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Investing In The Future And Jobs?

“George Washington” at Naked Capitalism has a nice catch: Michael Hudson on the markets

Take any stock in the United States. The average time in which you hold a stock is–it’s gone up from 20 seconds to 22 seconds in the last year. Most trades are computerized. Most trades are short-term. The average foreign currency investment lasts–it’s up now to 30 seconds, up from 28 seconds last month.

The markets aren’t about economics and fundamentals, they’re about game theory. They don’t know anything about the companies behind the stocks, they are only interested with whether it is trending higher or lower. Gamblers spend more time calculating a blackjack hand, than market traders spend on individual transactions.

I would think that a 60% capital gains tax on anything held for less than a day would put an end to this absurdity.

11 comments

1 cookiejill { 01.03.11 at 9:30 pm }

I spend more time studying the Racing Form.

2 Bryan { 01.03.11 at 10:16 pm }

People in general spend more time selecting TV shows than Wall Street spends trading stocks.

3 cookiejill { 01.03.11 at 10:51 pm }

I had a brief temp job stint at Dean Witter dozens of years ago. I remember them telling me they wanted to concentrate on one of the retirement homes in Montecito. (The Ritzy part of the area) They wanted to concentrate on marketing to elderly WEALTHY people because they made “easy marks.” That told me all I needed to know about the market and the snake oil salesmen running the scam. I told the temp agency to “get me the h**l outta there.”

4 Bryan { 01.03.11 at 11:36 pm }

The traders make their money with stock turn-over, not investments. They don’t want clients buying and holding stock, they want a lot of trades because they get a fee for every trade, whether it’s a buy or a sell. If someone just buys stock and holds it, there is no income for the company.

Their purpose is to make money for themselves, not their clients.

5 Suzan { 01.04.11 at 10:11 am }

There was a much-read book back in the 90’s (I’ve forgotten the title) that told you how to play the “new” market (yes, it’s not really “new” now is it?) by monitoring what was selling, etc., and buying ahead.

The trading “secret” embedded in the text near to the end is that you need to be able to lose at least $10,000 before you could expect to be able to make any money (some reviewers said $50,000) due to the steep learning curve.

Very popular book.

Which I immediately discarded when I got to the “secret” info material.

No one has trusted the market since the dot-com bust.

S

6 JimD { 01.04.11 at 10:36 am }

Brilliant… ‘60% capital gains tax on anything held for less than a day’

7 Steve Bates { 01.04.11 at 1:09 pm }

I’ve seen a statement in some article that an individual trader at home, having only the DJIA and individual stock prices as posted online (with a legally mandated lag time, of course) and a manually operated trading service at the ready in a browser window, has not a ghost of a chance at getting the good deals obtained by Wall Street firms’ trading software running on equipment that is hooked directly into the market. People take seconds (or longer) to execute such a trade online; direct-connected computers take (probably) microseconds to execute the same trade.

Rule One for the individual investor: fuggedaboutit, you can’t win.

8 Steve Bates { 01.04.11 at 1:15 pm }

I forgot one thing: one can argue that a trader or company using a machine that “knows” the price of a stock several seconds before an ordinary trader, and acts on that knowledge to profit where the individual trader cannot, is engaged in trading on inside information. Somehow, no firm on Wall Street ever gets prosecuted…

9 Bryan { 01.04.11 at 4:13 pm }

Suzan, I know a guy locally who lost his shirt “day trading” after spending big bucks to subscribe to all kinds of things that were supposed to put him on the same level as “a real trader”. He doesn’t talk to me any more after I pointed out that if he had just spent the money buying the stock of the two companies that he liked when he started down this road and left it alone, he would have made a nice return on the prices of the stocks, and received dividends from both. He just got sucked into the gambling.

Well, Jim, if they aren’t going to regulate them, we might as well make them pay for some of the damage the markets cause.

Steve, Goldman Sachs makes it money by co-locating its servers with those of the Exchange. The Exchange gets a fee, but it gives GS a time advantage that it uses to make a lot of money. In this case we are taking about an advantage of micro or nanoseconds, which is a major advantage in computer trading. Another “fair and balanced” system.

10 Steve Bates { 01.04.11 at 6:31 pm }

For my next-to-last client before my forcible retirement, I implemented an online trading system for rare coins and precious metals. The main difference: it was a fair system. Of course there’s no avoiding some internet lag time, but trade requests were queued strictly in the order of arrival at the exchange server, and if quantities were limited (which was frequently the case with rare coins), orders were filled strictly in the order the requests arrived. Many other similar rules governed the protocol of trading; these rules were explicitly spelled out to customers, who agreed to them when they signed up for the service. Big traders still had the advantage of being able to afford to place bid thresholds on large numbers of traded coins, i.e., when a price was posted that met their threshold, the system immediately queued up a trade request. But an individual trader working manually at a browser still had a reasonable chance of making some money from his (sic: it was almost always “his”; seldom “her”) investment.

11 Bryan { 01.04.11 at 7:48 pm }

First In-First Out is they way most of the world works, which is why fans will stand in line for absurd lengths of time to buy some things. Once people discover that you are dealing some other way, they can get very upset.

One of the reasons that people make obscene amounts of money on IPOs is that certain customers get the right to buy before the stock is officially available for sale. The company behind the stock doesn’t get the price after run up, they only get the initial offering price, i.e. if a company goes public with a million shares with an offering price of $30, the company only gets $30 million, even if the shares hit $150/share on the first day. That’s a lousy way of raising capital. The people who make most of the money are the preferred customers who only own the stock for a few hours at most.