This is NOT your Grandmother's Marketplace

By now - it is no secret what happened on Monday August 24th......stocks around the world were burning.....Asia suffering the worst as China plunged 8.5%, Hong Kong not far behind at -5% with Japan and Australia in tow.....never mind the range of emerging mkts that were gasping for breath.....As the day turned to night in Asia - it turned to day again in Europe and those mkts didn't fare much better either...The contagion that originated in Beijing, Shanghais, Chongging, Tianjin, and Guangzhou was now spreading like wildfire around the globe. Major 'developed' mkts in Europe all coming under the gun - falling by 3,4,5%....and as morning turned to afternoon in Europe, night was turning to morning in the US....and S&P futures were lower by 40 pts....but as the clock ticked closer to 9:30 am....futures began convulsing - plunging over 80 pts in the moments before the opening bell rang....The Dow - now expected to be down 600+ pts upon opening... What was going on?

Here we go again sports fans - quantitative computer models spitting out plenty of sell orders - orders to sell at the mkt - (get me out at any price) and we are not talking about 200 and 300 shares....Let's be clear - no matter what the media will have you believe - this is not a retail mkt - this is not your grandmother selling her 5000 share position in Con Edison.....Oh no....this is about the big boys (and always has been)...this is about the major institutions, hedge funds, mutual funds, pension plans, state funds, passive funds, active funds, (that represent individuals) but who taken together represent millions, billions of investor dollars and hundreds of thousands of shares.....funds that have exposure to or positions in that 'slowing economic beast' on the other side of the world.....Exposure in stocks, Hi Yield bonds (formerly known as JUNK) , ETF's, alternative assets.....whatever!

First you must understand what China is - it is an Emerging Market - or a national mkt that is in the early stages of development......Yes China is an emerging mkt and as such has some of the qualities of a 'developed mkt" (I.e. US, Europe, Japan) but in fact does not meet the standards of the developed mkts....and so - there is inherent risk in it - in fact in any emerging mkt and as a result - they don't truly operate like a developed, liquid, highly capitalized mktplace. So when the sh*t hits the fan - it is usually not pretty.....and that is exactly what we saw yesterday.....Investors no longer have confidence in China (at the moment) causing it to implode and investors with exposure there need to get out or raise cash to protect themselves...and herein lies the drama.....

The fact is that under the present circumstances as the weakening China story builds and as the communist gov't appears to lose control of their economy, their mkt, and their currency - quantitative computer models suggest that the place is about to implode and now - anyone with exposure is at risk of getting sucked in.......so what do they do - they try to get out - BUT since they can't get out of what they NEED to sell - They sell what they CAN sell...... Are you getting the picture.....It is reminiscent (I am not saying it is the same) of the GFC in 2008-2009 when Hank Paulson allowed Lehman Brothers to implode and global credit mkts FROZE causing institutional investors to sell what they could vs. what they should have......And once again we realize that is equities....It's rather easy to sell equities here in the US because we have the deepest, most liquid mkts around.....

So I know what you are gonna say now....If that is true - why were we down 1100 pts in the first 4 mins of trade yesterday? Simple - current mkt structure in the US is not only fragmented (10 exchanges and 60+ alternative venues) , but void of so many human beings -you see - they did away with that a decade or so ago - choosing to replace the humans with - you guessed it - computers...and those computers have no mkt sense......None.

So when those same computers spit out sell orders - they fail to spit out buy orders and all of those 'off floor electronic market makers' - that were supposed to replace the human specialist - are supposed to step to the plate to cushion any dramatic moves - but they have no OBLIGATION to do so and so they don't (until they get a sense of how bad it is going to be) leaving the NYSE market maker (no longer called a specialist because they stripped him of his traditional role) to help find appropriate levels of natural demand....which is ok....but understand - since the mkts are so fragmented it makes that job very tricky in times of stress......add in the fact that natural buyers are also aware of what is going on in the world and so they too choose at what levels they are willing to commit capital based on initial price indications. So when the mkt drops everyone begins to question the stability of the system. It is BS!

So this morning - the WSJ runs with a headline article about Virtu Financial - one of those electronic market makers...

"Historic Profits for High Frequency Trading Firm Today"

CEO Doug Cifu telling the journal that his firm was 'made for days like this'....yeah right....of course they are - they are a trading firm - taking advantage of the fractured mktplace during times of increased stress. They (all of them) are not suppliers of real liquidity -

They do not take a stand and bid for thousands of shares of stock EVER.....(the way the NYSE specialist was obligated to do) - Because if they did - the move lower would have been cushioned....and the reversal would have also been muted.....because all that stock they bought on the way down would have been used to sell on the way up - but because we saw a massive turnaround - mkt rallied 800 pts in mins - it is clear that they weren't really supplying any liquidity on the way up either.

