Aug

26

 It is interesting to see niche exclusion , the tendency for a species most suited to a particular niche or habitat relative to its competitor to monopolize the particular niche, work itself out in the markets. We saw how New York gold crowded out Chicago gold, and how the electronic trading excluded the pit trading for all but options.

For example, only a handful of old lions trade the S&P pit any more and it used to be in its days known as a den of thieves, the abode of at least 500 vipers. Now one sees that happening in the battle between 10 year and 30 year. True, they are different animals in part. And one frequently can go to 5 or 7 points over or below the other. But now the 10 years trades 1 million contracts a day, and the 30 year lucky to do 250000. Given the coterminous correlations between changes of at least 95%, who would wish to trade the 30 year versus the 10? Only old fashioned men who are stout-hearted men.

Are there other examples of competitive exclusion working themselves out that one should be cognizant of so as not to bring up the rear?


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6 Comments so far

  1. Arthur on August 26, 2011 2:37 am

    when big boys care about liquidity, it gives smaller guys like me an opportunity to trade those that are left behind.

  2. david on August 26, 2011 2:53 pm

    Maybe they’ll just keep raising margins to the point where you’ll just have a few lions in all trading vehicles. Second hand lions.

  3. Sam on August 26, 2011 4:41 pm

    Using daily continuous-contract US and TY futures, I get coterminous 94% corr Jan 2010 to present; 93% corr Jan 2011 to present. So the corr has ticked down a bit recently.

  4. Mike on August 26, 2011 9:53 pm

    Soros gave money back, Drunekmiller is only going to handle a fun amount, The wizard of Cupertino only has a few apples in his crate to sell. Gates has his foundation. But, Buffet is still kicking ( with a diet of cherry soda and cheeseburgers, non the less)
    It seems that yesterdays captains of industry are seeing an exodus these last few yrs. Jobs being the latest.
    The masters are heading towards the ether of legends, and tall tales.
    The competitive exclusion here being age.
    Looks like the Zuckerbergs, Googles, those riding the newly resuscitating tech boom, ( by the way, whats the play if something booms and busts before it IPOs? Long, I guess.) and those who can find a way to quickly assist squabbling heirs to unload such hard won assets, are going to be the next group.

  5. Jack Haake on August 28, 2011 6:20 pm

    Mr. Niederhoffer,

    I am an undergraduate student at Southern Methodist University down in Dallas, working as a research fellow for a graduate class on advanced investments. […] i figure it is best to be brief in a comment.

    But if you are interested in helping a student in his research, please respond and we can discuss more accurately what i need.

  6. Alex C. on August 28, 2011 6:55 pm

    Mr. Haake, the information you seek is already public. It can be found, among other places, on page 1 of this academic paper:

    http://www.econ.yale.edu/~shiller/behfin/2005-04/santa-clara-saretto.pdf

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