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September 26, 2011 12:06 PM Subscribe

BBC News asks independent trader Alessio Rastani "what would keep investors happy, make them feel more confident?" and gets a surprisingly honest answer: "Personally, it doesn't matter. See, I'm a trader. I don't really care about that kind of stuff. If I see an opportunity to make money, I go with that. So, for most traders, we don't really care that much about how they're going to fix the economy, about how they're going to fix the whole situation; our job is to make money from it. And, personally, I've been dreaming of this moment for three years. I have a confession which is I go to bed every night and dream of another recession, I dream of another moment like this." [SLYT]
posted by finite (227 comments total) 31 users marked this as a favorite

1. Panic

2. ????

3. Survive
posted by bwerdmuller at 12:08 PM on September 26, 2011

Does he mention why he prays for a recession?
posted by KokuRyu at 12:08 PM on September 26, 2011 [1 favorite]

"Personally, it doesn't matter. See, I'm a ~~trader~~[INSERT ANY JOB TITLE]. I don't really care about that kind of stuff. If I see an opportunity to make money, I go with that. So, for most ~~traders~~[INSERT ANY JOB TITLE], we don't really care that much about how they're going to fix the economy, about how they're going to fix the whole situation; our job is to make money from it. And, personally, I've been dreaming of this moment for three years. I have a confession which is I go to bed every night and dream of another recession, I dream of another moment like this."

Why should we be upset when people act like people?
posted by blue_beetle at 12:09 PM on September 26, 2011 [12 favorites]

Does he mention why he prays for a recession?

Because he profits from it?
posted by daniel_charms at 12:10 PM on September 26, 2011 [2 favorites]

I don't think [ANY JOB TITLE] dreams of a recession. For example "I'm a
general contractor. I go to bed every night and dream of a recession" doesn't really work.
posted by spicynuts at 12:11 PM on September 26, 2011 [36 favorites]

Why are there glum photos of stock traders on bad trading days? After all, traders make money on trades, whether the stock goes up or down.
posted by Blazecock Pileon at 12:11 PM on September 26, 2011 [2 favorites]

Because he apparently is planning for a recession; he has a plan in place to make money from the economy crashing. Which is kind of like having a plan to make money off the Titanic sinking.
posted by axiom at 12:13 PM on September 26, 2011 [1 favorite]

Turmoil has always been good for certain interests. Look no further than serious political change (good or bad). There's no better fuel for it than hungry bellies.
posted by philip-random at 12:13 PM on September 26, 2011

Up or down, it's a LOT easier to make money when the market has a clear direction.
posted by ZenMasterThis at 12:13 PM on September 26, 2011 [2 favorites]

Why are there glum photos of stock traders on bad trading days?

When clients lose money in the market they get mad and yell at them. this makes them sad.
posted by Ad hominem at 12:14 PM on September 26, 2011 [14 favorites]

I can't watch the video at work, but I would assume that traders love a recession because a high volatility index means that there's potential for great gains in a short period of time, provided one buys and sells securities at the right times. And regardless of gains, it's certainly a lot more exciting of a time to trade.
posted by shakespeherian at 12:14 PM on September 26, 2011

The extra volatility lately has to be a boon for these guys. Nothing like making 2-5% a day if you can pick the swing correctly.
posted by backseatpilot at 12:15 PM on September 26, 2011 [1 favorite]

asking a trader what he thinks will fix the economy is like asking a soldier what he thinks will end the war. Their business IS turmoil. Want to fix the economy - get rid of traders, want to end war - get rid of the soldiers.
posted by any major dude at 12:17 PM on September 26, 2011 [8 favorites]

Want to fix the economy - get rid of traders, want to end war - get rid of the soldiers.

This analogy works better if your proposal is to end the economy, rather than fix it. Securities trading, to a large degree, is the economy.
posted by shakespeherian at 12:19 PM on September 26, 2011 [7 favorites]

I also thought this was a Yes Man stunt.
posted by weewooweewoo at 12:19 PM on September 26, 2011

Why should we be upset when people act like people?

