Monday, August 29, 2011

Machines At Work, or, Why Humans Are No Longer Needed (nor Safe) on Wall St.

I am going to take a wholly different approach to today's post.

You'll notice right away that I'm using first person singular rather then the usual third person tense usually employed on this blog, and the reason for that has to do with the absurd trading pattern exhibited on the major indices today, the Monday after the great storm Irene that wasn't so great, and the first trading day after the also-not-so-great Fed Chairman Ben Bernanke's Jackson Hole speech.

I'm speaking for myself, as a human being, because what trading on Wall Street has become - with the advent of co-located servers and HFTs - is definitely not anything that can be analyzed using old methodologies. Throw out the old P/E models; earnings per share are also meaningless now that computers and their PhD-designed algorithms perform 70 to 90% of the trading on any given day.

Technical analysis is another dead end. The computers do all the modeling, sampling and trading, as speeds no human can possibly compete. And, for the most part, the computers aren't all that smart. They chase momentum, and today's action, on a diagonal line from left to right, with about a 12-15% incline, is the perfect textbook example of just how broken our equity markets have become.

Buying and selling stocks for profit, gain, retirement, "investment" is old-school and strictly for geezers with nothing but time (and money) on their hands or the completely clueless who can't see the forest for the trees, failing to grasp the obvious point that the HFTs have such an enormous advantage, individuals have no hope of making gains. They will be ground down by untimely, surprise market convulsions and endless fees. The last lost decade on the S&P and NASDAQ should be proof enough.

I suppose what I'm trying to say is that one can do all the analysis and homework and use all the tools offered by the online brokerages, watch CNBC all day long, read Barron's, the Wall Street Journal, BusinessWeek, Forbes, Fortune and read all the right blogs (including this one) and still be completely clueless as to what's really going on down in lower Manhattan.

It's a losing game (BTW: I never did execute the put buys that I mentioned last week, being that the premiums were ridiculous and the chances of the market doing the rational thing and selling off are probably less than 50/50) and anyone who's invested in stocks should have sold them already and moved into gold, silver or hard assets. Personally, I gave up in 2007, when the market turned south and haven't returned, except to have a couple Gs taken from me during the 09-10 rally on options trades.

One realistically could do better betting on horses or football rather than playing in the rigged casino that is Wall Street. Unfortunately for anyone with a pension or 401k plan, you don't have that choice. Somebody does the trading for you - a concept I never could quite wrap my mind around - and your money is stuck wherever your fund manager decides it should go, and they haven't done much better lately, either.

So, I've decided today to try and change the tone here, to offer real world solutions that don't involve stocks, because, personally, and deep in my heart, I don't believe stocks are currently good investment vehicles - not in this environment and not until a lot of Wall Street crooks go to jail or the way markets function and are regulated is radically altered.

There are ways to get around owning stocks that can provide savings and maybe a little bit of sleep at night and I'll strive to unearth these gems while still providing some commentary on the hijinks of the privileged few who make their money on Wall Street while the vast majority of Americans work, save and struggle to make everyday expenses, which, by the way, just keep going up.

I'll still do the market recap and rerun the data on a daily basis, but the thrust of this blog will be - in addition to informing on the various scams and practices that make Wall Street a dead end for most people - will be on ways to make, accumulate and save money and assets, because I believe Wall Street is history and today's fantastic rise on extremely low volume proves my point.

I'll also probably go back to writing in the third person singular, once my pique of angst has subsided.

A couple of interesting articles appeared over the weekend, specifically, Grecthen Morgenson's NY Tmes piece, titled, The Rescue That Missed Main Street and Karl Denninger's screeching commentary from Friday on the illiquid equity markets.

Dow 11,539.25, +254.71 (2.26%)
NASDAQ 2,562.11, +82.26 (3.32%)
S&P 500 1,210.08, +33.28 (2.83%)
NYSE Composite 7,450.30, +204.48 (2.82%)

As expected, advancing issues smothered decliners, 5825-854, a 7:1 ratio. The NASDAQ showed 26 new highs and 30 new lows, while the NYSE reported 30 new highs and 9 new lows, flipping the indicator to positive for the first time in about three weeks (another sign of the fraud) at 56 new highs and 39 new lows. Volume, as mentioned above, was dismal.

NASDAQ Volume 1,598,409,000
NYSE Volume 4,101,816,000

Front-end crude oil futures gained $1.70, to $87.27, to the delight of only those who don't drive or buy consumer goods. Precious metals were slapped down again, with gold losing $41.50, to $1787.60 and silver getting hosed to the tune of a 68-cent loss, to $40.82.

Folks should start looking for credit card offers in the mail from the big banks. I received two from Citi offering 0% interest for 21 months, oddly almost the same time frame offered by the Federal Reserve with their ZIRP on federal funds. They will be coming your way and a good idea is to wait until you've received three or four before applying.

Once you do, make sure to transfer any large balances on high-interest cards over to Zero interest and start paying it down as fast as possible. The best way to keep yourself in the game and prospering is to pay down any and all debt as quickly as possible and live within one's means.

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