Stocks on Steroids

By Lloyd Graff

The lead story in the Sunday New York Times discussed the “striking” drop in the investment in common stocks. The article went on to talk about the widespread disillusionment with equities since the dot-com crash and the subprime demolition. The Dow Jones average is actually down over 1000 points since 2001.

Personally, I think the widespread disgust with the stock market performance by individual investors derives from the “gaming” of the market by professional computer jockeys for whom long-term investing is holding a stock or an index for a week. The Quants, for whom the stock market is a video game, use huge leverage and a lightning fast computer thumb to play for pennies on a $50 stock.

I was thinking about this as I watched both the Little League World Series and Major League baseball games this past weekend. The kids are allowed to use metal and graphite bats but in Pro ball only wood bats are used, because it would be unsafe for the big boys to use metal sticks at the plate. Pitchers would literally get killed by batted balls.

We have speed limits on our highways and hold the maximum speed of showroom cars well below what is possible. But for trading stocks we have allowed the “gamers” to turn the markets for the most important business enterprises in the world into a casino block. This is nuts.

Major League baseball finally shut down the steroid tap, but stock trading is so out of control it is poisoning the public markets. Just because a Ford can theoretically go 200 mph on the interstate does not mean it should be legal.

Until the equities market or government regulators hold back the velocity of trading, long-term investors will take their marbles and go home.

Question: Should there be “speed limits” for professional traders?

Early Quant

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4 thoughts on “Stocks on Steroids

  1. AvatarLynn G. Schneider

    As we all know everybody is a guru of the market until the markey fails as it most assuredly will in the comming downturn. The only rule to apply here is; business makes the market work, and not, the market makes business work. Folks business is failing because the government demands it with its every stroke of the pen and the market will take advantage of this both on the way up and the way down. They are just bastards plain and simple

     
  2. AvatarBruce Renwick

    That’s a great way to think about what the confidence problem is with long term investment and how it should be regulated. I have oftem read about the traders who use these techniques that are believed to be bad for investment. I have noticed the markets always are behind the curve of the economy but the belief is the markets are the gage of the economy, company profits are greatly improved because of hard work and perseverance, machine and machine tools sales are up and many shops are staying busy, perhaps the markets will catch-up to the curve soon and long term investment will look favorable again.

     
  3. AvatarGeorge Mitchell

    The traditional “investment’ is no more. Today traders are using the market like a money changer. Put in a $20 wait 5 seconds and get a $50 back.This is not investment. Companies cannot depend on their investors to be there tomorrow. How can we plan, design and manufacture something fast enough when there may not be any money tomorrow? I know this is a bit inflated but investment to me is a long term deal. Put the money into something and let that company use it to develop goods and services that make money. The investor get paid for taking the risk and believing in that company.
    We had better wake up people. How long can we play this game of “no loss” quick money? In my opinion, not very much longer.

     
  4. Avatarjames thompson

    The free market system and the stock market has not worked for some time for the benifit of all. It works only for the benifit of a few, a few that are getting and have gotten very rich, very very rich. Remember Ross Perot and his two perhaps not so famous statements ” the swoshing sound after NAFTA and shooting craps in the stock market”. In economics 101 you learn about the “hidden hand”, it no longer applies. Unfortunatly for those of you who work for a living and do not shoot craps in the market, the economist have yet to come to grips with the fact that it no longer applies. There may come a day when the novice can profit from long term investment, but for now it has gone the way of job security, benefits and salery increases. Combine this with the lack of understaning of the economy by the American people and our elected officials It becomes clear why we are in the mess we are in. the fact is that it is not just a lack of understanding it is a lack of interest by Americans. The economy has been going down the tube for pehaps 50 years and it is not going to improve in 50 days or even 50 weeks. Perhaps 50 months is a better estimate. I offer that it is worse than the statistics portray. Were it not for the prison population, the number of people on disability and the unemployed that are not counted it would be worse than the great depression. I suggest that the people who are underemployed and those that will never get a job that pays anything simular to the one they had is overwhelming. There are economist who feel that it will take 7 years to recover, Perhaps things will never recover completly and we have a new normal. The middle class is on life support. Perhaps as we become a third world country with onlyvery poor and very rich and social unrest becomes widespread it might force a change. It would seem the people who have the influence to effect change would consider their children and grandchildren

     

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