People upsetting people by acting like people is pretty much what people do, isn't it?
posted by octobersurprise at 12:20 PM on September 26, 2011 [15 favorites]

I see what he's saying, but the large majority of investments are long holdings in diverse securities and nobody with that kind of portfolio wants a recession.
posted by michaelh at 12:21 PM on September 26, 2011 [2 favorites]

I am also waiting for the Big Crash because when that happens I am going to put a sizable chunk of that cash into a largish company who's stock has radically fallen and who I know will be around in 6 or 7 years - like Apple or AT&T or Shittybank, wait out the crash and make a far better return than I possibly could on a 1% savings account or CD.

When the market hits bottom, will you let me know? And geeze now that I think about it, how will you really know it's really "the bottom" bottom, will it be in a USA today infographic or something, maybe a FoxNews opinion poll?
posted by (Arsenio) Hall and (Warren) Oates at 12:21 PM on September 26, 2011 [2 favorites]

Also, I love the tone-deafness of his "Any average schmuck can make money in a crash!" thing. I can't actually tell if he believes it. Surely he's at least smart enough to know what horseshit that is.

He's totally correct. Because it takes a schmuck to be planning for it. If you meant 'any average joe' then I agree with you.
posted by spicynuts at 12:23 PM on September 26, 2011 [2 favorites]

People aren't meant to forget to pretend they don't act like people. The veneer of lies is what keeps us all happy in a bullshit economy. I like this guy. The newsreader was shocked he wouldn't lie to her. We're all complicit.
posted by fraac at 12:24 PM on September 26, 2011 [6 favorites]

I am going to put a sizable chunk of that cash into a largish company who's stock has radically fallen and who I know will be around in 6 or 7 years - like Apple or AT&T or Shittybank

Turned out well for all those who bought Northern Telecom.
posted by dobbs at 12:24 PM on September 26, 2011 [4 favorites]

Why are there glum photos of stock traders on bad trading days?

Because on really bad days, the stock market screens show a velvet painting of a sad clown holding a big-eyed puppy.
posted by scruss at 12:25 PM on September 26, 2011 [11 favorites]

an "independent trader" is the equivalent of a blogger working from his mom's basement.

the dude is shilling trading advice on his website as well.

Basically he's a joke. Though he does help make a lovely argument for trading taxes and what not.
posted by JPD at 12:25 PM on September 26, 2011 [10 favorites]

Rushing Like Lemmings Toward the Abyss: The Destructive Power of the Financial Markets
posted by homunculus at 12:26 PM on September 26, 2011

Why should we be upset when people act like people?

And why should we be scared when those people destroy us all? BAH.

This is not people acting like people. This is people acting like some people, people like YOU, think people will always act like. This gives people a license to act however they want damn the consequences, because everyone else does it too LOL AM I RITE?

Phooey.
posted by JHarris at 12:26 PM on September 26, 2011 [19 favorites]

I mean a quick googling makes me want to ask the BBC why they had him on? I'd trust one of the zerohedge trolls over this guy.
posted by JPD at 12:26 PM on September 26, 2011 [1 favorite]

Up or down, it's a LOT easier to make money when the market has a clear direction.

The only problem with that strategy is that the market never has a clear direction.
posted by burnmp3s at 12:26 PM on September 26, 2011 [1 favorite]

Why would anyone expect traders to have some sort of special and vested interest in fixing the economy? Obviously they, like the rest of us, don't want the country to slide into some Road Warrior type shit, but that's about it. Apparently this guy thinks he can make money off what he sees as mispricings that occur in recessions, and so he prays for more of them. Maybe he's right, or not.

When the stock market does poorly there's photos of glum traders because most stock traders are net long and make money in bull markets. In the commodity pits (back in the day) you didn't have a preponderance of sad faces when the price of a given commodity fell just like you didn't have an excess of smiles when the price rose.
posted by BigSky at 12:28 PM on September 26, 2011 [1 favorite]

"The governments don't rule the world. Goldman Sachs rules the world."
posted by showmethecalvino at 12:28 PM on September 26, 2011 [12 favorites]

an "independent trader" is the equivalent of a blogger working from his mom's basement.

the dude is shilling trading advice on his website as well.

Basically he's a joke. Though he does help make a lovely argument for trading taxes and what not.

