Citigroup + a crack in Hang Seng = A perfect storm!

The market is supposed to be an auction place where things can be valued. But things aren’t always what they seem. The long road from an auction place to a casino starts with one small step which can ultimately metamorphose into one giant leap backwards for investing mankind. Where that step began is part of an Orwellian nightmare maned by computers and lionized by financial engineering.

The market is supposed to be an auction place but fear trumps value. The problem is there is currently a lot of paper that can’t be valued. The market is supposed to be a value game and they tell us the market is always right. But how do you reconcile the myth of valuation with the fact of volatility? In my experience, the market is an information game - not a value game.

In my view there are few reasons for the current accelerated volatility. At significant turning points, if that’s what this is, it is typical for the market to flip around violently. After a period of years of persistent dampening of volatility, reversion to the mean is only normal. And with such a long stretch of low volatility and such a persistently low period of low volatility it seems reasonable to expect volatility to growl ferociously when it awakens from hibernation, as it started to this July.

Fear trumps value: there is an underlying sense that no one knows what some paper is worth in the market, when paper is marked to a model. There is an increasing sense that we don’t have enough information as to the issues affecting the financial sector and the credit market. Moreover, there is a fresh sense that whatever information there is, is not being shared with equanimity. Wat do you think?

I suppose a picture is worth a thousand words. Believe what you see in price action, until proven otherwise. At the moment, the markets looked increasingly precarious, while the storm is brewing a notch higher when Citigroup revising 3Q write-down t0 $11bln. To add salt to wound, the Hang Seng has cracked the 29836 trend line today (chart above), with fear creeping into the consciousness of fund managers, this breach would kick start a cascade as fund manager would scramble to protect year end bonuses.

I wounder why Citigroup uses the umberella..ella..ella..as their corporate logo? Hmmm...!