Thanks to Uncle Jack:

October 20, 1987:
Mr. Smith, Investment Officer (IO) - The phone rings off the hook after the crash, so I tell my secretary to tell everyone I’m dead.

Secretary - Tell everyone you’re dead?

IO - That’s right, tell anyone who calls that I’m dead until I can figure what to tell them about their accounts.
Secretary - Okay.

Caller, Mr. Jones - Hello, I want to speak with my investment officer.
Secretary - He’s dead.
Mr. Jones - Okay.

October 21st:
Caller, Mr. Jones - Hello, I want to speak with my investment officer.
Secretary - He’s dead.
Mr. Jones - Okay.

October 22nd:
Caller, Mr. Jones - Hello, I want to speak with my investment officer.
Secretary - He’s dead.
Mr. Jones - Okay.

October 23rd:
Caller, Mr. Jones - Hello, I want to speak with my investment officer.
Secretary - He’s dead.
Mr. Jones - Okay.

next Monday, October 26th:
Caller, Mr. Jones - Hello, I want to speak with my investment officer.
Secretary - Hold please.
Secretary - Mr Smith, Mr. Jones keeps calling here asking for you. I told him you were dead all last week and he keeps calling here. What should I tell him now?
Mr Smith - I’ll take the call.
Mr. Smith - Mr Jones, my secretary told you all last week that I was dead. Why would you keep calling here asking for me?
Mr. Jones - I just liked hearing it.

The rally from hell (for the bears) continues. Continues in the face of ever deteriorating economic conditions, rising interest rates and bullish sentiment. Something to do with the election? Well I’m not much of a conspiracy theorist, but with Paulson from Goldman Sachs runnning the Treasury I would not dismiss the possibility. In any event, here’s a good illustration of the divergences. The picture, thanks to Bloomberg, shows the ECRI index of leading indicators (Economic Cycles Research, a service to which I subscribe) and its historical correlation with the S&P 500. As one can see, the ECRI index is going one way and the market another. Unusually so. It doesn’t seem likely that the economy is going to follow the stock market.

From Bill Fleckenstein’s Daily Rap today: “I suspect that when the history books are written on this particular moment in time, people will look back and shake their heads in wonderment, at how the market could have done what it did. Just as anyone would think, looking back to the autumn of 1973 or any other inflection point: Wow, how could market operators have been so blind? Well, that’s what the madness of crowd is all about: always wrong at the inflection points, but driving you nuts as you try to exploit the opportunity.”

Amen.

A comment on the plague of program trading. Brett Steenbarger says “Half of what you see on the screen isn’t real“. He call the program trading “non-directional”. In one sense, that’s true, the traders don’t care about direction. But because of the exchange rules on short-selling, programs have an inherent bullish bias for the indexes (you can only short the ETFs on a downtick and they are not in the indexes). This means that the general price level is (almost) always increased by program trading, leading to distorted markets and overpriced stocks. But rich program traders, at the expense of everyone else. This is one of the ways Goldman Sachs gets the money to pay its employees an average of $500,000.

Unfortunately, it is perfectly legal. But we all pay the price, it is a tax for the benefit of Wall Street. Another example of the boyz’ ethics is here, the municipal bond scam. It even makes the plaintiff’s bar look relatively ethical.

Some time ago I mentioned the carry trade being put on in spades.

Here is a picture of the carry trade. The picture shows the net positions of large speculators - mostly the hedge funds - in the 10-year Treasury futures. Clearly they are all on the same side of the boat - the commercials, the bond dealers, are on the other side and are correspondingly short. Should be interesting if and when this gets unwound. I mention it today because the 10-year Treasury yield is up strongly. If the hedgies are forced to cover their shorts in a hurry, there could be more than a little pain.

As one can see from the chart, this is about six standard deviations. A very unusual situation, by definition. Although it is interesting to observe that the positions have been growing very quickly in recent years, probably a reflection of the growth in both the number of hedge funds and their assets.