After Friday’s mega jump in the US stock market, the expression “irrational exuberance” just doesn’t cut it anymore. Even if last week’s unemployment number should be an indicator of recovery for the US economy – which is doubtful – it is not a valid argument for sending the Nasdaq index to a 11 year high. This behavior has more in common with bipolar disorders than anything else. Europe‘s regulators now want to stress test the stock markets and the electronic trading platforms in the same way they’ve (relatively) successfully stress tested European banks in the past. Well, let me remind you that stress, in general terms, is regarded only as a symptom of something else.
“Here it is; the first ever Global Markets Mental Health Test!”
econoTwist’s
But let me point out that there are per definition two kinds of stress – the biological kind and the mechanical kind. I’m not 100% sure, but I think the famous bank stress tests is of the mechanical type. So it may be quite possible that the authorities are missing vital facts about the stressed-out banks by disregarding the human factor.
As reported by Tim Cave from Financial News.Com, a number of industry practitioners have called on European regulators to force exchanges and alternative trading platforms to adopt stress-tests, in a bid to improve their resilience to large-scale shocks, volatility and the rise of high-frequency trading.
While the concept of stress tests has become common in the banking sector after the financial crisis, and measures are also being implemented to simulate the resilience of clearing houses in times of stress, no similar measures have been suggested for trading venues.
Speaking at a high-frequency trading conference in Paris yesterday, Carlo Comporti, a director at regulatory consultancy Promontory Financial Group and former acting secretary-general of the European Securities and Markets Authority, said that needed to change, fiercefinance.com reports.
Bipolar Markets
However, both mechanical and biological stress have one thing in common; its a symptom that something isn’t right.
The actual problem is usually far more difficult to identify.
But with the recent market volatility in mind – here’s the clinical cognitive symptoms of stress:
- Memory problems
- Inability to concentrate
- Poor judgment
- Pessimistic approach or thoughts
- Anxious or racing thoughts
- Constant worrying
To me, that pretty much sums up the market sentiment at the moment.
And the similarities between biological and mechanical stress are fascinating.
“Biology primarily attempts to explain major concepts of stress in a stimulus-response manner, much like a how a psychobiological sensory system operates.”
(Source: Wikipedia)
A Market Mental Health Test
It’s also common knowledge that stress can be a symptom of a mental disease or disorder, as well as long-term stress is known to cause mental problems.
However, to my knowledge there has never been a mental health test for the financial markets (and I’m not sure if there ever will be).
So, I have put together some free online tools that might be helpful in determine what kind of stress the stock market (and the banks) is struggling with, and give us a clue to what is the real and underlying problems.
Here it is; the first ever Global Markets Mental Health Test!
TEST 1
Do you have a mental disorder?
TEST 2
Which mental disorder do you have?
TEST 9
Are you schizophrenic?
TEST 4
Do you have a borderline personality?
TEST 5
How depressed are you?
TEST 6
How manic are you?
TEST 7
How well do you manage your anger?
TEST 8
Do you have a alcohol or drug problem?
TEST 9
Are you addicted to cybersex?
TEST 10
Are you a workaholic?
TEST 11
Do you have obsessive-compulsive disorder?
TEST 12
Are you a retard?
Please take the time to answer the poll:
Those of you with muliple personality, please fill in this one, too:
EconoTwist's 
Hedge Funds Even More Bearish on US Equities, But Still Buying
The percentage of hedge fund managers who are bullish to the US stock market have dropped to 25,6 in February, down from 46,2 in December last year, They belive – and are probably right – that the FED‘s QE2 have been the major force behind the upswing, and expects a severe downturn when Uncle Ben runs out of money, the latest research from TrimTabs/BarclayHedge show. However; they’re still loading up the boat…
“If one of the Fed’s goals was to ignite speculation and greed then it has succeeded famously.”
Vincent Deluard
Hedge Fund Managers Turn Bearish on US equities, according to the latest money flow survey from TrimTabs/BarclayHedge. Most managers attribute the recent rally in equities to the QE2, while many feel the rally will end when the quantitative easing stops. But the funny thing is; they’re still buying stocks in buckets and barrels. Why?
Hedge fund managers have turned bearish on US equities, according to the TrimTabs/BarclayHedge Survey of Hedge Fund Managers for February, released last week.
About 40% of the 89 hedge fund managers the firms surveyed in the past week are bearish on the S&P 500, up sharply from 26% in January, while only 26% are bullish, down from 37%.
“Bullish sentiment less bearish sentiment is negative for the first time since November,” says Sol Waksman, founder and President of BarclayHedge.
Adding: “Increased caution might owe in part to excellent recent performance. The Barclay Hedge Fund Index has posted a positive return for six straight months.”
About 37% of hedge fund managers are bearish on the 10-year Treasury note, while only 15% are bullish. Bullish and bearish sentiment on the U.S. dollar index are balanced at 31%.
Meanwhile, 18% of managers aim to increase leverage in the near term, while only 15% plan to lever down.
“Managers aim to lever up even though they are bearish on both bonds and stocks,” Vincent Deluard, Executive Vice President at TrimTabs notes.
About 52% of hedge fund managers feel the rally owes primarily to QE2, while 35% cite the end of quantitative easing in June as the biggest threat to the rally.
TrimTabs points out that the level of the S&P 500 and the size of the FED’s balance sheet have exhibited a positive correlation of 88.4% since the start of QE1 in March 2009.
Meanwhile, managers are concerned about oil prices. About 24% believe oil is more likely to hit $150 per barrel than the S&P 500 is likely to ascend to 1,600.
“We’ll take the other side of that action,” Deluard says.
“We did see a similar surge to $150 from $100 in 2008, and tension in the Middle East is obviously higher now. But oil spiking to $150 from here represents a move of nearly seven standard deviations, while the S&P 500 climbing to 1,600 represents a move of less than three standard deviations. The market participants who agree with us that concern about sharply higher oil prices is overdone might consider capitalizing by selling long-dated out-of-the-money call options on oil futures.”
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