Dark Pools Get Darker

Dark pools are not just for credit swaps anymore.

If you have not read Themis Trading’s White Paper (via zerohedge) on the stock trading going on in “dark pools”, please do. Although groovygirl is not a stock trading expert (or computer expert for that matter), it clears up some confusion, but opens up even more questions.

Click here. Read the summary, video,  and full paper (4 pages). Very important.

The majority of global trading is actually going on in “dark pools” or non-public trading platforms across the globe. The majority of this change in trading started on 2007 when trades on the public version of the index dropped from 80% to 30%. Hmm….that timing is kind of interesting.

This explains the huge disconnect in the last 18 months of extreme insider selling (as reported by private investors) but a rising/plateauing DOW and S&P500.

Explains the low volume on the major markets but the obvious major profit from all the TBTF trading houses as if it was 2006 again. Goldman Sachs is not in the banking business, they are in the market platform insider trading business. They have created a dark pool of trading and leased out information about that market for a fee. Apparently, this must be their main profit center since 2007. (No wonder poor NYC traders are out of a job, Sigma X is the only “employee” needed now.)

Themis estimates that only one in four trades are actually recorded on the major indexes intra-day. Thus the index could be much higher or much lower (let’s take a wild guess at which one) than what the ticker says at any given moment during the day. They suggest that May 2010’s intra-day flash crash was actually much lower, up to 25% lower.

This is a major problem. True price discovery is the key to any financial market. How would you know when to buy or sell during the day? How would you know that volatility was much higher or lower than yesterday or the day before?

Lots of other potential problems, especially for pension, mutual, and 401k  funds, any fund day-trading a logarithm based on major indices only. Could there be a dark pool for commodities too? At least for their derivatives, I am sure.

Could things be much worse than the stock market technical patterns are telling us?

Groovygirl is not too concerned that the true price and volume of equities will not come to light eventually. The truth will come to the light. Just as the housing market crashed and sent many companies to the gallows, only to be reprieved by the US taxpayer. The problem is that no one will be prepared, no one will have a heads up (except those paying for access to the whole market, so they can calculate the real DOW price at any given moment) .

That was the problem with the unregulated CDS mortgage market, no one knew who owed what and how much. Contagion could only be papered over AFTER the fact. If Themis is correct, we could be looking at this same situation at some point with all the stock market indexes, bonds, currencies, etc. They suggest we have already had a taste of it with the May 2010 flash crash.

Take a look at this analysis of the dark pool trading from Monday: click here.

Not surprisingly, today’s most active names are Banca Monte dei Paschi di Siena, Unicredit and Intesa Sanpaolo. Translation: someone is actively positioning for serious action in Italy shortly.

This tells us that as all eyes are on Greece and it seems calm, even upbeat, looking at the DOW over 12,088, elsewhere, someone is anticipating Italy’s banks’ coming debt implosion.

Groovygirl is very concerned about this dark trading pool, especially since Themis has now put a number on it: one in four trades are really public during the day.

Does this make you feel secure about your 401k or pension fund which are probably trading on the information from just one and four trades? Or has your 401k farmed out your money to a hedge fund that is trading in an unregulated dark pool? Should we be concerned? Should we care? How can the average 401k investor protect themselves or even know there is a risk here? Is there a risk to the individual? Of what?

We can assume based on this new information that there is little transparency in the stock market just as there is little transparency in private swap markets, especially in intra-day trading. The same risk of contagion still exists around the globe and in a wider variety of markets.

This should end well.

The greatest wealth transfer in history is going on right now on the dark trading platforms.

Truth

“It is dangerous to be right when the government is wrong.”

-Voltaire

See this and this.

Update on the Sunny case, click here and here.

This week

So much going on this week, some of groovygirl’s concerns:

Dallas Fed just released AWFUL general business index numbers. The DOW should crash on this info alone, but it is up.

To gg it really doesn’t matter what happens in the Greek parliament this week. Greece must default, default will create global contagion. The only question that remains is when. The solution to any contagion will be the printing of more money. And we all know where that leads…

Bigger question is what will Europe do about all the other debt-ridden countries of the EU?

Potential global incident with the planned humanitarian flotillas sailing to Israel soon. Any “incident” in the Middle East could influence oil prices.

ICC has issued arrest warrants for Gaddafi. The question now remains, will NATO send “ground troops” personally deliver the warrant? We shall see. For those keeping score, that will be three ground troop wars for the US. Troops on the ground will impact oil prices.

The dollar is still the least worse of the fiat currencies, trying to get past .76 today. Didn’t make it.

Debt talks still “in progress” as August fast approaches in the US. As in Greece it is the realization in the US that any resolution has to be temporary. The underlying debt problem will never be addressed (in Greece or Ireland or the US or anywhere) until a major global breakdown occurs. Until then, let the fiat paper flow.

Oil reserve release of 60 million barrels, but the US alone uses 20 million per day. This is not a long-term solution to rising oil prices or oil supply security. It is a .10 per gallon savings for the next 1-2 months. Big whoop. (Two months may be pushing it with all possibilities listed above.)

