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Wall of Worry Update: Algos Gone Wild!

By

As if Mr. Market didn't have enough fears to stare down.

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MINYANVILLE ORIGINAL As if it wasn't enough for the markets to juggle 30 worries (see below), along comes the ghost of the flash crash past. Huge end of day orders hit on Tuesday followed by hurricane volume in individual stocks on Wednesday morning. What happened? Algorithmic Software Trading Problems, a.k.a. "Algos." What's the remedy? They're working on it.

So far, some trades outside a 30% up/down band have been canceled and we may see more corrective action. When financial market confidence is low enough to be measured with an eye dropper, this type of action does not help. Though unlike the flash crash of 2010, the major averages including the Dow (^DJI), S&P (SPY), and Nasdaq (^IXIC) hung tough and didn't give us a multi-percent swoon. Nevertheless, I'm raising my Wall of Worry to 31 blocks.

So what should be done? How about we start by bringing back some of the humans that used to make/trade/keep a more orderly market. Heck, we would even be helping improve the unemployment rate at the same time. Call it a win-win.

One more piece of advice: Don't hold your breath waiting for the aforementioned fix.

For a comment on each of the 31 worries facing investors this week, click on the link below or scroll down for a text-only version of this column. Also see "What is 'Lloyd's Wall of Worry'?" at the bottom of this page.




Wall of Worry: Text-only

ALGOS: Bring back the humans!

QE: Fed Ben is still sitting on his remaining pile of chips, not going all in just yet as he perversely waits for a worse economic hand to play.

US ECONOMY: Heat wave continues to burn up America's mid-section. Can you spread zinc oxide on an entire country?

UNEMPLOYMENT: With the US Presidential and Congressional elections now within sight, you can be sure that nothing will get done to improve this situation in the near term. Irony, much?

INVESTOR SENTIMENT: Somewhere in the North Atlantic atop the massive island glacier that just broke off of Greenland.

HOUSING CRISIS: Sales of existing homes take a sharp turn downward as people realize that buying a house that someone else doesn't want with money they don't have may not be a good long-term financial proposition.

CENTRAL BANKS: Globally coordinated economic stimulus coming -- to be followed by globally coordinated economic confusion.

EUROPEAN ECONOMY: "Does anybody really know what time it is? Does anybody really care…?"

THE EUROPEAN UNION: To re-phrase and update a classic Churchill-ism, "We are 17 countries divided by a common currency."

SOVEREIGN DEBT: For once 7 is not a lucky number.

SPAIN: Stop the charade and drop the "S" already.

10-YEAR TREASURY YIELDS: After taxes and inflation, this safe haven investment is still safe, but not much else.

SYRIA: Officially horrific and setting up as a civil war/proxy war country unless something gets done quickly.

VOLATILITY: The VIX (^VIX) is dead, the VIX is dead. Long live the VIX!

HIGH FREQUENCY TRADING:
HAL: You ever been hypnotized?
Lloyd: No.
HAL: You ever been hypnotized?
Lloyd: No.
HAL: You ever been hypnotized?
Lloyd: No.
HAL: Tell me every stock you plan to buy this week.
Lloyd: 150,000 shares of...

CHINA: How about front-loading your next five-year plan, which kicks in in 2013. Actually, make that your next few five-year plans.

STOCK MARKET TECHNICALS: They're working again. Why? Because nothing else is.

LIBOR: As for the mega banks, well, "…they did a bad bad thing…"

GLOBAL ECONOMY: Napping.

INDIA: Pulling back on its gold purchases, which is unlike India and counter-trend culturally. On the other hand, spending its money on food and shelter is with-trend and culturally sane.

CONSUMER CONFIDENCE: Feels like we are one more hit away from seeing a surge in the number of people growing their own food and darning their own clothing.

US PRESIDENTIAL ELECTION: Quiet August coming up? Don't count on it.

CREDIT MARKETS: "You're not the boss of me, Mario Draghi and Ben Bernanke! Except when you choose to be, that is."

THE CLIFF: If the driving directions someone gives you say to drive through a brick wall, my advice is to take an alternative route.

GREECE: Likely working on a severance package and a letter explaining that the country would like to spend more time with its family.

CORN: If we don't get drought and heat relief soon, it will not only be more expensive, but it will only come in popped form.

EURO CURRENCY:
Just got back from Europe and let me tell you that all the fears about the euro are silly, since paying for things worked just fine. Did I mention that I used my credit card for all purchases?

ECB: Waiting on that big bang fix. "If not now, when?"

EARNINGS SEASON: Almost done, almost good, and almost definitely going to be less good next time.

SOUTH KOREA: Proximity to China used to be a bonanza, but with Big Red slowing, it's more like sitting next to the sick guy on the airplane.

ITALY: Sicily looking vulnerable. If the food wasn't so good, Italy's boot would kick it over to Greece.



What Is Lloyd's Wall of Worry?
by Lloyd Khaner

Welcome to my at-a-glance guide to the issues facing investors this week -- a unique tool for traders and money managers.

Typically the term "wall of worry" refers to the entire body of concerns influencing stock market action. When the wall is high, meaning the market is nervous, stocks tend to get cheaper.

This wall of worry is even more specific. Every week I list the exact concerns in the marketplace and use the list to help me make buying and selling decisions. As I like to say, "Buy fear, sell cheer."

In other words, once the the wall rises above 15 blocks, start looking for deals. If the worry count sinks below 10, consider selling; prices have likely peaked.

Also see: 10 Photos That Tell the Story of Our Economy Right Now
SPY, QQQ, GLD.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
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