GWO.PR.I | Deemed-Retractible | 1.19 % | Down 2.29% yesterday.
YTW SCENARIO |
| SLF.PR.D | Deemed-Retractible | 1.20 % | Down 2.02% yesterday.
YTW SCENARIO |
| BAM.PR.N | Perpetual-Discount | 1.24 % | Down 2.10% yesterday.
YTW SCENARIO |
| FTS.PR.H | FixedReset | 1.29 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2043-01-15 Maturity Price : 23.76 Evaluated at bid price : 25.83 Bid-YTW : 2.83 % |
| BNS.PR.L | Deemed-Retractible | 1.33 % | Down 1.96% yesterday.
YTW SCENARIO |
| SLF.PR.B | Deemed-Retractible | 1.41 % | Down 1.86% yesterday.
YTW SCENARIO |
| MFC.PR.H | FixedReset | 1.94 % | Down 2.50% yesterday.
YTW SCENARIO |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| NA.PR.L | Deemed-Retractible | 300,760 | Deleted from TXPR.
YTW SCENARIO |
| ENB.PR.T | FixedReset | 182,770 | Added to TXPR.
YTW SCENARIO |
| MFC.PR.C | Deemed-Retractible | 160,158 | TD crossed 106,500 at 24.42.
YTW SCENARIO |
| TD.PR.K | FixedReset | 159,352 | RBC crossed 108,000 at 26.95.
YTW SCENARIO |
| BMO.PR.L | Deemed-Retractible | 145,760 | RBC crossed 110,000 at 26.60.
YTW SCENARIO |
| SLF.PR.A | Deemed-Retractible | 128,561 | Nesbitt crossed 94,400 at 24.86.
YTW SCENARIO |
| IAG.PR.G | FixedReset | 117,098 | RBC bought 22,700 from Desjardins at 27.00, then crossed 20,800 at 27.25.
YTW SCENARIO |
| There were 59 other index-included issues trading in excess of 10,000 shares. | |||
| Wide Spread Highlights | ||
| Issue | Index | Quote Data and Yield Notes |
| BAM.PR.G | FixedFloater | Quote: 22.10 – 22.59 Spot Rate : 0.4900 Average : 0.3238 YTW SCENARIO |
| HSE.PR.A | FixedReset | Quote: 26.01 – 26.32 Spot Rate : 0.3100 Average : 0.1765 YTW SCENARIO |
| PWF.PR.L | Perpetual-Premium | Quote: 25.53 – 26.00 Spot Rate : 0.4700 Average : 0.3570 YTW SCENARIO |
| ELF.PR.H | Perpetual-Premium | Quote: 26.10 – 26.42 Spot Rate : 0.3200 Average : 0.2131 YTW SCENARIO |
| TRP.PR.A | FixedReset | Quote: 25.67 – 25.90 Spot Rate : 0.2300 Average : 0.1373 YTW SCENARIO |
| PWF.PR.I | Perpetual-Premium | Quote: 25.55 – 25.75 Spot Rate : 0.2000 Average : 0.1230 YTW SCENARIO |