Monday, August 23, 2010

About That Privatizing Social Security Thing ...


Ooops. Stay out of the bond market, too. Jars buried in the back yard are looking better already.


Yesterday’s New York Times had a front page story about “small investors” fleeing the stock market to the tune of $33.12 billion through July. The article quotes analysts as saying the average American investor has “lost their appetite for risk” and also suggests this:
And the flight from stocks may also be driven by households that are no longer able to tap into home equity for cash and may simply need the money to pay for ordinary expenses.

I’m sure that’s a big factor, as are the wild up and down swings we’ve seen in the past few years which have in fact soured people on the whole risk thing.

Apparently Joe and Jane Investor is rethinking how their IRA and 401(k) contributions are invested. Equities are too risky, too unstable, too prone to losing their value in a matter of seconds due to some stock traders’ “fat fingers” or a fart in Greece that reverberates around the global exchanges. These facts alone should give anyone advocating privatizing Social Security (AHEM, Republicans) pause. Similarly, insofar as the risk and instability of the market have been caused by things beyond anyone’s control let alone ability to predict, it should give anyone advocating repealing Wall Street reform (AHEM, Republicans) pause as well.

Democrats: don’t listen to the spin, listen to the facts. Small investors have pulled $33.12 billion out of the stock market this year alone (and in fact the “average investor” began fleeing the market way back in 2007). There is a reason.

Personally I’m more and more convinced that all of this automated electronic trading has turned the stock market into a rigged game with loaded dice and the casino always wins.

Remember the May 6 ”flash crash”, originally blamed on a trader’s “fat fingers”? Yeah, right:

Recently we posted a required reading analysis by Nanex in which the market trading analytics firm presented irrefutable evidence of quote stuffing by HFT algorithms in tens of stocks, in which thousands of cancelled quotes would reappear each second with a definitive periodicity and regularity, around the time of the May 6 flash crash. Aside from the fact that it is illegal to indicate a quote without a trade intent, this form of quote stuffing is in fact manipulative when conducted by HFT repeaters in specific "shapes" as it actually moves the NBBO actively higher or lower, in cases pushing the bid/offer range up to 10% higher without even one trade ever having occurred, simply by masking a big block order which other algos interpret as bid interest and pull all offers progressively or step function higher (or vice versa, although we have rarely if ever seen the walking down of a stock over the past 18 months).


Today, courtesy of Nanex we demonstrate that this type of illegal stock manipulation continues rampant to this very day, and the SEC still fails to acknowledge that it is precisely the HFT market participants that persist in destabilizing stock prices, which have given up responding to fundamentals and merely move up or down based on quote stuffing interventions by those who plead innocence and claim to only be providing liquidity. Well take a look at the millions in fake, and thus illegal, bids demonstrated below and tell us just how any of this manipulation is "providing liquidity" - the second the patterns break, the algos responsible for the churn pattern disappear, thus eliminating numerous levels of so called bid liquidity below the NBBO: break enough patterns and you have another flash crash as the market once again goes bidless.

Whew. And if that sounds like a bunch of gobbledy-gook to you, here’s the concept repated in plain English:

They say high-speed traders could have been trying to outwit one another’s computers with blizzards of buy and sell orders that were never meant to be filled. These superfast traders might even have been trying to clog exchanges to outflank other investors.

It’s the same casino mentality that allowed oil futures broker Steven Noel Perkins to single-handedly spike the global price of oil in a weekend binge of booze and bets on Brent crude futures. It’s the short sales and algo trading and all of the rest of the unregulated hedge fund BS over which Joe and Jane Investor has no understanding let alone control.

So when yesterday’s New York Times mildly posits this:

The notion that stocks tend to be safe and profitable investments over time seems to have been dented...

I’m thinking, Um, yeah. Understatement, much? Maybe what’s killed the notion of stocks as “safe and profitable investments” is the way the markets are now completely manipulated by computerized trading and other mumbo jumbo I can’t even wrap my head around.

A favorite bromide of the investment world is that “over time, the stock market outperforms other investments.” Maybe that was once true but this isn’t your father’s stock market. Back in the good ol’ days we didn’t have high-frequency traders and flash trades and computer algorithms running the show. Volatile is the new normal and it looks like a bunch of Wall Street assholes have turned the marketplace into a freewheeling ride on the roulette wheel.

So no wonder the average investor says no thanks to a rigged game. And when it comes to putting our safety net in that volatile casino? Not just no but HELL no. Those of you who want to put your economic future in the hands of a few untrustworthy, unregulated market manipulators whose best interest is not yours can still do so. But to gamble away the security we all share that way? Irresponsible.