Stocks Flatlined In Bifurcated Trading; Can Reform MAGA?

Maybe investing should be a little more like Wednesday's activity: boring. Slow. Uninteresting, aside from the continuance of the Dow-NASDAQ dichotomy.

Back in the mid-90s, with the advent of the internet and the CNBCs of the world, stock trading became more akin to fantasy sports than serious investing. Day-trading became the norm, volatility increased and the natural outcome was to favor professionals who had the tools, skills, and patience to ply the market with the requisite aptitude and attitude.

Today's algo-driven compression chamber that is called a "market" is a far cry from the staid and simple concepts of just a generation ago. Prior to the internet explosion of online brokerages and sophisticated strategies, buy and hold was the norm. Investment advisors - at least the honest ones not tied to commissions or performance - put people's money into solid companies with deep backgrounds, decades of dividend payments and reasonable price-earning ratios.

Investors today throw money at companies such as Tesla (TSLA), which hasn't made a dime in earnings. That nomenclature was also the trademark of the dotcom boom and bust. Pets.com, Beyond.com and other pie-in-the-sky, profitless, promising companies fell to the waysides in 2000 after being hyped non-stop on message boards and from boiler room operations such as those prominently featured in movies like "The Wolf of Wall Street."

Not to say that there aren't new-age companies that deserve the backing of the investing public, but it's a crowded space, and valuations on companies like Google (Alphabet, GOOG), Amazon (AMZN) and others are out in the stratosphere somewhere, reflecting future growth of mammoth proportions which may or may not come to fruition.

That's probably why the aforementioned Dow-NASDAQ see-saw exists. Investors in Dow stocks (30 blue chips) are quite a bit more circumspect and conservative than the punters and speculators on stocks covered by the NASDAQ. They're also more likely to hold - or even add to positions - during downturns rather than sell outright and go looking for the next momentum-chasing darling of the day.

In the past, rules and regulations on banking and investment houses kept speculation at reasonable levels. All of that changed with the internet, 24-hour financial news, and, most importantly, changes to the Glass-Steagall act under President Bill Clinton in 1999. Clinton signed into law the Gramm-Leach-Bliley Act, which repealed SOME of the provisions of the Glass-Steagall Act, most notably, those measures which kept the banking business separate from the investment business.

Certainly, the new requirements struck a blow for free markets as the original Glass-Steagall act of 1933 was a response to wide-open conditions which contributed to the Great Depression. But, Clinton's new liberalness may have been a step too far. Since the enactment of Gramm-Leach-Bliley, the US economy has suffered the dotcom crash, the Great Financial Crisis of 2008-09, and various distortions of Federal Reserve policies like ZIRP (Zero Interest Rate Policy) and QE (Quantitative Easing).

Now that the Fed seeks to unwind its bloated balance sheet and normalize interest rates, perhaps it's time to call out the real culprit of financial repression: widespread advantageous policies for the banking sector which crowd out and frustrate individual efforts. While a democratization of the investing world has occurred to some degree with crowd-sourcing, the regulations surrounding the nascent rise of small offerings continue to throttle companies and potential investors with needless rules and strictures.

In a true free market, there would be 1/10th the number of regulations in place today, and most of them would be foisted upon the high-profile trading houses of Wall Street, not the start-up companies that must wade through SEC regulations and countless pages of blue sky laws.

For America to be great again, maybe boring isn't the way to go, but unfair rules which favor the well-heeled over start-ups might need to be examined and revised.

In the meantime, despite the promise of crowd-sourcing and online trading, small investors will continue to be subject to unfair trading practices which puts the interests of Wall Street far ahead those of Main Street.

At the close, Wednesday, September 12, 2018:
Dow Jones Industrial Average: 25,998.92, +27.86 (+0.11%)
NASDAQ: 7,954.23, -18.25 (-0.23%)
S&P 500: 2,888.92, +1.03 (+0.04%)
NYSE Composite: 12,990.10, +37.80 (+0.29%)

Slowly Goes Wall Street (Remember, It's May)

Equity markets were rather dull today, on exceptionally low volume - which is saying a lot, since volume left the building years ago.

Dull, boring, inconsequential, however, is how financial markets are supposed to be, or, that is at least how they used to be before the advent of personal computers, CNBC and individually-managed accounts. Today's go-go markets are driven by extra doses of liquidity, courtesy of the Fed (as much as readers hate reading that over and over and over again, the author hates having to mention it even more), HFTs, flash crashes, breaking news (why doesn't somebody fix it?), surprises, tweets, scandals, ponzi schemes, dotcoms, options, derivatives, swaps, repos and hot money flowing from carry trades into equities and back out again.

One can only wonder how many times the same money is re-invested, re-invented, re-created, re-hypothecated, recycled, rinsed and repeated. It seems sometimes that one need only a brokerage account and a pair of fast hands to tip-type your way into the wondrous world of high finance. If only such were true, we'd all be traders and multi-millionaires just like the guys on the infomercials telling you that NOW is the time to FLIP THAT HOUSE!

