Tuesday, March 8, 2011

Help Wanted: Only Jugglers and Bubble Blowers Need Apply

Ever wonder what goes on at the Fed behind closed doors?  Here is an exclusive behind the scenes look at Tim Geithner and his crew managing the US economy each day:

My Take:

I commented yesterday that I was curious to see what the markets would look like if things settled down in the Midde East.  Well.... We got a sneak peak today as the market soared higher as things quieted down and oil prices pulled back a bit.

The move means nothing IMO.  In today's world of speedy robot trading a quiet day means the market can take quick advantage and move higher. 

The interpretation by the markets is pretty easy at this point:  As long as Bernanke and Geithner can keep all of the juggling balls in the air and keep printing then the big boys will stay long.  The question they will eventually askthemselves  in the next few months is how long is this sustainable as the ending of QE rapidly approaches?

As you can see above, it becomes increasinly more difficult to keep all of the balls moving when more and more balls keep getting thrown into the mix.

When QE first started in late 2008 the juggling was easy.  Inflation was low, gas prices had collapsed after 2008's brutal recession, and the rest of the world was relatively quiet.

Today is a different story: Soaring food and gas prices, political unrest in the Middle East, and the European debt crisis have all been added to the mix.  This means there are many more balls that now need to be juggled which makes the game much tougher.

The Bottom Line

The ridiculous price action that we saw today given how dire things are in the real world validate the theories that our markets have been over taken by trading robots that no longer trade on fundamentals. 

IMO, the game is now all about speed.   Positions are held for seconds and the large algos all compete to see the stock quotes before everyone else.  They are also becoming increasingly obsessed with speed when it comes to information. They know that the ability to access and process information in a timely manner gives them a competitive advantage.

AS a result, algo's are now reading Twitter accounts in order to find instant information that might give them an edge in the markets. 

 a little tough love before I move on:  If you are day trading you need to accept the fact that you are outmatched and outgunned by these guys.  If your account has been getting hammered as the markets trade like a bi-polar teenager then I suggest you re-evaluate your approach to investing.

We live in a different world today folks.  The markets will likely never be the same as long as it only looks 2 feet in front of itself thanks to these speed obsessed little black boxes.

We are rapidly approaching an economic cliff, and there will be no turning back once we get there.  Our ADD markets will have no time to react once we start to fall over the edge because the players are all too focused on whats going on 10 seconds from now in the stock market instead of doing the smart thing and preparing for the longer term.

Our financial markets were not designed to act like this.  They were supposed to be a place where you could safely invest and grow the capital that you worked so hard to build over your lifetime. 

Today our markets are nothing of the sort.  The stock market has morphed into a high speed casino where you can win or lose it all in a matter of a few months.

Just look at the past 11 years.  We have seen 4 moves of greater than 40% in the S&P 500 over this time.  The bulls and the bears are tied at 2 each. 

Here is a chart of the insanity since 2002:

Ummmm...And you call this investing?

Who on earth wants to see their life savings go up or down at a 40% clip every few years when they are investing for their retirement???

One day the stock market will be filled with nothing but speculators and fools.  It's going to resemble the same group of people that got stuck holding tech stocks in 1999 and houses in 2006.  I can't tell you when it's gonna happen.  I can only tell you that it will.

Let's hope that the Fed and our government finally end their bubble blowing ways that always end up with millions in tears.   

It's time to stabilize the stock market casino and turn it back into a place where capital is appreciated and rewarded instead of being repeatedly raped and pillaged by a bunch of predatory robots.

Enough already.  People are tired of this nonsense.


Anonymous said...

Love your blog. Read it whenever I get a chance. Was wondering if you'd seen story anywhere:


Jeff said...

Thanks Anon

Yeah I caught that today.

That's big news. I was going to cover it but already had a post planned today.

Thanks for the heads up!