Option expiration for gold, silver and copper is today.

Looks like the economists calling for a downturn or the continuation of the global crisis in the second half of 2011 have political as well as economic factors in their favor. We have many potential triggers.

Latest Letter from Martin Armstrong dated June 25, 2011

Click here for the latest letter from Martin Armstrong dated June 25, 2011 entitled The Presidential Elections (11 pages).

Martin talks about the 51.6 year cycle in politics that will hit again in 2016. He is calling for a 3rd party with up to 30% of the vote by that time (not necessarily impacting the 2012 election that much).

Once again, Martin’s models are calling for volatility and change in many different cycles around 2014-2016. It should be very interesting.

Latest Letter from Martin Armstrong dated June 26 2011

Click here for Martin Armstrong’s latest letter dated June 26, 2011 entitled Gretchen Morgenson’s Book (6 pages).

Martin Armstrong comments on Gretchen Morgenson’s latest book which analyzes the roots of the financial crisis and the people/politicians involved. Martin thought she did an excellent job. But also states that no one will be prosecuted, ever.

Mr. Armstrong also suggests that more bailouts to come in more financial meltdowns, it’s not over. They will use social security, medicare, and pensions for those bailouts in a bait and switch con.

Jim Rickards on kingworldnews

Click here for audio interview with Jim Rickards on kingworldnews.com. Jim talks about Greece, credit swaps, and a future global SDR or world currency. One note about the world currency, backed by gold that he describes. If global debt is not restructured with the new global currency (whatever form that may take), the same thing that is happening in Greece right now will happen again. Thus if the SDR is created in 2014-2016, when the currency crisis really hits, and the global debt is not addressed, do not become complacent. There will be another debt crisis (with depressed economic activity and unemployment) five to ten years after that new currency is put in place.

The global debt is causing the currency crisis. It is the core issue. Global debt must be restructured or forgiven.

Actually, all the interviews this week are very good on KWN.

Gold update

Both gold and silver have taken a dive this week, currently at $1500 and $34.57. Do not panic, do not sell.

Groovygirl has a precious metal range for gold this year between 1320 and 1780 with an average of around 1500. She considers buying whenever gold is at or below 1500 in 2011. She bought more physical gold today. If it continues to go lower in the next 30 days, she will buy more physical gold.

If gg had not loaded up on physical silver in Jan-Feb of 2011, she would buy more physical silver at these prices as well.

GG doesn’t trade gold and silver anymore, she only buys physical PMs for holding long-term. At the beginning of the year, she decided how much she would invest in physical gold and silver and a buying range. The buy today is part of that plan.

Trade at these prices at your own risk.

This is what gg is doing with her own money, this is not investment advice. You are responsible for earning, investing, and spending your own money.

Update on Japan’s nuclear crisis

Click here for a story on Japan’ nuclear crisis. It is not a meltdown, it is a melt through. Read to find out what that is and why it is much worse than any meltdown. Japan’s economy, which was the third largest on the globe, is dead.

Groovygirl still suggests that if you live in Japan, leave. Do not buy anything if you think it is grown in Japan or comes from Japan’s waters. GG is very concerned about anything in Pacific waters moving forward.

Ask questions, where does it come from, when was it captured/picked, is it safe? Yet another reason to buy/grow food locally to know where it came from and when. It seems that April was the worst month for the US Western coast, but keep an eye on the future impact in that area.

Also check out the linked article about “hot particles’ that hit Washington, Oregon, and Northern California in April 2011.

Do not count on the government to educate and protect you adequately. Please research yourself so you can make healthy decisions for you and your family.

None of this news is good. They have no way to block radiation from the steam created by the on-going cooling until at least 3 years from now. It could be 15 years. This is an ongoing global crisis that deserves your attention.

Great, great piece of writing by Chris Hedges

This is a must read!! Read or listen to the whole thing, Chris Hedges’s Endgame Strategy, click here.

A sample of the march of neofeudalism from Mr. Hedges:

The game is over. We lost. The corporate state will continue its inexorable advance until two-thirds of the nation and the planet is locked into a desperate, permanent underclass. Most of us will struggle to make a living while the Blankfeins and our political elites wallow in the decadence and greed of the Forbidden City and Versailles. These elites do not have a vision. They know only one word: more.  They will continue to exploit the nation, the global economy and the ecosystem. And they will use their money to hide in gated compounds when it all implodes. Do not expect them to take care of us when it starts to unravel. We will have to take care of ourselves. We will have to rapidly create small, monastic communities where we can sustain and feed ourselves. It will be up to us to keep alive the intellectual, moral and cultural values the corporate state has attempted to snuff out. It is either that or become drones and serfs in a global corporate dystopia. It is not much of a choice. But at least we still have one.

Another Japanese earthquake just hit, recorded at 6.7

Click here. No details on any nuclear plant or other damage yet.

More here.