Wednesday, August 5, 2009

Never Learning From History

As I watch the machines do their thing, which is basically move stock prices in one direction. I cant stop but to think of the 1987 crash.

tradersutra.blogspot.com/2009/07/survival-guide-for-markets.html

It has been said that the October 1987 stock market meltdown was caused in part by something called dynamic portfolio insurance. This approach based on algorithms controlled by program trading.

Dangerous Action

The sort of action that I see at this moment is very dangerous. I was only in my teens when the 87 meltdown happened. I see many many similarities.

Bonds breaking down.
Yields rising.
Complex Derivative
Rise Of The Machines

This has a broader context between a popular strategy and the underlying market, with an eventual long lasting effect on the broader economy.

A rise in price begets a rise in asset values(Think Bubbles).
And a fall in prices begets a fall in asset prices(Think Crashes).

Volatility rises and the market is destabilized.

All that’s needed is for a large number of people to be following the same type of strategy. And if we’ve learned only one lesson from the recent financial crisis it is that people do like to copy each other when they see a profitable idea.

tradersutra.blogspot.com/2009/07/markets-evolve-uncoilget-used-to-it.html

Thus the problem/quandary/conundrum with the sudden popularity of HFT, is that it may increasingly destabilize the market. Hedge funds/Institutions won’t necessarily care whether the increased volatility causes stocks to rise or fall, as long as they can get in and out quickly with a profit.

But the rest of the economy will care.

Buying stocks used to be about long term value, doing your research and finding the company that you thought had good prospects. Had good value. Had good management. Had good financials.

Increasingly such real value is becoming irrelevant.

The contest is now between the machine and they’re playing games with real businesses,real people, and real money.

Let me just state this. I will never in my life buy another stock mutual fund in my life as long as I live. I currently own zero equities in my personal account and 401k. I am also not short as well, so I have no ax to grind here. I just refuse to go down with the ship. I have lost faith in the system and the Obama Administration to do the right thing. Its just one scam after another cascading down.

Its a total freaking scam of epic proportions.
The resulting carnage I want nothing to do with.

Why isn't the main stream media playing this angle up?

1 comment:

  1. Your last line says it all. Media, politicians, Banks, etc are all feeding from the same trough. Why bite the hand that feeds? The fact that CNBCs ratings aren't zero simply shows that people either don't care (in it to win it, no matter the cost) or are too blind to the truth (trusting the system). Sadly, there's too many of both types in the world, which makes me think an extinction level event is in order.

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