Ah, didn't see the "independent" part there.
posted by KokuRyu at 12:31 PM on September 26, 2011

but the large majority of investments are long holdings in diverse securities and nobody with that kind of portfolio wants a recession.

Are you sure that's still true? I can't find any relevant stats, but there's been a lot of emphasis on market timing trading techniques in recent years. Even a lot of institutional investors often trade on the technical indicators now, don't they? And hedge funds, too, I believe...
posted by saulgoodman at 12:31 PM on September 26, 2011

I'm also not entirely sure what this individual should be doing differently in order to help fix the economy, such that his failure to do so has earned him this ire.
posted by shakespeherian at 12:31 PM on September 26, 2011 [1 favorite]

Here's his website, about page, and article Why I Pray for Another Recession.

While he may well be an independent trader, he seems to have an axe to grind in that he's heavily promoting his own trading advice, tips and possibly software. I would be distinctly suspicious of taking any specific advice from him.
posted by TheophileEscargot at 12:31 PM on September 26, 2011 [14 favorites]

MetaFilter: People upsetting people by acting like people.
posted by ZenMasterThis at 12:32 PM on September 26, 2011 [5 favorites]

Does he mention why he prays for a recession?

The same way the undertaker dreams of a plague.
posted by The 10th Regiment of Foot at 12:32 PM on September 26, 2011 [7 favorites]

Securities trading, to a large degree, is the economy.

Funny I thought the economy was all the food and education and health care and computers and houses and cars and trains and music and coffee and public spaces and everything that's produced through human labor and provides for human needs and desires. This whole time it was just a bunch of electrons whizzing around in Wall Street computers, most at the command of automated trading software

And for some strange reason the electrons just keep telling us to give or sell off more and more of what we have from that first list, that's totally not the economy, because it's owed to those people on Wall Street, who keep the real economy, the electron economy, running for us

Makes sense to me
posted by crayz at 12:33 PM on September 26, 2011 [31 favorites]

And geeze now that I think about it, how will you really know it's really "the bottom" bottom,

Seriously? Did you read any newspapers at all in '08 or '02? Because it was pretty darn obvious. And the market does not have to be at absolute bottom. If you can buy a stock that you know will be around in 7 years (or maybe 10) at 25 % or 50% of value then it doesn't matter if it goes down another 25% in a month. All that matters is if you can wait it out the 3 or 5 or 10 years until the stock inevitably goes up again to it's pre-crash value at which time you have made a whole lot of money (as compared to a savings account)
posted by Poet_Lariat at 12:33 PM on September 26, 2011 [3 favorites]

Most people can't tell you what a Treasury bond is, much less how to invest in them. Does he think they teach asset protection and stock hedging in public schools? Does he imagine everyone just has some rainy day money stocked away in case of an economic crisi-tunity? The disconnect between traders and average Americans is just nauseating.
posted by dephlogisticated at 12:34 PM on September 26, 2011 [2 favorites]

Even a lot of institutional investors often trade on the technical indicators now, don't they? And hedge funds, too, I believe...

no. Most non-equity hedge funds are net-neutral (meaning neither long nor short the market), most equity hedgefunds will have some net exposure > 0, so they want stocks to go up in aggregate. Most insitutional investors (Calpers, University Endowments) will have some small % (10% is about the max) allocated to hedge funds. The remaining 90% is long, but across a variety of asset classes.

TL;DR - nearly all institutions are fundmentally long asset prices
posted by JPD at 12:36 PM on September 26, 2011 [4 favorites]

Does he mention why he prays for a recession?

I agree with the people who already mentioned volatility. I don't think it's the recession that he dreams about. It's the wild fluctuations that come along with chaos in the financial markets. It's a lot easier to make a large profit with a short term trade when prices are moving 10% or 20% in a day. Of course, it's a lot easier to get burned too. But I'm sure this guy is too smart for that...
posted by diogenes at 12:37 PM on September 26, 2011

All that matters is if you can wait it out the 3 or 5 or 10 years until the stock inevitably goes up again to it's pre-crash value at which time you have made a whole lot of money (as compared to a savings account)

Oh I just have to wait 3 or 5 or 10 years until the stock *inevitably* goes up. Oh, okay. And do the inevitable ones have a different symbol next to them?
posted by (Arsenio) Hall and (Warren) Oates at 12:37 PM on September 26, 2011 [2 favorites]

