Speculator Stew

[altivo]

That's what was bubbling along very nicely today. Nothing else could explain the extremely wide swings in the markets. It is time that we clamped down on the ability of people to play with the stock market using just a few thousand, buying and selling stocks on just a few minutes notice or ownership.

I think a large portion of the recent volatility would have been greatly reduced if buyers were required to hold a stock for some length of time, say several days, before they could sell it again. Likewise sellers, once having sold, should have to wait several days to buy the same stock back. I can hear the shortsellers screaming now, but their activity is parasitic. Not only does it suck "blood" out of the market, it contributes to unnecessary slides and dips.

It also occurred to me this morning that there is no need for terrorists to slam airplanes into buildings. They can terrorize the US public and do real damage to the economy merely by messing with finances. God knows they have enough funding to do that, and especially so if they are being backed by oil rich governments as we keep being told. So all they need are some online brokerage accounts and a few million dollars on deposit. A little careful planning, and whee, off we go.

The behavior at the end of today's NYSE session was eerily like what is recorded about October 30 (IIRC) in 1929. That was the day after "Black Thursday" when the markets were already depressed and dropping farther. In the afternoon, officers of two major banks (Morgan and Chase, as it happens, were the two banks) tried to quell the panic by going in person onto the trading floor and placing buy orders for large blocks of blue chip stocks. A similar tactic had supposedly succeeded during the panic of 1907 so they tried it again, using money provided by their banks. It seemed to work. Things calmed, prices rose just before the close, and then it was the weekend.

Unfortunately, on Monday and Tuesday following, the slide picked back up with a vengeance and the total drop for that seven day period was something like 45% of the overall market value.

I mention this because this afternoon, at 3 pm, the Dow was down almost 500, after seesawing back and forth between positive and negative all day. Suddenly it began to rise and rise until it hit about 250 above this morning's opening. Then, slowly, it collapsed again to close down 128. It will be very interesting to see what happens on Monday.

Comments

[aureth.livejournal.com]

Monday is Columbus Day, and is thus a bank holiday. We've got three days to stew over things.

[altivo.livejournal.com]

Hmm, yes. I'd forgotten the holiday, since I don't have it off.

[kakoukorakos.livejournal.com]

The thing is, terrorists seem to be intentionally ineffectual, just like most activists such as HSUS, PeTA, and Operation Rescue. If they succeeded at --anything--, they would put their organizations in danger of disbanding, and that's the last thing they want. They're just thugs, gang members who were searching for a place to belong, the only difference is that they pretend their mayhem isn't only about money and power, but also some higher ideals that are typically rather poorly thought through.

The problem with Wall Street is that everyone's a speculator, including every last fund manager with every major investment bank. Some are more brash than others, but they're just buying-in to most stocks in hopes they'll go up in value. Perhaps what needs to happen is that every stock needs to have fixed appreciation rates based on a rating, much like bonds. Lower-rated stocks, or premium-rate highly-rated stocks could be non-transferable, forcing whoever buys them to either cash them in early or ride them out to maturity. And like bonds, people who cash-out early suffer penalties, such as forfeiting most or all appreciation. Ultimately, a company would also potentially buy all of its public debt back as well, forcing it to focus on profitability and efficiency, which could eliminate the incompetently-managed startups that we saw during the dot-bomb era, where having no business plan was no problem. People could just hold onto the company bonds and continue to earn dividends and interest until they appreciated to a maximum (like T-bills currently do) or the company chose to recall all its debt (if the bonds were open-ended). Setting up the market in that sort of way would still allow companies to raise capital, while shielding the economy and capital markets from this lunacy where only the most unethical, panicky, and selfish individuals are rewarded for their bad behavior. Usually, in game theory scenarios, there are some potentially more serious consequences for "bad" behavior in order to balance everything out. Wall Street consistently rewards the most devious bad behavior, only reluctantly cracking-down on things like insider trading.

Also, imagine how much more long-sighted CEOs would be if their Golden Parachutes were primarily the non-transferable variety of company bonds rather than cash or stock options, and they would have nothing if their company went under within a few years of their departures.

[altivo.livejournal.com]

I really, really like that last idea. Of course it will never happen.

I wonder if Ben and Jerry's still has their "socialist" policy on compensation? They used to proclaim proudly that the lowest paid worker never earned less than 25% of what the highest paid top execs earned. This seems very wise to me. One of the large contributing problems in this mess is the fact that top execs are overpaid at astronomical levels and at the same time completely isolated from the consequences of their bad decisions. It can actually work to their favor to murder the company they are supposed to be managing, and doesn't seem to count against them if they do. As soon as they come dropping out of the sky on that golden parachute, a dozen other firms are bidding for their "services."

[atomicat.livejournal.com]

The too much efficiency is bad paradox. How often have we seen minor glitches and swings made major by the swiftness of automated buying/selling software. Houses often pay big to locate their offices closer to data exchange centers, just to cut a few hundred meters of cabling.

[altivo.livejournal.com]

I would ban the automated buying and selling. It has been implicated too many times already.

[cabcat.livejournal.com]

The Australian market has being zipping around like a mad thing, but I want to keep my stocks for the long term so it's not really worrying me too much.

[altivo.livejournal.com]

I think that's almost the only way to invest in stocks, over the long term.

However, what with internet trading, a lot of people now use the stock market as a sort of gambling casino. They "dabble" all day, buying in the morning and selling everything by closing time. The US markets show this trend daily with a rise in mid morning and a decline after 3 pm as the "day traders" dump everything.