Tuesday, December 6, 2011

The new, new normal

Have you noticed how stocks go round and round, then sometimes rally for a few months then sometimes sell off for a few months, but most stocks seem to have no intermediate or long term direction? Well, get used to it. I've written about this in the past and here it is again. Our markets are dominated by algorithms and people sitting in back rooms next to computers.

If you need proof, read this article if you haven't already, HFT. The article discusses how a high freq trading firm was fined (peanuts) for sending the market into a tailspin down, more than once. So what I take from that is, regulators know they can do it, we saw it on May 6th 2010 with an exclamation point, but regulators say please don't do it. You know what ends up happening, they just do it so it isn't as noticeable. Think about it, if you could move the market at will and as long as you didn't get too greedy you wouldn't get into trouble, wouldn't you do it? It's sort of like the shorting stock, but not borrowing it. Traders do it all the time and regulators say don't do it, but do nothing to them.

I asked over a year ago if you thought it was market manipulation to buy and sell stocks, not to take part in future movement, but to cause movement in those stocks. You overwhelmingly voted 'yes'. We agree here. In case you don't know, the real money is made in the derivatives markets - take positions in the derivatives, then move the underlying stocks, then make a fortune. It's called leverage. Why make $1 when you can make $5 risking the same amount of capital. Dubious people are making a fortune there. This is why dividends are so important to us regular people, as well as being able to stay with it and not be forced out by being on margin.


The Vix

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Where we rant and rave about the market and of course give our opinions on stocks we love or hate. We're not advisors and urge you to conduct your own due diligence.

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