Monday, November 29, 2010

Day-Traders Paradise

Forget fundamentals.

There is no reason to even bother examining a stock's recent performance, p/e ratio, cash flow, balance sheet or any other metric which might have some impact on earnings or performance because the stock market in the USA is now run by computers, and computers don't care about stocks, they only care about momentum, price and volume.

Add to that the fact that these computers are programmed by PhD's who don't know squat about markets, and even less about individual stocks. After that, add in near-infinite liquidity (free money) courtesy of the Federal Reserve's QE2 program and you have the makings for one very dysfunctional investment landscape.

Therefore, mere humans, especially those trading from the comforts of home, are at a distinct disadvantage. Only the major brokerages and banks are allowed to reap huge profits, not mere mortals who suffer from emotion and are terribly slow compared to the market-busting super-computers employed by the big firms and the HFTs.

Today was a perfect example of the dysfunction prevalent throughout the securities complex. In the morning, amid fears of growing problems in Europe on the back of the Ireland bank-bailout, stocks suffered enormous losses, with the Dow dipping by as many as 162 points shortly after 10:00 am. Of course, that was before the Fed floated some $9 billion to their pals on Wall Street to stage a comeback.

The day-trading slobs, like Lloyd Blanfien, CEO of Goldman Sachs, surely made a killing, as they do every day, manipulating the markets to their own delight and profit, all the while hammering the small investor and mutual fund managers at the margins.

Dow 11,052.49, -39.51 (0.36%)
NASDAQ 2,525.22, -9.34 (0.37%)
S&P 500 1,187.76, -1.64 (0.14%)
NYSE Composite 7,483.34, -17.20 (0.23%)

By the final bell, things were still in the red, though only slightly. Losers beat winners by a margin of 3645-2787; 155 issues made new highs, 85 recorded new lows. Volume was as usual: pathetic, but that's what you get when only computers are playing. Someday - and we can only hope it is soon - the computers will be forced to prey upon each other.

NASDAQ Volume 1,693,482,250
NYSE Volume 4,207,444,500

Oil priced itself another $1.87 higher, to $85.73 a barrel. Gold bounded all over the place, last showing a gain of $3.20, at $1367.40. Silver added 43 cents, to $27.13.

Just for those who think they've got it rough, here's a touching story about a family who blew $14 million in ten years. A great read, if you dislike people with money who are simply morons.

And, in the latest pandering PR move from the White House, President Obama called for a two-year wage freeze for civilian federal employees. The timing of this is particularly amusing, since federal wages reached an all-time high in 2010. The proposal needs congressional approval, so we'll see if the Tea Partiers recently elected to congress have any bite. It should be noted that some of them ran on platforms that called for cutting federal pay by 7-10%.

Good luck with that.

The final piece of sobering news is how governments will readily use public trust money to ensure than wealthy bondholders don't suffer any losses. The case in point is Ireland's 85 billion Euro aid package, which will be funded in part from government pension reserves, to the tune of 17.5 billion Euros.

That's how it's going to play out here in America, too, folks. All you people thinking you're going to get a nice pension check every month better start learning the new math. Cut that check in half by 2015, if you're lucky. As for Social Security, the Ponzi scheme of the past century, one would be well-advised to not count on that at all.

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