Perry Glasser

Archive for June, 2010|Monthly archive page

Market Sentiment?

In Business, Economics, Economy, Finance, Personal Finance, Wall Street on June 19, 2010 at 11:45 am

Jason Zweig’s column  Wall Street Journal column today suggests that wild market swings are the result of sentiment. Hahahahahahahahahaha.

____________________________

Mr. Zweig:

Sentiment is a human attribute. As the Journal frequently reports, about 66 percent of all trading is machine to machine, algorithms at work. Those algorithms are the proprietary weapons of choice of organizations that move huge amounts of capital, hedge funds and governments.

Algorithms feel no sentiment. There is no herd instinct in circuitry.

Human investors, the kind that are suggested by the illustration accompanying your work and are the topic of the study on which you report, do not have access to the same markets as the algorithms moving two-thirds of the world’s money volume on any give day. As an individual, I cannot engage in “after hours trading.” That’s not the case for computers that never sleep and are programmed to capitalize at the sight of a penny’s discrepancy on, say the Tokyo and Berlin exchanges. That trade triggers other algorithms; all those pennies add up. While I am asleep in my Eastern US time zone, and while the markets are closed to me,  I may awaken to learn that the opening price of an issue or vehicle is significantly different from the previous day’s close.

Even if I were awake, it would not matter. While the bromide to individual investors for decades has been to diversify, and most individual investors, pension funds and smaller municipalities pay heavily for professional management via mutual funds, those investors are closed out of the markets while the markets are open.   Sentiment–whether fear or enthusiasm–cannot move the markets when buy or sell orders may only be implemented at the close of business, after 4 pm. Indeed, what crash after crash of the past several years has shown is that while the big investors trade in liquid markets, smaller investors do not, and pensions or college savings may be ravished before any action by investors may be taken. As the Journal reports, “Despite its 2009 rebound, the Dow Jones Industrial Average today stands at just 10520.10, no higher than in 1999. And that is without counting consumer-price inflation. In 1999 dollars, the Dow is only at about 8200 and would have to rise another 28% or so to return to 1999 levels.” Our 401ks and IRAs  are trapped, holding trillions of dollars that do not grow.

In terms of real wealth, the past decade has seen us grow more poor. Only  volume has soared. Someone is making money, but it is not those of us schooled to buy-and-hold. We are stuck on the sidelines while fees and commissions bleed us white. Which someones? Oil emirates, the government of China, and the financial community that services those huge, capital machines by  developing ever more obscure financial instruments that investors subject to sentiment cannot understand, much less trade. All we get to do is bail out corporations too big to fail.

It would be lovely if the Journal stopped perpetrating a myth of an open market democracy. The word “investors” should be reserved for individuals and organizations that actually invest, and by doing so create wealth by facilitating capital formation , not money-movers who buy and sell in minutes, create no new wealth, and hedge against the less mobile funds of us poor saps who foolishly continue to believe the markets are a level playing field.

Best wishes,

Arbitrage and Bookies

In Business, Economics, Economy, Finance, Personal Finance, Wall Street on June 7, 2010 at 9:17 am

Joe the Bookie, who was a friend of my father’s, explained to me when I was a naïve but ambitious lad that in the days before the official betting line was emanated from Las Vegas, every punter hoped to find a middle. It happened most often with sports bets, when home town fans addicted to sentiment so lopsided a book that the odds no longer reflected reality. “Say your Yanks are playing your Red Sox,” Joe explained. “In Beantown, taking the Sox to will earn you paying pennies because so many hometown heroes are betting with their hearts, so you take the Yanks at maybe two for one. Are you following me, kid? Now you hustle your ass to Manhattan where the same thing is true—but in reverse. In the Big Apple, you can get two to one, but on the Sox.”

“Yeah, So?”

He slapped my forehead.

“So you take both bets. Who the hell raised you?”

“I don’t get it. How does that help me?”

“Follow me carefully,” Joe said, folding his newspaper, The Racing Form. “You bet $100 in New York and $100 in Boston, right?  You put out a total of $200.”

“Right.”

You have to win one of those bets. At two for one, how much do you get paid off?”

“Two hundred,” I said.