Yes they trade - they buy 100 shares and then immediately turn around and sell 100 shares on an alternate venue for fractions of a penny (they do this all day long) and rack up millions of dollars in 'trading profits' at the expense of the US capital mkts... But if you are an institutional seller looking for a bid on 50k shares of a stock - DO NOT expect that any electronic market maker will ever make you a bid - EVER. So tell me - Is that really adding liquidity?

Tomorrow we'll talk ETF's and the role that they play in the current mktplace.....

Ok - so this morning we wake up and find out that Uncle Lloyd (Blankfein) is out there pounding the table on BUY AMERICAN! Futures are up 70 pts in what will be a complete reversal of yesterday.....If the S&P's are up 70 , then the DOW should be up almost 600 pts..... Europe is also moving to the plus side with all mkts up 3.5/4%.....News out that China has announced a RATE CUT! Go figure....and BOOM ...

As the incomparable Barry White tells us - "One ticket please, Lord have mercy, everybody's there......Let the Music Play.....I just want to dance the night away...Here, right here, right here is where I'm gonna stay....."

Overnight Asian mkts were mixed.... Japan -3.26%, Hong Kong +0.72%, China - 7.63% and ASX + 2.72%.

In Europe the mkts are celebrating the latest moves out Beijing - announced AFTER their mkts closed - taking back almost all of their losses from Monday.. China cuts the benchmark rate for a 1 yr loan to 4.6% and deposits to 1.75%. (equivalent to a 25 bps cut) They also increased the amount of money available for lending while also cutting the reserve requirements...... FTSE +3%, CAC 40 + 3.9%, DAX +3.6%, EUROSTOXX +3.9%, SPAIN +3.2% and ITALY +4.31%.

US futures are now +70.....and the mkt looks like it is going to have another volatile day.... Expect traders to take advantage of the swings while natural institutional money continues to look for value created in yesterday's sell off. There has been a lot of technical damage done to mkt - so it needs to regroup and repair itself...This will not happen in one day....but today is the first day in the move to re-balance global risk.

Linguine Puttanesca

It's time for some
Linguine Puttanesca....
I love this recipe.....As many of you know this dish originated in Naples and is today a staple of the Neapolitan household. It is made from tomatoes, black olives (or Kalamata Olives), capers, anchovies, onions, garlic, oregano and parsley. It is an interesting sauce with an interesting history. The word - Puttanesca literally translates into “in the style of the prostitute” (where the Italian word puttana means "lady of the evening" ). Do the mkts feel like they have been prostituted?

So how did it become so popular? As you might imagine - legend has a number of explanations.....all very interesting in their own way....

1. The intense aroma would lure men from the street into the local brothel where the prostitutes would be cooking the sauce to lure the patrons.

2. The prostitutes made it for themselves to keep the interruption of their business to a minimum.

3. And in a twist - it was a favorite of married women who wished to limit their time in the kitchen so that they may visit their lovers.
Whatever its origin - it is a great dish - that is easy to prepare - is spicy, tangy and vibrant. Read on -

Start with 3 crushed garlic cloves sautéed in olive oil about 3 / 4 mins...do not let it burn....next add a diced white onion and diced/minced anchovy filets and sauté for another 5 / 8 mins. - as they cook they melt away. Add one can - 28 oz - of kitchen ready crushed tomatoes....not puree - Crushed.

Add about 1/4 of a can of water - Let simmer for 10 mins or so. Next add capers, oregano, pepper, chopped Italian parsley, and rough chopped pitted Kalamata olives or pitted black olives - whichever you prefer - but do not mix...It is one or the other.

No need to add salt as the anchovies are salty enough. If you like more bite - you can add red pepper flakes at this point.....cover and let simmer.

In the meantime - bring a pot of salted water to a rolling boil and add the linguine. Let boil for 8 mins or until aldente. Remove and drain - keeping a mugful of the pasta water. Add ½ the mugful of water to the sauce and mix well. Now add the pasta to the sauté pan with the Puttanesca sauce - heat and stir until well coated and fragrant. If you need to add more water – do so now… Serve immediately onto warmed plates offering up grated Parmegiana cheese on the side.


Buon Appetito.