I like this comment by Yves Smith
by cactus
I found this comment by Yves Smith – which is not the main point of her post by the way – to be very good.
But another side effect of today’s equity market gyrations is further distrust in the markets, particularly by retail buyers. I am told that various retail trading platforms were simply not operating during the acute downdraft and rebound. I couldn’t access hoi polloi Bloomberg news or data pages then either. The idea that the pros could trade (even if a lot of those trades are cancelled) while the little guy was shut out reinforces the perception that the markets are treacherous and the odds are stacked in favor of the big players (even though we all understand that, it isn’t supposed to be this blatant).
Frankly, I’m just a little guy who saved a bit of money over the past few years, and I’ve been trying very hard to put those savings in places unrelated to the market because I do believe the market is gamed against ordinary people. Not that I can avoid it completely – this is the era of the 401(k) after all. Nevertheless, Thursday’s events are just going to lead me to redouble my efforts to find places away from the financial markets to put money.
I’m just another little guy who has saved a bit of money and have been out of the markets since 2002 & plan to stay that way! The bulk of my savings are in CDs at local credit unions and as most of these were purchased a few years ago I’m getting interest at up to 5%. Unfortunately most of these mature this year. But as long as Goldman, Wells Fargo, Citi, BofA et al rule the markets unafraid I’m never going back to those markets. Honestly, should I feel the urge to gamble, I’ll do it in Vegas as at least there gambling is regulated and relatively honest. Plus I hear they feed you there as well…
I did not get shut out, sold some S&P puts for a gain, and added a position in a famous fruit company. My rule as a little investor is , when it gets really crazy, take a few minutes to breath and absorb. No need to rush things, which usually leads to mistakes anyways. If you are in for teh long haul you have huge advantages over instituional folks that get forced to make moves at a bad time.
With that said, I am still not sure that trading in milliseconds is all that great a thing, but it did give me, what I think, was a nice buying opportunity yesterday.
Highly recommend this article, must register but free (I think).
It is all about the millisecond trading funds:
http://www.technologyreview.com/computing/24167/
The advent of microsecond trading and huge, proprietary trading desks, whipsaws the market whenever the opportunity presents itself.
It’s recursive. Once volatility begins to rise, huge traders magnify the existing momentum, which magnifies the momentum. They’re printing money. The advent of synthetic derivatives for credits has also turned the bond markets into equity markets, in terms of trading speed and the ability to short the “market.”
These developments are huge magnifiers of the existing derivatives in all the markets, whether it be commodities or currencies.
This will continue, absent regulatory action, until it stops working. They’ll eat their young if left alone, in other words.
Right now the taxpayer is still at this poker table. When it stops working and these sharks get wiped out (that’s how they learn it no longer works), the taxpayer will be asked to bail them out again. You know, a systemic risk kind of thing.
The advent of microsecond trading and huge, proprietary trading desks, whipsaws the market whenever the opportunity presents itself.
It’s recursive. Once volatility begins to rise, huge traders magnify the existing momentum, which magnifies the momentum. They’re printing money. The advent of synthetic derivatives for credits has also turned the bond markets into equity markets, in terms of trading speed and the ability to short the “market.”
These developments are huge magnifiers of the existing derivatives in all the markets, whether it be commodities or currencies.
This will continue, absent regulatory action, until it stops working. They’ll eat their young if left alone, in other words.
Right now the taxpayer is still at this poker table. When it stops working and these sharks get wiped out (that’s how they learn it no longer works), the taxpayer will be asked to bail them out again. You know, a systemic risk kind of thing.
The advent of microsecond trading and huge, proprietary trading desks, whipsaws the market whenever the opportunity presents itself.
It’s recursive. Once volatility begins to rise, huge traders magnify the existing momentum, which magnifies the momentum. They’re printing money. The advent of synthetic derivatives for credits has also turned the bond markets into equity markets, in terms of trading speed and the ability to short the “market.”
These developments are huge magnifiers of the existing derivatives in all the markets, whether it be commodities or currencies.
This will continue, absent regulatory action, until it stops working. They’ll eat their young if left alone, in other words.
Right now the taxpayer is still at this poker table. When it stops working and these sharks get wiped out (that’s how they learn it no longer works), the taxpayer will be asked to bail them out again. You know, a systemic risk kind of thing.
If I’d been a little guy who was bold enough to buy near the bottom yesterday afternoon, only to see the risk I’d taken voided …
It is time to figure out some means other than monetary simulus to repair our hobbled economy. We’ve used monetary stimulus for much of the past thirty years, coupled with federal reserve policy that targets wage inflation and various other federal policies encouraging poaching against wages, the net result being a financial sector that has grown well beyond its economic contribution to society. This cycle is spent, and our economy is in a ditch. Buying another round for the financial sector isn’t working. Nor will expanding the federal govt, given the debt we’ve taken on supporting the financial sector. It’s time to figure out how to repair the real economy and average wage earners opportunities.
cent21: “It is time to figure out some means other than monetary simulus to repair our hobbled economy.”