“That’s your profit, kid. Don’t forget you get your wager back.”

“So I get $300.”

“Right. And how much did you risk?”

“Two hundred….oooooh, I see.”

“You had a middle. Doesn’t matter who wins or who loses, you are coming away $100 to the good.”

“Sounds great.”

“Naaah. It’s a nightmare, kid. How long before we’d have to close up if punters won every dime?”

My father sent his boys to public schools: Joe sent his kids to Yale.

Joe’s boys now performs arbitrage for international hedge funds. They’ve got computers that all day long look at bundled investment vehicles: mutual funds, index funds, ETFs, derivatives, whatever—and compare that to the actual prices of the underlying assets—vanilla stocks and bonds.  When the price of the bundle is out of whack with the underlying issues, they move a few billion dollars one way or the other, buying the bundle while selling the underlying issue, or vice-versa.

A few pennies times a few billions makes a nice day’s pay.

By the way, you can only play this game if you have proprietary software and a monster computer that is plugged into world markets 24/7.

When enough computers see a middle—or speculators create one—they mindlessly perform the trades and you get your Flash Crash.

In Joe’s day, anyone who disrupted the game that badly would be swimming with concrete overshoes.

Today, their shenanigans get rationalized in the Wall Street Journal.

Greifeld Makes World Safe for Computers!

In Business, Economics, Economy, Finance, Personal Finance, Wall Street on June 5, 2010 at 10:18 am

Chutzpah Award Winner

In today’s Wall Street Journal, Bob Greifeld, CEO of NASDAQ and Wizard Extraordinaire, Oak Leaf Cluster, writes of the new measures to prevent another Flash Crash.

Greifled assures us, “markets work when a willing buyer and a willing seller come together to determine a fair price. Markets only work when they are continuous and performing. Any intervention must be based on the principles of transparency, fairness, objectivity and sound regulation. …  Our shared objective is to help ensure that investors and listed companies feel confident in the integrity of the prices generated by their equity markets.”

Sounds good, don’t it?

But who are these “investors?” If you ever had any doubt that the mission of the markets was to make the world safe for Buccaneers and Big Money, check out the details. Griefled writes:

  • The triggering price for each Nasdaq-listed security is the price of any execution by Nasdaq in that security within the prior 30 seconds.
  • …the Nasdaq Volatility Guard will trigger a 60-second pause in trading on Nasdaq in the affected security. During the trading pause, Nasdaq will maintain all current quotes and orders and will continue to accept quotes and orders in the security, as well as disseminate an electronic Order Imbalance Indicator every five seconds showing the number of shares and the prices of the shares on the buy and sell side as they converge to a price to open a stock. At the conclusion of the 60-second pause, the security will be re-opened with an auction.

Greifeld concludes, “While no market can guard you from uncertainty, Nasdaq is committed to protecting you from excessive volatility.”

To whom, one can only  wonder, does you refer?  Why, all of us who can respond in 30 seconds. Investors means the 66 percent of all trades done computer-to computer-at light speed.

Feel reassured? Instead of your life savings vanishing in a flash, you’ve got 30 seconds! No one to blame but yourself if you are slow to respond.

All rise!

Bob, you Rascal you! For being First Order Apologist and selling Soft Soap, Bunk, and general B.S. ,a Dollars$ Chutzpah Award to Bob Griefeld!!!

An open market means equal access, as Greifeld knows: suggesting 30 and 60 second safeguards is just contemptuous of traders–the kind who breath air.

Wizards at Work

In Business, Economics, Economy, Finance, Personal Finance, Politics, Wall Street on June 4, 2010 at 10:48 am

Wall Street Wizards are twisting in the wind still trying to figure out what the flash correction was about, knowing full well that if they do not come up with some  preventative measures, they will either get their asses regulated off or Citizens will desert the markets.

Worse, large foreign investors will reduce their exposure to American markets, pulling out their dough, which means the Wizards summer home in the Hamptons may be in jeopardy.

Today’s Wall Street Journal kinda, sorta, almost admits that the alleged transparent and open markets are anything but because 66 percent of all volume is being traded between computers at light speed, based on information no  human could possibly process.

Gee, ya think?

You read it here, first.

And here, second.