Spy vs. Spy


Spy vs. Spy was a cartoon we grew up reading in Mad Magazine, and it originally debuted in 1961. Maybe you remember following the antics of the dueling spies, Black and White growing up? You can still view them today, you know. All you have to do is peek under the cover of our equity markets. Our markets today of course have devolved into being much less about capital formation and investing, and much more about peeking at, touching, and modeling order flow.

Spy vs. Spy’s popularity waned as the post-cold war stage became more sedate and boring; readers were weary of conflict and battle, and sort of stopped caring. Readers moved on. Kind of like investors today, who have become weary from a five year battle with crises-du-jour (Lehman, Bear, mortgage, financial crisis, sovereign debt, Greece, Budget, PIIGS, May 6th, MF Global – to name a few). Now they are left with one crisis: a crisis of confidence. They await the next shoe to drop, whether it will be an ETF mess or student loan defaults. They stopped caring, and their market participation has waned as far as to remind us of the doldrums of the 1970s.

Volumes in the market yesterday fell between 15-17% from Friday’s already low level, despite the S&P 500 rallying nearly 25% in five months. A Bloomberg article, published yesterday, describing the low volumes is worth your reading here.

The 50-day trailing average of share volume traded on US exchanges has fallen 30% from October 7th, 2011 through yesterday (9.6 billion to 6.7 billion shares). Even high frequency traders, The Spies, are feeling the pinch. In 2006, the year before REG NMS was implemented, HFT made up 26% of the market’s volume, according to Tabb Group. In 2009 Tabb pegged that number at 61%, and they now say that HFT in 2012 has dipped to a mere 53% of shares traded. When there are less folks to spy on, they start spying and preying on themselves.

How do we emerge from this funk? We feel investors need to feel confident that the market is a place for investing, and not hyper-trading. They need to trust that the highway has the same set of rules for all participants, and that by travelling on it they do not incur the risk of high speed collisions. They need to feel that the regulators are motivated more in creating a level playing field, with a specific agenda for protecting investors, and less by banks and HFT lobbying interests hell bent on slowing down and/or neutering any changes to the status quo.

When investors perceive that the pendulum has swung back enough to care about them, they will emerge from their Uncomfortably Numb comas.