Behind The Lull Of Sleep

It would be hard for anyone within the financial markets not to be ecstatic with the news of the day. Yes, ladies and gentlemen the financial markets hit an all time – never before seen in human history level. Both the S&P 500™ as well as the Dow Jones Industrial Average™ broke over and above 1,600, and 15,000 respectively. The market mavens across the television screens jumped for joy however, it seems everyone else just yawned. Why?

Let’s be adults here shall we? I mean, as one of my favorite comedians Joan Rivers would say, “Can we talk?”

If you walked out on the street today, or just asked almost anyone who is not an active trader of the markets why the markets are behaving in such a manner. Or, as to how they just seem to rise, and rise, and rise, and rise (did I say rise?) near daily. Your most common response I’d wager would be a shrug of the shoulders. Or, you might get, “As long as it continues – I don’t care.” That’s a fair response for someone under 18 but, not much more. For anyone involved in business or entrepreneurship of any stripe let alone closing in on retirement. It’s negligent in my book.

You don’t need to be a market maven. However, you do need to have a basic understanding of the capital markets and how they intertwine with everything that is business. Some think just because they “trade” their own 401K’s they’re already schooled in this viewpoint. Personally, after speaking with quite a few I’m here to state – most aren’t. Or, maybe the term myopic in the way they view markets is a better way to put it.

Traders that actively engage with the markets on par generally don’t care about the what, why or other reasons causing market movements. They just trade to be on the winning side. They could care less about what is driving anything.

As long as their on the right side – that’s all that matters. Again fair enough, However, there are other forces in play that can threaten the market as a whole and leave even the so-called “professionals” out on the proverbial limb.

Without the 401K receipts of the average person in the markets. Just how deep of a market is there? Already not only are the outflows of 401K’s still at record redemption rates with no signs of slowing. The real professional traders. The ones that put real hard money as to carry positions overnight in the S&P and others is dwindling.

So much so that as we hit new levels where everyone should be clamoring to get in and stay in. They’re remaining to stay away. As of this writing the players willing to commit and carry trades overnight is still less than 1/3 from the last time such a feat was witnessed. In 2007 approximate O/I (open interest) in the S&P Large Contract was about 600K contracts. Today it’s less than 200K. (You can find that data at the CME Chicago Mercantile Exchange)

Nobody, and I mean –no body believes in this market. Many traders scoff at this as if, “Hey, I know that but, I’m trading so what?” Well, in some respects, it’s all about those people who don’t have a clue. No clue except that currently they have no fear in opening their 401K statements. However. If they get scared again – everyone is going to be affected with how they deal with it. From the day trader playing in the E mini’s – to the professionals handling the billions that remain. If Mr. and Mrs. Joe Six Pack get scared one more time – Look out is all I’m saying.

Here’s the crux of what I see the real key issue is. Everyone currently invested in a 401K that remained vested in their commitment to continue holding it after 2008 learned nothing. The problem more now than then is – there is no problem in their view. Which of course is precisely the greatest and largest problem staring everyone directly in the face. Yet, they are asleep. No worries – “The Fed’s got their back.” to paraphrase the financial media.

People that are out – are out. They’re gone and not returning any time soon. The stats for inflow/outflows show that. There is no “new” money coming in. Which by default means all that’s left in the markets are the one too scared last time to get out.

What will the markets look like if we get another flash crash out of the blue next week, next month? Or anytime? Markets this thin, at these levels have never been seen before. We are once again on new and, dangerous ground.

So I can’t help but wonder. What is more dangerous to a market and all its players? A market so on fire where stories of old were told of a person like Joe Kennedy (JFK’s father) getting questioned by the person shining his shoes about the markets. Where he takes it as a sign that if everybody is talking about the markets he should (and does) get his money out of the market narrowly escaping the “Great Crash?”

Or, a market so on fire, at levels once again never before seen in the history. And, nobody cares. They don’t want to be disturbed. And, if the alarm is to keep ringing – they just keep hitting the snooze. So far most believe this dream is too good to be woken from.

Personally, I’m keeping my lights on with one eye open.

© 2013 Mark St.Cyr