http://www.nytimes.com/2011/11/29/business/global/daily-stock-market-activity.html?sq=shares soar on talk of a europe deal&st=cse&adxnnl=1&scp=1&adxnnlx=1322860717-60QZtvCNfqHAFYmP1CKDJw
I don’t know about you, but it drives me nuts…the daily whip-saw of our capital markets…up today, down tomorrow, up again two days later…a few street insiders earning billions in a day, the rest of us losing those same billions. The periodicity of these dramatic swings three decades ago might have been a few times a year, then they became monthly, then weekly, now it’s almost daily or even hourly. The markets for most of us have become totally unpredictable (hint: unless you control the program code). And the trailing headlines for why the markets were up or down…do those explanations really make sense to anyone, especially when you consider them in the context of a period of time longer than one day or one week? One day the markets will be tepid or down on good news, but can also be up on what would normally be bad news. We are given the excuses in the headlines for trailing market behavior but don’t seem to get to root causes that make any sense. I don’t think most analysts have a clue, they’re engaged in the same chase as the rest of us, high from breathing Wall Street’s exhaust fumes. But they have to feed us something to keep us coming back, so they just pull together whatever trailing news they can find as the ‘explanation’ for market performance on any particular day…doesn’t matter if it’s rational or not, after all, who can really explain investor behavior…it’s irrational…or so we’re told.
So…what’s really going on. For Wall Street insiders to make money, they need price movement…up or down, they don’t care…they just need movement. These daily whip-saw events are being driven by computerized trading routines that have investors racing back and forth like schools of fish chasing rays of sunlight. And the Wall Street corporations who developed and control those computer trading routines have their nets in the water harvesting our hard earned investment dollars into their own coffers. The increasing periodicity of these whip-saw market conditions (and resulting public ‘haircuts’) is driven by the need for Wall Street insiders to forever expand and accelerate their income flows…real-time greed, pure and simple. It’s time to end their party.
You can visit http://en.wikipedia.org/wiki/Program_trading and other links for a more detailed treatment, but here’s a high-level summary of the situation: Technology advances over the past two decades have led to an explosion in program trading by large institutions like Goldman Sachs, automated routines that arbitrage temporary price discrepancies between related financial instruments across different markets that have now been networked together electronically. These transactions have no economic value and are executed by predetermined algorithms purely on temporary pricing relationships—typically timing discrepancies—and now make up more than 30% of the daily trading volume (it’s been over 40% on some days). There is no rational analysis of breaking news or the underlying company’s financial performance associated with this trading activity; they’re simply trimming the hairs that stick out momentarily from the fabric of Wall Street, siphoning off huge amounts of cash from the investment pool on a daily basis. Here are just a few of the problems associated with this activity: 1) the automated trimming process is circular—the more you trim, the more you cause other hairs to pop out momentarily, 2) program trading removes vast sums of money from the ‘true’ working economy and represents one of the worse forms of obscene profiteering.
If we’re going to fix the problem, we would need to unplug all the computerized trading routines that cause these price movements and generate obscene profits for a few while causing massive financial damage to the economy at large…and SLOW EVERYTHING DOWN…to a simmer instead of this constant boil. Most of the record profits recorded by Goldman Sachs in the second quarter of 2009 were attributed to program trading. We need to see if we can also claw back some of that money into the working economy.