Themis Trading is an independent, no-conflict, institutional agency brokerage firm specializing in equities. The purpose of our blog is for a discussion of market structure issues as well as general market commentary.
Please note that third-party posts do not reflect the views of the Company and have not been reviewed by the Company for completeness or accuracy.
MICHAEL LEWIS says:
“The principals of Themis Trading, have done more than anyone to explain and publicize the predation in the new stock market. They deserve more lines in this book than they receive but have written their own book on the subject, Broken Markets.”
“When the last history of high-frequency trading is written, Hunsader and Themis Trading deserve a prominent place in it.”
-MICHAEL LEWIS, Flash Boys
BOSTON GLOBE: "Did you read something for Flash Boys you would recommend?"
LEWIS: "Scott Patterson’s Dark Pools, which overlaps with my own book some. What he does really well is tell the early history of automated electronic trading. I’d also recommend Broken Markets and the 1923 novel Reminiscences of a Stock Operator by Edwin Lefèvre."
-The Boston Globe, "Bibliophiles: Best-selling author Michael Lewis", March 21, 2015
12
Mar, 2009
Latest Q-Ratio indicating market getting closer to bottom
The most recent Fed flow of Funds report was just released – http://www.federalreserve.gov/releases/z1/Current/
We use this report to calculate the Q Ratio which is a measure of estimating fair value of the stock market. A figure of 1.0 is considered fair value. For a reference point, during the dot com bubble, the market was extremely overvalued. The q-ratio peaked at 1.8 in March of 2000. In times of extreme bear markets (1929,1974, 1982), the q-ratio reached and bottomed at .30
Based on the latest value of net worth (section B.102, line 32 ) and market value of equities (section B. 102, line 35) from the Flow of Funds report, the Q-Ratio at the end of Q4 2008 was .62. Since the end of 2008, the equity market has dropped a further 20%. Therefore, if you discount the market value of equities by a further 20%, the Q-Ratio drops to .50
We are getting very close to extremely low valuation levels but are still not yet there. This is not to say that we must get to .30 to ensure a market bottom. However, the economic conditions surrounding this bear market would suggesst that it should parallel the bear markets of 1932,1974 and 1982.