Oh I just have to wait 3 or 5 or 10 years until the stock *inevitably* goes up. Oh, okay. And do the inevitable ones have a different symbol next to them?

if you can't afford to wait, then you shouldn't be in equities, especially the 3 year and the 5 year time periods.
posted by JPD at 12:38 PM on September 26, 2011 [1 favorite]

No, it's the inevitable part that's confusing me. In ten years, can anyone say which companies will even be around? Inevitably?
posted by (Arsenio) Hall and (Warren) Oates at 12:40 PM on September 26, 2011 [4 favorites]

From the guys article: A recession occurs during an unstable economic climate. When markets become unstable, whether it is bad news or uncertainty, they create volatility. A volatile market often creates trending markets.
posted by diogenes at 12:40 PM on September 26, 2011

No, it's the inevitable part that's confusing me. In ten years, can anyone say which companies will even be around? Inevitably?

that's why you buy a portfolio of stocks, not just 1 or 2 or 5. Its pretty damn hard to say which companies will still be around in ten years and will outperform the market.
posted by JPD at 12:42 PM on September 26, 2011 [3 favorites]

Funny I thought the economy was all the food and education and health care and computers and houses and cars and trains and music and coffee and public spaces and everything that's produced through human labor and provides for human needs and desires.

If you are not trading those things, they are not considered part of the economy.

If you are trading those things, you'll need to sign some contracts to finalize any kind of deal. Actually, people probably won't want to begin to deal with you if they can't have some kind of confidence you'll hold up your end of the deal.

So we have these things called "futures contracts" that say you promise to deliver, or you'll have to pay a fine. Having these things makes traders feel more secure, so they're also called "securities".
posted by LogicalDash at 12:43 PM on September 26, 2011

Can he use an intern and how to I get in touch with him?
posted by Postroad at 12:44 PM on September 26, 2011

the guy is an fx trader - he's basically a hamster on meth with two buttons in front of him.
posted by JPD at 12:44 PM on September 26, 2011 [39 favorites]

And do the inevitable ones have a different symbol next to them
Snark is the last refuge of the uninformed. Have you actually looked at a chart of BOA's price (or Sprint or Verizon or Apple or... ) during the various market crashes of the past 15 years ? I have. If you then your snarky question would answer itself .

The market always goes up over the long term (meaning 5 to 10 year outlook) . Always. Even after a huge market crash - even after a depression - it goes up - eventually. If you have the funding to wait it out then you make money. It's not neurosurgery - it's the stock market.
posted by Poet_Lariat at 12:44 PM on September 26, 2011 [1 favorite]

Are you sure that's still true? I can't find any relevant stats, but there's been a lot of emphasis on market timing trading techniques in recent years. Even a lot of institutional investors often trade on the technical indicators now, don't they? And hedge funds, too, I believe...

The guys who are equally short like the braggart quoted in the OP make the headlines but hold a small percentage of assets. They do command a larger percentage of trades as most of them trade rapidly but that of course is not the same thing.
posted by michaelh at 12:45 PM on September 26, 2011

Have you actually looked at a chart of BOA's price (or Sprint or Verizon or Apple or... ) during the various market crashes of the past 15 years?

Past performance does not predict future returns.
posted by diogenes at 12:47 PM on September 26, 2011

uhm if you bought BAC 15 years ago you down 40% on it. Down 70% on sprint and flat on verizon.
posted by JPD at 12:47 PM on September 26, 2011 [17 favorites]

if you can't afford to wait, then you shouldn't be in equities, especially the 3 year and the 5 year time periods.

Cool! Equities are out. I didn't know this trading stuff was so easy! So what do we paycheck-to-paycheck folks do instead, in order to make money off this awesome recession opportunity?
posted by scrowdid at 12:48 PM on September 26, 2011 [5 favorites]

Snark is the last refuge of the uninformed. Have you actually looked at a chart of BOA's price (or Sprint or Verizon or Apple or... ) during the various market crashes of the past 15 years ? I have. If you then your snarky question would answer itself .

uhm if you bought BAC 15 years ago you down 40% on it. Down 70% on sprint and flat on verizon.

