Because traders still haven’t learned that falling stock prices are illegal.
Source link: http://blog.mises.org/12660/someone-must-pay-for-this/
Someone Must Pay for This
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I believe Denninger’s got it right, here:
http://market-ticker.org/archives/2282-Mr.-President-Unplug-the-Fing-Computers.html
“This was not humans – it was pure computer algorithm trading. If you had stops set, you got blown out way below any reasonable trading range with no recourse. Margin requirements were raised instantly on futures which sure didn’t help.”
and here:
http://market-ticker.org/archives/2283-More-On-Yesterdays-Plunge.html”
“If you had any doubt … the so-called “bull market” was in fact not much more than a handful of institutions buying shares with free Fed money and passing them between one another hoping to distribute them to you – you should be thoroughly disabused of your skepticism after yesterday.
“Revenge of the algorithms” writ large, basically.
We keep talking about how financial innovation has “helped consumers”, “helped businesses” and “made markets more efficient.”
Let me put this in nice, large letters for you:
That claim is one big fat LIE.
If you need anything more after yesterday to understand that all these “algos” have done is create systemic risk and permit a handful of very large institutions to siphon off more and more of your money into their pockets like an insane hoover vacuum cleaner on steroids, you need a lobotomy.”
All the evidence *I* need to know that this was, in fact, computerized trading that precipitated the whole affair, is in the charts in the first article. Human traders could not have acted that quickly.
ZZZZZZZZZZZ
Any more boring anti-market rants you’d like to get out?
I didn’t take this as anti-market–>perhaps anti current market; a lot of the current mechanisms in today’s securities markets are induced by artificial incentives produced through regulation. I thought that was the main premise here, to which I fully agree. Remember it was regulatory incentives that produced the use of algorithms that helped rating agencies push mortgage-backed securities as 5-star investments; in many cases they simply added a constant growth rate to the housing investments–e.g. they would go up by 8% annually forever.. The securities market is central-regulation based and a lot of the current exchange mechanisms have nothing to do with serving the consumers or the bulk of the stockholders, but simply maximizing returns through loopholes.In Mises’ ‘Interventionism’ (1929) I came across this bit that explains our current predicament rather well: “Attempts have been made to eliminate bureaucratism through profit sharing by managers. But since they could not be expected to bear the eventual losses, they are tempted to become reckless, which then is to be avoided by limiting the manager’s authority through directives from higher officials, boards, committees, and “expert” opinions. Thus again, more regulation and bureaucratization are created… It was the prevailing etastic and interventionistic policies that forced large enterprises to become more and more bureaucratic. They were forced, for instance, to appoint executives with good connections to authorities…They were forced to continue operations they wished to abandon, and merge with companies and plants they did not want.”
“Human traders could not have acted that quickly”
No true – watch this clip
http://blog.mises.org/12660/someone-must-pay-for-this/#comments#ixzz0nGwEMWTq
http://www.youtube.com/watch?v=81s5RWFdJls
The problem is the Federal Reserve – this time, artificially low rates have created a stock market bubble. There is no rationale for the S&P500 to be trading at such a high P/E. You would need year after year growth in earnings similar to Microsoft or Dell in the early days to justify these numbers. It is unlikely that we will see the type of economic growth across the board that would justify these numbers, especially when we have an Administration and Congress that is openly hostile to business and where there are large tax increases coming down the pike.
“When taxes are high the market will die”. The bubble will burst – the only question is when.
Yesterday, the market was fortunate that the “mistake” was in P&G, a company that still has reasonably good fundamentals. People, including Jim Cramer who was commenting at the time, immediately realized that $40 was a mistake.
good thing is gold is up…… waaaaay up.
Most of the crying is from fund managers and professional traders that got stopped out by what ever caused the drop. Any retail investor going long that sets automatic stops is a fool. The shake down that took place was not of the retail investor but the big boys and their automated trading systems. They got clobbered and basically beat at their own game. The most disgusting event was the NASDAQ canceling trades. How many times when you sell something and then see it go back up have you wished you could click a do-over button? The saddest part about yesterday was these shell-shocked traders coming on CNBC and begging for regulation to protect them from themselves. These guys are pathetic and quite frankly if the system wasn’t so rigged in their favor, I have no doubt a high-school honor student in an AP investing class could outperform them over a 5 year period.
I don’t see why people are crying over this. I don’t know if I buy the whole “the computers did it” thing yet, but it seems plausible, but to the point. If it was the computers then the selloff was artificial, once it bottomed out, the market corrected itself immediately. Within an hour or so, the market had completely retraced the losses and ended back up at the trend level of the main selloff during the earlier part of the day. The only people who were “hurt” were those who like to gamble in day trading.
I can save the government the investigation. The price fall was due to people sellings.
They know that. They’re just trying to identify who they can plausibly blame and subsequently threaten.
at 200%+ spreads, who took the other side of the trades? Somebody was buying during all the panic selling, and selling during the subsequent bounce.
Strikes me as an important question.
You know that if you are “retail” you shouldn’t be in this market, right?
If you want to ride the Zimbabwe wave, just by a zillion options or something, but it’s a bad idea when the ratings agencies and the investment banks can downgrade anyone they don’t like at any particular time.
You’re living in Ceaser’s world, now.
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