The Stock Room page 8
(Continued from page 7)
Buying and selling flexibility – ETFs can be bought and sold at current market prices at any time during the trading day, unlike mutual funds and unit investment trusts, which can only be traded at the end of the trading day. As publicly traded securities, their shares can be purchased on margin and sold short, enabling the use of hedging strategies, and traded using stop orders and limit orders, which allow investors to specify the price points at which they are willing to trade.”
But the 2 main points that seems to be lost above is that:
· ETF’s were supposed to be easy ways for the small “INDIVIDUAL” investor to buy and sell a MUTUAL Fund type financial instrument during regular market hours. ETF’s haven’t been around very long and most of you should remember that the SEC allowed these WMD’s because they were told it was supposed to HELP the small investor! Well, in the macro sense… BULLSHIT!
· ETF’s were supposed to TRACK the underlying equities that the ETF value is based on—NOT VICE VERSA. The price of the stocks that comprise the ETF were supposed to determine the ETF’s value – NOT the price (NAV) of the ETF determining the value of the UNDERLYING securities. “If there is strong investor demand for an ETF, its share price will (temporarily) rise above its net asset value per share, giving arbitrageurs an incentive to purchase additional creation units from the ETF and sell the component ETF shares in the open market. The additional supply of ETF shares reduces the market price per share, generally eliminating the premium over net asset value. A similar process applies when there is weak demand for an ETF and its shares trade at a discount from net asset value.”
Since their mainstream introduction in 1993 with the ETF that followed the S&P 500 the Spyders (SPY), ETF’s have multiplied like the recent invasion of . We now have ETF’s that track housing & materials & retailers & airlines and now I think we even have one that tracks how many times Warren Buffet takes a crap! OUT OF CONTROL.
Some say that these ETF’s benefit the small investor by giving them a way of investing across broad spectrums easily and cheaply. I agree – I buy these all the time and find their ease and benefits enormous. HOWEVER, what ETF’s have really become are play toys of HFT machines and their algo’s that they use. Please look at this chart from Friday comparing the $SPX & the $VIX. The 1st is the S&P 500 and the 2nd is the Volatility Index >>> mirror images!
What you really have is 1 machine trading volatility (Volatility is NOT an asset! “Soup is NOT a meal!”), while a second machine is reacting to the 1st machine’s algo’s and is trading the S&P 500. These nano second trades are done over and over and over, and all probably based on some “Heat Seeker” algo that found a keyword somewhere about something or another. Meanwhile, the rest of us humans sit there with our mouths wide open wondering what the heck is going on as “vacuuming” algo’s suck the bids and life out of the market. Which was controlling which? Was the S&P going up and down because it’s underlying stocks were going up & down; OR was the S&P going up and down because a machine was forcing the VIX up and down and another machine was forcing the S&P up and down in response? I say the later and IT’S NOT SUPPOSED TO BE THIS WAY!
This is NOT what these WMD’s were supposed to do! All this does is create mini-flash after mini-flash. These algo’s serve no real purpose and the only outcome is continued uncertainty and angst! Most importantly of all: little to none of this QE based machine trading $’s ever winds up helping Main St, but rather it just gets gambled away on the Vegas Strip!
Pandora’s Box has been opened and yanking these WMD’s from the exchanges will never happen. BUT in lieu of that there are my 2 easy Golden Rules’ alternatives:
2. Crack down on naked short selling. Require stock certificate #'s when a short sale needs to be covered, including ETF’s.
a. Stop the shorting of ALL ETF’s. This is just legalized naked shorting—makes no sense.
5. Have ALL ETF’s trade on a 20-minute delayed basis. Get these instruments of mass destruction back to what they were supposed to do: mimic mutual funds. NO pre or aftermarket trading.
apppro’s take for 05/12/2013 07:30 am EST
Bloomberg’s (is a) hack – Shades of Murdock?
If Bloomberg had done this to George Clooney or even worse Beyonce – ALL HELL WOULD BREAK LOOSE! Demand Congressional hearings and OVERSIGHT NOW!
Wall Street: How Much Does Bloomberg Know? at CNBC07:22pm EDT
Bloomberg bars reporters from client activity AP09:05pm EDT
Question 1: When the reporters accessed clients’ info on their Bloomberg Terminals, were they able to also see TRADES of $JPM & $GS and than use insider info to trade on that themselves???
Question 2: How MUCH did Michael Bloomberg KNOW & when did he know it?
Added Question 3: Didn’t Bloomberg out the JPMorgan London Whale, and where the hell did they get that information??
The 5 Golden Rules:
3. Institute some rules on how the media ’reports’ news in order to prevent rumor-boarding. Not censorship… just sensibility & responsibility.
apppro’s take for 05/11/2013 01:30 pm EST
Schrödinger's Cat—Looking inside the Fed’s Box!
There are several ways of interpreting the cat in the poisoned box scenario. Personally I find the Big Bang one the best:
Right now the asylum we call the stock market is debating when and how the Fed will end its so-called QE program. Not going to get into the debate on whether QE’s benefits were real or not, all I will do is repeat my Main Saying: Don’t blame the Fed… it’s not their fault we allowed a few SHORT-term traders/traitors to use QE $’s to CREATE ‘put spreads’ INSTEAD of CREATING JOBS! In this case “the box” is the Fed ending the QE policy, and until we open that box we will not really know whether the economy is dead or alive.