It seems to me that stimulus, per se, does not repair anything. It can, and should, fund repair, however.
cent21: “This cycle is spent, and our economy is in a ditch.”
What stimulus can do is get us out of the ditch. Unfortunately, the federal stimulus was balanced by state and local cutbacks, so that there was hardly any net stimulus at all. We are still in the ditch, and we need more stimulus to get us out.
cent21: “Nor will expanding the federal govt, given the debt we’ve taken on supporting the financial sector. It’s time to figure out how to repair the real economy and average wage earners opportunities.”
That’s a mirage. We could preserve and provide enough jobs to bring unemployment down to 5%, for less than the financial bailout cost. Don’t let the fear mongers of the debt scare you. We can, and should, spend the money to educate our children and put America back to work.
Actually yesterday reinforces John Boogles ideas, buy index funds and let them sleep. Essentially its applying the laws of thermodynamics to the markets, you can’t win so the best bet is to bet on the whole market, long term, and pay as little as possible for the priviledge. The way the game is played trading is a casino, and as everyone knows in a casino the average is to loose. If you take a multi-year look then the fluctuations even out. So have several years of reserves in cash or near cash, and then let the market play. (In addition this reduces the vig charged by wall street on trading, all be it with Vanguards and others announcements the vig on trading is almost zero now with $2 commissions.)(This does kill the traditional brokers model finally dead, it has been on life support since the deregulation of commissions, recall that the origin of the NYSE was a price fixing agreement on commissions)
Lyle,
I have a suspicion the sharks feed off the index funds as easily as they feed off everyone else. The difference is that you don’t feel the bite out of your index fund because its a long term play for you… but that doesn’t mean the bite isn’t real, and it doesn’t mean the sharks aren’t eating some of your retirement funds.
“…huge traders magnify the existing momentum, which magnifies the momentum…”
…and every time a trade is made, successful or not, a thin slice goes to the trader. This is like real estate too, where if every owner sold their home and bought an identical existing home in one year, all owners would end up with the same value domicile, but the real estate agents would make out like bandits.
So the question is proportional, as with most things in society — how much of trade benefits the buyers, versus their agents?
Bonus question: what percentage of the GDP measures movement of value, versus increase of value, versus imaginary value?
Don’t worry about the future cash flows from dividend growth. That’s so non-traitor, er, trader. Think about, are you ready, capital gains. Do not consider the fact that “Wall Street” relies on 80 % of their profits from “proprietary trading”.
The stock markets are completely “synthetic”.
That you may take short term losses is part of the deal, the trick is that over a long enough time frame the manipulators do get their comeupance. I sometimes think a bunch of our problems with the market are unintended consequences of the IT revolution, clearly the high performance trading issue is one. But in the old days you had things like the great bear raid on the Northern Pacific, the attempted corners on a copper mining co in 1907, the great silver corner attempt in the 1980s and the like. There will always be a new scam, always had from the days of Dan Drew, and always will be there are to many smart folks up to no good who can outsmart any regulator.
So yes you will see fluctuations in the value of index funds due to the manipulation its unavoidable, but the bigger the index the more money or the more crooked the manipulators are.
IN any case the fixed income markets are more crooked than the equity markets because we to some extent cleaned up the equity markets in the 1930s. However the fixed income markets because the ante is 1 million are assumed to be filled with sophisticated investors so the protections are not there.
Its sort of a search for the least worst case and put your money there.
I have heard and can believe that Schwab, Fidelity and Vanguard have because of the removal of the commision cartel, killed the traditional broker model. Then the wall street types in order to make their huge vig had to figure out another way. First of course they moved into fixed income which is less regulated, and then they used IT to figure out how to engage in mutual self pleasure called high frequency trading.
Yes, “Helicopter Economics” (showering helicopter load of cheap money on the financial sector in the hope it will be lent out for Mainstreet investment and employment) is doomed to fail in today’s scenario. The money will NOT get lent out to the Mainstreet which is sufferring from Demand destruction, so why would Mainstreet seek, and more so, banks provide finance. The helicoptor money goes straight into the casinos of stocks, Gold, and commodities, giving it an artificial bull run. When commodities rally, they further pain the common man.
“It is time to figure out some means other than monetary simulus to repair our hobbled economy.”
Better than monetary waste is to directly create jobs in infrastructure improvement that are deliberately (relatively) low paying – so that people engaged in these want to move out as soon as private employment picks up.
But fiscal stimulus too has it’s limits and most of us are convinced that these are already reached.
There might actually be a good Opportunity for the economy in getting some measure of Deflation:
http://economiccircuit.blogspot.com/2010/05/deflationomics-its-utility-in-todays.html
Lyle,
“That you may take short term losses is part of the deal, the trick is that over a long enough time frame the manipulators do get their comeupance. “
If a burglary steals from me this year, the fact that he gets snagged eight years and countless burglaries from now does me no good at all. None. And I might even get burgled by the same guy in the interim.
“IN any case the fixed income markets are more crooked than the equity markets because we to some extent cleaned up the equity markets in the 1930s.”
I don’t trust the fixed income markets either.