Volume gone, volatility flat - so what does everyone think can solve this?

In nearly all markets (and I'm talking from an equity and index derivatives angle mainly, personally), volume is at a trickle, volatility is flat, spreads are tight as a gnat's arse, and there seems to be no hope on the horizon.

Market makers are finding it very hard (and if they disappear, along with it goes a source of liquidity for derivatives, thus further slowing recovery), prop houses and banks.

So what is holding recovery back? I'd really like to hear everyone's opinion. I've got my own - banks in equity and derivatives have cornered flow (internalisation), investor confidence is down, everyone's looking for the mythical sure-bet, in Europe and US - a new wave of regulation and potential taxing of exchanges is keeping people off the books and in the dark.

But how can this change?? Are there other aspects I'm missing?

Comments (7)

 
Sep 15, 2010 - 1:32pm

Some people compare the 2008 crash to the 1974 recession, and in some ways, the comparison fits. Both were preceded by a rapid rise in oil prices, competition from foreign manufacturing, and eight or nine years of a secular bear market. It is interesting to note that coming out of the 1974 recession, volume stayed at or below pre-recession levels for a few years:

http://finance.yahoo.com/echarts?s=%5EDJI+Interactive#chart4:symbol=^dji;range=19700701,19850401;indicator=split+volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on

On top of that, we're really having one of the first major consumer recessions of the past 40 years. Individual investors who would normally be sticking money into the market are instead shoring up emergency funds in their bank accounts.

Finally, of course, there may be a regulatory component to all of this. All in all, though, I think much of this is to be expected. Hopefully when the consumer recovers and we are out of the economic woods, volume will come back.

 
Sep 15, 2010 - 3:32pm

Must've missed the last few days in FX :-)

Jack: They’re all former investment bankers who were laid off from that economic crisis that Nancy Pelosi caused. They have zero real world skills, but God they work hard. -30 Rock
 
Sep 15, 2010 - 4:15pm

I can tell you that the individual investors are sitting on the sidelines, they have a lot of concerns and are risk-averse, they would rather wait and do nothing than place anything in "troubled waters". I think the financial media (porn) plays a big role in this.

I am just wondering what could trigger them to move their asses also.

On another note, I am sure Fixed income and FX and Commodities are doing well as jjc noted.

It is going to be a tough year, but I don't think all the talk about Double Dip recession is necessary. Just got to find opportunities here and there.

 
Sep 15, 2010 - 4:37pm

ZicoTheGreat:
I can tell you that the individual investors are sitting on the sidelines, they have a lot of concerns and are risk-averse, they would rather wait and do nothing than place anything in "troubled waters". I think the financial media (porn) plays a big role in this.

I am just wondering what could trigger them to move their asses also.

On another note, I am sure Fixed income and FX and Commodities are doing well as jjc noted.

It is going to be a tough year, but I don't think all the talk about Double Dip recession is necessary. Just got to find opportunities here and there.

The quantitative portfolio manager I do work for is very concerned with the low volume and volatility. I told him that I think things will pick up next month in anticipation of the midterm elections, and if the GOP manages to win the House, I think volume will spike up enormously. Lot of investors are hoarding cash because they're scared of the uncertainty and the anti-business policies coming out of the Obama white house and congress.

 
Sep 15, 2010 - 11:38pm
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