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Posted by on Mar 29, 2010 in In The News, Markets, TG Roundup

Market Today: Prop Desk to Prop Desk

What I am reading on the blogs is not at all encouraging to the bulls. Currently, stock market in United States and many European exchanges is completely deserted by many true ‘investors’  and even by many traders. This is a market held up by a) lack of significant selling, b) interventions by governments and major investment banks, and most importantly c) computers selling to other computers (proprietary trading, aka prop trading).

ZeroHedge has a nice piece on prop-trading as the main driving force in this market’s relentless upswing.

A suitable follow up to our earlier post on domestic equity fund flows (which have been negative year to date), and our conclusion that Primary Dealers are merely taking advantage of the ZIRP carry trade, is Rosie’s observation that the only entities doing any relevant trading are the prop desks of the Big Five TBTFs. If that is indeed the case, the market, which Rosenberg concludes optimistically is 25% overvalued will certainly face a Black Monday-type correction as soon as the elusive “unpredictable” occurs and the Prop desks as always scurry for cover, with no volume consolidation to the upside. It would be such a wonderful time to truly implement the Volcker Rule as the bank’s prop desks, if David is correct, are about to cause some major damage to the market… Of course, it is these very prop desks that are the staunchest opposition to the Volcker Rule and its negative implication on prop trading.


Looking at the fund flows, there is only one conclusion that can be reached: This market is being driven by pig farmers. Retail inflows may have picked up of late, but only fractionally. The focus on the part of the individual investor remains on the fixed-income market, for better or for worse (better from our standpoint, worse from the standpoint of my friend and fellow debater Jim Grant).

The other day I quoted ZeroHedge in saying that there was speculation that US Government is selling the stake in CitiBank. It is no longer a rumor. The news hit the wires during the weekend and to the utter dismay of hard working people who are doing God’s work at Goldman, the government chose Morgan Stanely as the underwriter of Citi’s secondary issue.

I vividly remember the sentiment on Wall Street about how not to trust the books of Japanese banks (from early 90s to date). Well, the same is true with US banks today. These institutions, their managements and the government backers of these banks SHOULD NOT be trusted.