Alas, investing is boring and unexciting, and well it should be, though Americans, driven by media, need the big splash, the dazzle of bright lights and the promise of easy money to be enticed. Sadly for the marketeers and their media whores, more Americans play the ponies, gamble at casinos or play the lottery than invest in stocks, bonds or commodities. We've been programmed to be risk-takers and the stock market - try as it might - just seems to many to be a rigged game for rich guys in suits and ties and fancy women in shiny, tight-fitting business suits.

Thus, we have these dull markets, in which the major brokerages make war with each other via the computer algos, following each other into what eventually becomes a black hole, a void, a nonsensical, immaterial, valueless dump. That's what our stock markets have devolved into, especially after the crash of 2008-09. The major indices may have come all the way back in the four-to-five years since then, but all that money has been sucked out of the market by the brokerages and hedge funds via bonuses. It's common knowledge that the average investor usually gets screwed unless he/she is either very careful or very smart. There's just no way to win a rigged game. As the old adage goes, "if you're playing a game of poker and you don't know who the mark is, chances are it's probably you."

The general American public is simply not that stupid. After being burned by the high-tech Wall Street crooks in 2000, 2001 and again in 2008, they have not returned. Some maybe, but they're a small minority, mostly younger folks who don't know better or older people with money to burn, potentially. Paper losses still sting, and, if there's another severe downturn in the markets any time soon - an event long, long overdue, according to fundamentals - they'll be gone for good as well.

With all the scams, crimes and untold misdeeds that have become all-too-common on Wall Street - without, incidentally, any criminal prosecutions - is there any wonder that average people with money are still shy about investing in stocks? In a perverse way, thats why this market must and will likely continue to defy gravity and levitate to higher and higher levels: because another crash would destroy what little bit of confidence is left in the ultimate confidence game.

So, now that the banks are all sufficiently recapitalized (supposedly) and everything in America is just hunky-dorey, Wall Street may be looking itself in the mirror and wondering if they've taken too many scalps over the past few years. Maybe they'll keep the liquidity-driven, non-fundamental, irrational exuberance going for a while longer, but slowly, much more slowly.

Or is it time to turn it over again? Wash, rinse, repeat...

Dow 15,091.68, -26.81 (0.18%)
NASDAQ 3,438.79, +2.21 (0.06%)
S&P 500 1,633.77, +0.07 (0.00%)
NYSE Composite 9,437.17, -5.59 (0.06%)
NASDAQ Volume 1,605,809,375
NYSE Volume 3,124,652,250
Combined NYSE & NASDAQ Advance - Decline: 2673-3792
Combined NYSE & NASDAQ New highs - New lows: 475-30
WTI crude oil: 95.17, -0.87
Gold: 1,434.30, -2.30
Silver: 23.70, +0.038

Researching Online Brokerages Worth the Effort

While many retail investors have fled from highly volatile equity markets and outflows from equity mutual funds have reached historic proportions (ICI reported that investor holdings in stock mutual funds decreased by 9.5% in September), the ongoing zero interest rate policy of the Federal Reserve has lowered the return on Treasuries and all other fixed asset classes likewise offer returns that barely, if at all, keep pace with inflation.

As stocks made huge moves in October, many retail investors missed out, and it's likely that more will pile into the rally, sensing that the problems stemming from Europe have passed and it's once again safe to invest in stocks. That rationale may or may not prove correct, but, whatever the case, being at least partially invested in stocks is a solid strategy in good times or bad.

If one is inclined to jump in, the easiest way is to plug right in from the comfort of home or office through one of the many online brokerages available. The range of online brokerage products and services has expanded greatly since the infancy of the internet back in the late 1990s, and it pays to research the various options available.

According to a recent ICI report, households with internet access owning mutual funds is nearly universal, with ninety-one percent of all households owning mutual funds have internet access with ninety-eight percent aged 35-44 connected to the internet from their homes.

Additionally, the report goes on to say that eighty-four percent of mutual fund–owning households with internet access went online for financial purposes, such as to check their bank or investment accounts, obtain investment information, or buy or sell investments, though only nineteen percent used the internet for trading purposes, so there is still plenty of room for more home use of online brokerages.

What any good online brokerage provides in the way of online brokerage products and services starts with a stable and easy-to-use interface, simplifying the process of buying or selling stocks, ETFs or mutual funds. Beyond that, one would be advised to seek a brokerage that does not have maintenance or inactivity fees, offers free dividend reinvestment plans and options trading at a low price per contract.

Other features may include free research tools such as screeners, tracking and historical comparisons, but fees are by far the main differentiator of online brokerages. Many offer packages of free trades for new users, low cost stock trades and the ability to have broker-assisted trades for special circumstances. Fees for mutual fund trading should be minimal to free. For users who wish to trade on margin, rates vary widely and should be investigated thoroughly. The ability to transfer funds without hassle over the internet, to and from a personal checking account should be standard. Low minimum requirements, both for an initial funding and ongoing transfers is also a must.

A number of brokerages have expanded beyond stocks and mutual funds to forex, commodities and bonds, so an astute investor should prepare a list of requirements and priorities before opening any online account.

Stocks inherently have risk, so there's no reason to add to the risk and frustration by choosing an online brokerage that doesn't fulfill all of one's needs.