Perry Glasser

Market Drops: Buccaneers Retake the Helm

In Business, Economics, Economy, Finance, Personal Finance, Wall Street on May 7, 2010 at 10:13 pm

It’s been more than a year since I’ve been here, Internet, but I am back, if not by popular demand than by compulsion of circumstances.
Yesterday, May 6, the Dow dropped 1,000 points in seconds—literally— and rebounded 70 percent of that drop in a few minutes. Mr. Toad’s Wild Ride, powered by derivatives, was on!
Today’s financial press is filled with the usual crap explanations prepared by nitwits who ought to know better, but they can’t get viewers or advertisers if they try anything like truth, so they delude themselves and try to delude us. Call them the Handmaidens.
My favorite Handmaid’s Tale is that some fool made a fat-fingered typo that precipitated the drop. Gee, you think the world economy will collapse because of a typo?
The pabulum Handmaid Tales “stories” is mostly about sentiment—fear of default in Greece, worries about terrorists in Times Square, panic, woe. They are soothing, nice little myths designed to make children believe the world is rational and the bad, nasty things will go back under the bed.
The idea is for us to visualize thousands of sellers lunging for their telephones shouting “Sell!” This makes us believe the markets respond to people, and since we all know people can be wrong, there is nothing to worry about.
Puhleaze.
In 1929 and 1932, human sentiment moved markets, but the Handmaidens should by now have noticed that markets now are made and operated by mathematical algorithms being run on networks of computers that at the speed of light buy and sell—mostly derivatives. Why screw with stocks and bonds when you can mess with serious leverage at 100:1. If ten cents can buy you $10,00 worth of anything, why would you screw around with the thing itself?
What does a million dollars worth of derivatives buy?
Control of Haiti, Guatemala, and maybe Greece, too.
When the action between machines is so rapid and so huge that a difference of .0001% on a few billion dollars is a very comfortable day’s pay (a half day if you work for Goldman Sachs), then the machines are going to deal. Buy a billion in New York, sell two billion in Tokyo, settle in Berlin. And all in less time than it takes to read the italics.
If you are in the market—and everyone is, unless their kid’s education money or their 401k is buried in a pillowcase in the backyard—then remember:

SENTIMENT HAS NOTHING TO DO WITH IT!
COMPUTERS DO NOT EXPERIENCE PANIC!
ALGORITHMS DO NOT GIVE A RAT’S ASS ABOUT GREECE!

Reread and memorize.
And know this:  No individual can play or time the markets when the “traders” are soulless machines. You can read analysis and blogs until your eyes bleed–ain’t gonna do you a bit of good. You can’t react that fast. And if you are a day-trader–why not bet on horses? At least you get two whole minutes of action.

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