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Spoke with a bloke I know on our prop desk. They've had a stellar four months... oddly, it's not gone so well the last few days.

Apparently, here's how it works

DAY 1

One bad day on the markets

These things happen. Let's hang in there.

DAY 2

Two bad days on the markets

Ok, these things happen. Let's see how things look at the end of the day.

At the end of 2 bad days, senior guys appraise position and decide to lock in gains. Order comes down to unwind positions.

DAY 3

Prop desk sells positions to lock in gains. Market drops further accordingly

DAY 4

Mexican standoff

DAY x

Goto DAY 1

We've a large balance sheet and are by no means a small player... the chap Economist was right this week on I Banks actiing like mutuals.

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Spoke with a bloke I know on our prop desk. They've had a stellar four months... oddly, it's not gone so well the last few days.

Apparently, here's how it works

DAY 1

One bad day on the markets

These things happen. Let's hang in there.

DAY 2

Two bad days on the markets

Ok, these things happen. Let's see how things look at the end of the day.

At the end of 2 bad days, senior guys appraise position and decide to lock in gains. Order comes down to unwind positions.

DAY 3

Prop desk sells positions to lock in gains. Market drops further accordingly

DAY 4

Mexican standoff

DAY x

Goto DAY 1

We've a large balance sheet and are by no means a small player... the chap Economist was right this week on I Banks actiing like mutuals.

a vicious circle* - a situation in which a cause produces a result that itself produces the original cause.

recirculation - a renewed or fresh circulation

James Joyce

Edited by Duplex

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You can bet this scenario has been repeated at trading desks all across the world.

Everyone's been selling (too late, the horse has already bolted). Hence - no sellers left - the market can only go back up. Sheeple mentality, as ever.

This is why 95% of mutual funds fail to beat the market over a 4 year period. They all sell when they feel a bit of pain. Of course, this is the way it has always been and will always be.

This is the correction I have been waiting for since April.

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You can bet this scenario has been repeated at trading desks all across the world.

Everyone's been selling (too late, the horse has already bolted). Hence - no sellers left - the market can only go back up. Sheeple mentality, as ever.

This is why 95% of mutual funds fail to beat the market over a 4 year period. They all sell when they feel a bit of pain. Of course, this is the way it has always been and will always be.

This is the correction I have been waiting for since April.

Forgive my ignorance, but who are these sellers selling to? Who is buying the shares that are in the middle of a nosedive?

Genuine question, interested to observe the speed of change in the stock markets, relative to the housing market.

Thanks.

Edited by khali

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Guest wrongmove

Forgive my ignorance, but who are these sellers selling to? Who is buying the shares that are in the middle of a nosedive?

I am mot an economist, but basically, in any market, the price is set by supply and demand.

If many want to sell (like last week), then supply will exceed demand. There are no buyers. So the price will drop until buyers appear. The price of an asset is the value at which supply equals demand. So people are buying, but at the new lower price.

If Van is right (and he seems to know his stuff), then now the market has run out of sellers. Demand now exceeds supply. So the price will have to rise until sellers appear again.

Same with houses, but takes much, much longer to play out.

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You can bet this scenario has been repeated at trading desks all across the world.

Everyone's been selling (too late, the horse has already bolted). Hence - no sellers left - the market can only go back up. Sheeple mentality, as ever.

This is why 95% of mutual funds fail to beat the market over a 4 year period. They all sell when they feel a bit of pain. Of course, this is the way it has always been and will always be.

This is the correction I have been waiting for since April.

Interesting. The actuaries where I work only woke up to the fact the market has had a sharp drop. Totally agree on the coorection theory. I have a couple of shorts on good stocks, I'm finding it really hard to keep these open.

Will need to do some pondering over the weekend. It may be better to sit it out rather than short, if that makes sense.

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"Forgive my ignorance, but who are these sellers selling to? Who is buying the shares that are in the middle of a nosedive?"

In any market, whether it is a bull or bear market, for every seller there must also be a buyer. This is (or should be) a blindingly obvious truism, but so many people don't understand it. So when you hear people try to explain away price falls or price rises with "more sellers than buyers" or v.v., they're actually talking rubbish. Buys must always equal sells.

So, if buys = sells, why does price sometimes go up, and other times go down? To answer this, you must understand what price is. Ask what is price to a dozen people, and you will probably get a dozen different answers. The correct answer is that price is the market's estimation of fair value (the value of future cashflows, discounted to the present). This estimation of fair price is constantly changing given the newsflow which affects bullish/bearish sentiment.

+ Buyers (bulls) want to buy at the bid price, and sellers (bears) want to sell at the offer price. This is the bid/offer spread. Under perfect market equilibrium, the strength of bulls vs strength of bears is constant - the number of sellers willing to accept bid prices is equal to the number of buyers willing to accept offer prices.

+ When the bulls get stronger/bears get weaker, the estimation of fair value increases - more people want to BUY because they feel that fair value is higher than current price. They are ready to accept the sellers' terms and meet offer prices - buying pressure overtakes selling pressure, hence prices rise.

+ Likewise, when bears get stronger/bulls get weaker, estimation of fair value falls - more sellers are willing to sell at buyers' bid prices. Supply temporarily exceeds demand, and the price mechanism adjusts in favour of the buyers until equilibrium is restored.

So I realise I may be contradicting myself on account of what I have written above there can always be more sellers. But the estimation of fair value has now dropped a fair whack, which should lend strength to buyers, probably enough to overcome the sellers and push prices back up next week. :)

Edited by Van

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If the views of the public count then the market research woman I spoke to yesterday said lots of people felt we were on the way to recession - people said to her that business is slow...

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Forgive my ignorance, but who are these sellers selling to? Who is buying the shares that are in the middle of a nosedive?

Genuine question, interested to observe the speed of change in the stock markets, relative to the housing market.

Thanks.

Sorry for the delay in replying... been at the Desk ; )

Interesting point... most of the follower banks use the strategy described above. Those that (a) have more cojones and ( b ) move markets bought back in later / earlier in the process. They will do just fine.

Went out for a few beers with some hedge fund boys on Friday ... there's a decent amount of panic in St James' at the moment with their most hedge funds' (ie Long Funds) first ever losses being cystalised. Didn't stop the music, though.

Still been a good year for our boys.... imagine how the GS boys have done?

Edited for Michelin affected typing (hic)

Some PE groups pay their bonuses this month... and guess what they're doing with them..? Keep an eye on house prices in W11 and WC1.

Edited by aussieboy

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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