Ignoring the Cliff

The fiscal cliff beckons and, as previously predicted, a resolution is unlikely.  So let’s ignore the cliff this week and consider what’s happening elsewhere.

Viva Europe!

Last week was a good week for Europe – at least in comparison to most weeks.

The Eurozone is in a recession; unemployment continues to rise, and both industrial production and retail sales have dropped even further than had been predicted.

So where’s the good news?  Well, for starters, European leaders were given the Nobel Peace Prize.  While we’re not sure what the sovereign debt crisis has to do with war and peace, at least Europe is not the Middle East.  In what other continent do neighboring countries lend billions of dollars to each other when they have no hope of ever getting it back? read more

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Set Our Markets Free!

In the not-too-distant past, the stock market rewarded entrepreneurs who worked hard and had innovative ideas.

Today, the market is driven primarily by two things:

  • Monetary policy.  The Federal Reserve Board’s quantitative easing programs drive stock prices higher by making other securities less attractive.
  • Computers.  High-frequency trading (HFT), which is conducted by proprietary trading desks at big banks and private hedge funds, uses computers to make trading decisions and execute trades based on perceived pricing inefficiencies.

These two factors already dominate the market, but they are becoming even more dominant.

This past week saw Japan join the U.S. and Europe in seeking to jumpstart its economy with an asset-purchase program.  The U.S., of course, announced QE3 last week and that announcement was preceded by a European Central Bank (ECB) announcement of a round of bond buying that Zerohedge.com called “an act of desperation.” read more

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The Truth about High-Frequency Trading

We’ve been critical before about high-frequency trading.  While regulation sometimes makes matters worse, it’s encouraging that he U.S. Senate Committee on Banking, Housing and Urban Affairs held a hearing this week to discuss potential regulation of computerized trading.

While it is unlikely to take action anytime soon, testimony given at the hearing was enlightening.  Here are a few excerpts:

David Lauer, Market Structure and HFT Consultant, Better Markets, Inc.:

“The sophistication of your trading strategy is no longer a defining characteristic of its success, rather the number of microseconds that it takes your software to react to a piece of market data has become one of the most important factors of success in the HFT industry.” read more

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