Perry Glasser

Still Screwing With Us

In Business, Economics, Finance, Wall Street on May 11, 2010 at 9:21 am

Today’s Wall Street Journal insists on running “news” of  theories as to why and how last Thursday’s market plunge of 1,000 Dow points, and the 700 pt correction in 28  minutes can be explained. It seems the “fat finger” narrative is in disrepute, but now we are getting tales that again about “sentiment,” a perfect confluence of anxiety about Greece (an economy smaller than California), oil in the Gulf of Mexico, anxiety about the real estate market in Shanghai…the usual suspects.

The same article notes that 66 percent of all trading is conducted by hedge funds, machine to machine. No doubt, these giant Cray computers are taking digital Zoloft to get through their worst moments.

If you have a higher IQ than a carrot, you might wonder why these algorithms for profit are allowed to mess with your kid’s college savings, your retirement, and your hopes to buy a house.

I’ll explain.

The rest of us play by different rules. Your 401k, your 529, your Roth IRA, your IRA, and all the rest are probably in broadly diversified mutual funds.  That sounds stratgeically sound–until you remember that if you put in a buy  sell order at 9:01 am Eastern time, it is not executed by the Buccaneers who run your fund until 4:01 pm that same day.

Hedge funds run at light speed; you and I are breathless turtles.

During those long days, the hedge funds leverage assets against…our money. Since our assets are  locked up and immobile, they can be relied on for 24 hours–from close of business on one day, to close of business the next.  Even if you stared at your computer the entire trading day and wore a headpiece phone plugged into your private broker–you are screwed. You can’t buy cheap or sell dear during a 28 minute plunge and recovery, and if you awaken one morning to find your future has been liquidated while you slept..gee, that’s too bad.

They call this an open market. They are proud of the transparency. The ads are in USA Today, Forbes, Business Week, and come in the mail. “Give us your money. It’s the right thing to do. We will take care of it!”

Boy, do they ever.  Now you know why they  pay themselves bonuses that look like international telephone numbers.

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