The real issue now is that some are trying to decide even before we seal that cat up in that box, whether he will come out dead or alive. In a recent article Joshua M Brown really tried to make some sense of some of these speculations The End is Where We Start From. I give him credit for it, but he too is missing the real point. Like the 2nd more complicated way of interpreting Schrödinger's Cat That it’s maybe OUR actions OUTSIDE of that box which will determine the cat’s fate. Here as in my “Butterfly Effect” (see 05/04/13) scenario: The more we trade/bet and/or try to manipulate things to determine the cat’s fate, the more the cat has the chance of blowing himself up and we will not need to have opened the box to know what the outcome is.
So WHAT if the Fed slowly ends that misguided practice of “Twisting into the Wind”!? So WHAT if the Fed starts to slowly cut back on dumping all that cheap money into the system!? Virtually ALL of it has gone to hedgies to play games and gamble, anyway. Hedge Funds Rush Into Debt Trading With $108 Billion Very little has ended up in the hands of Main St or even the companies that should have used it to build factories and hire new employees. Would it be so terrible if these hedgies had to cut back on their addiction? Would it be so terrible if these hedgies had to pay a little more interest % to do their gambling? Would it matter to anyone whether their profits were slightly less? Simplistic, maybe so, but when it comes down to it – the damn truth! To all you economists and experts out there: Exactly how much of an effect on Qualcomm putting chips into iPhone’s would a gradual reduction in QE $ have? If you answer honestly you know the outcome would be nil to none. Confidence in tomorrow will increase QUALCOMM’s spending – not hedgies trading on WMD ETF’s in nano seconds.
What we are now allowing are HFT crazies to use “Heat Seeker” algo’s to troll the air waves searching for any keywords that may give the machines any insight into what the Fed will or will not do. In his above article, Brown speculates that a WSJ reporter John Hilsenrath has some inside track to the Fed and that whatever he writes is what will be. “So let it be written. So let it be done!” Maybe he does, but the issue is NOT Hilsenrath’s ramblings, but how the damn machines tried to trade our markets over what might have been his ramblings. On Thursday we had another mini flash and my friend immediately sent me a text saying it was speculation over this VERY Hilsenrath possible article. No one knew what was going to be written or even if there was going to be an article. The machines saw their keywords through their “heat seekers’ and BAM the ‘vacuuming’ algo’s took over and down we go. “Is this any way to run a business?”
So what’s my point? The point is that we have NOT opened that box yet and the cat is still alive. BUT MORE IMPORTANTLY: These daily HFT ‘flashes’ based on speculation or whatever the flavor of the day hedgie trade is on will kill that damn cat long before we even think of opening the box! I am not saying the Fed is right, god no! Bernanke’s Mistress Elizabeth TBTF comments on Friday certainly prove that he has gone over to the Dark Side. No, what I am saying is that we let us humans take control of the situation and calmly try to take the progress we have already made to the next level. Hopefully if that is done with reason the next level will be a slow and steady RISE UP!
apppro’s take for 05/04/2013 09:00 am EST
The Butterfly Effect… Then & NOW!
“In chaos theory, the butterfly effect is the sensitive dependence on initial conditions, where a small change at one place in a deterministic nonlinear system can result in large differences to a later state.” In 1972, Philip Merilees postulated:
“Does the flap of a butterfly’s wings in Brazil set off a tornado in Texas?”
That was then and this is NOW:
“Does the put on of a ‘butterfly trade’ in New York create even a single job in Texas?”
“The Put Butterfly Trade” Talk about chaos!
When I listen to that insanity promoted by CNBC all I am reminded of is a person taking their social security check to the track and figuring out ways to gamble it on horses. Or even worse, a person taking their welfare check to the local 7-Eleven to gamble it away on the daily numbers by boxing or line bets! Now, what we are allowing these hedgies to do is to take all of the Fed’s QE cheap money and piss it away on useless HFT SHORT-term option trading, while creating NO LONG-term progress with it.
Main Saying: Don’t blame the Fed… it’s not their fault we allowed a few SHORT-term traders/traitors to use QE $’s to CREATE ‘put spreads’ INSTEAD of CREATING JOBS!
THIS IS NOT investing! We have created a form of legalized gambling (Note: That it usually pays lowest tax rate.) glorified by segments of the media! This creates no LONG-term jobs or growth. It truly serves NO purpose whatsoever in promoting OUR COLLECTIVE prosperity. This SHORT-term mentality creates NOTHING, but uncertainty, fear, angst, and hate.
apppro’s take for 04/28/2013 10:00 am EST
“Spring Swoon… knock it off with the negative waves!”
Truly hated to use that CNBS term as my title, but I figured I would get more reads this way. I would have preferred if we changed that to “Spring Shove it up the Shorts’ A**!”, because that is what it really should be!
Everyone is sitting on pins & needles waiting for a sell-off, which most call the infamous ‘correction’. I wrote about this 1 year ago
and I am coming up with the same reasoning – “Bullsh**!” I am sick and tired of a small group of hedge funds now applying HFT algo’s to decide for all of us that the end is here again. OK, we had a few data points that indicated that things were slowing down a tad. Some say it is seasonal (which I agree) and some say it was because Obama’s call for the end of mankind through his sequestration death ploy was the culprit (which I agree even more). Either way, “IT’S JUST A SLOW DOWN PEOPLE – NOT THE END!”
I refer back to one of my favorite quotes:
We don’t have to apply “creative destruction” every 6 months or so, just so a few who have not made their month’s price target figures can take a mulligan. Screw them! Even Cramer on Friday expressed this. (And if I’m quoting that clown – it must be right!)
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