That was cool.
posted by (Arsenio) Hall and (Warren) Oates at 12:48 PM on September 26, 2011

People aren't meant to forget to pretend they don't act like people.

I had to read that fifteen times.
posted by villanelles at dawn at 12:48 PM on September 26, 2011 [15 favorites]

The market always goes up over the long term (meaning 5 to 10 year outlook) . Always. Even after a huge market crash - even after a depression - it goes up - eventually

This comment assumes that no apocalyptic abyss awaits us, but then so does pretty much all day-to-day living, breathing, thinking. Which is a good thing.
posted by philip-random at 12:49 PM on September 26, 2011

asking a trader what he thinks will fix the economy is like asking a soldier what he thinks will end the war

I know a few soldiers who wouldn't agree with this analogy.
posted by changeling at 12:49 PM on September 26, 2011

Also, buying "the market" =/= buying stock in "a company". You were stating that you were going to dump all of your money in one company, and wait for it to "inevitably" make money. Bad strategy.
posted by (Arsenio) Hall and (Warren) Oates at 12:50 PM on September 26, 2011

Yeah, and using BAC as an example wasn't the best choice...
posted by diogenes at 12:51 PM on September 26, 2011

We can fix the trader problem by fixing capital gains. Anything held under a month should be taxed at 50%, under a year, 25%.

When a company issues stock, it gets capital to work with. When a trader moves stock on an hourly basis, he's just a leech.
posted by eriko at 12:52 PM on September 26, 2011 [4 favorites]

All that matters is if you can wait it out the 3 or 5 or 10 years until the stock inevitably goes up again to it's pre-crash value at which time you have made a whole lot of money (as compared to a savings account)

It's not as easy as you make it out to be (or maybe I'm just not cut out for it). I remember buying Nortel at around $60 (down from $120) thinking it was bound to come back. Then sold around $6. And bought again at $11 (I think) and then wiped my hands clean of it when I owed the brokerage money to close my account....
posted by smcniven at 12:52 PM on September 26, 2011 [4 favorites]

uhm if you bought BAC 15 years ago you down 40% on it. Down 70% on sprint and flat on verizon.

Facts are the second to last refuge of the uninformed.
posted by Fidel Cashflow at 12:52 PM on September 26, 2011 [10 favorites]

That philosophy is heinous isn't it? It's also very pragmatic. Case in point: I'm pretty freaking progressive and I've come into some money recently. I am also waiting for the Big Crash because when that happens I am going to put a sizable chunk of that cash into a largish company who's stock has radically fallen and who I know will be around in 6 or 7 years - like Apple or AT&T or Shittybank, wait out the crash and make a far better return than I possibly could on a 1% savings account or CD.

The way the current market works leads to this kind of crap. The way the current market works needs to be changed. It's killing us all.

That's not "crap." That's how it's supposed to work. When you buy a depressed stock — if you're right about the stock being undervalued — then your purchase stabilizes the stock price by bringing it to its true value sooner. This is the value that stock traders provide.

The difficulty is knowing when a stock is really as low as it's going to get.
posted by esprit de l'escalier at 12:53 PM on September 26, 2011 [1 favorite]

The market always goes up over the long term (meaning 5 to 10 year outlook) .

Absolute bullshit.
posted by unSane at 12:56 PM on September 26, 2011 [8 favorites]

uhm if you bought BAC 15 years ago you down 40% on it

smacks self on forehead.
Right. Because we're in a recession/crash. Now is a good time to buy. When the market crashes it will be a better time to buy. 10 years from now is a good time to sell. What you fail to mention is that if you had bought BAC in '96 at 6.57 and sold it prior to the current crash in '07 at 52 or '06 at 45 or even '03 at 32 you would have made a substantial amount of money.
posted by Poet_Lariat at 12:57 PM on September 26, 2011

What you fail to mention is that if you had bought BAC in '96 at 6.57 and sold it prior to the current crash in '07 at 52 or '06 at 45 or even '03 at 32 you would have made a substantial amount of money.

And if I had wheels I'd be a fire engine.
posted by Fidel Cashflow at 12:59 PM on September 26, 2011 [23 favorites]

In 2001 the S&P peaked at around 1130. It's currently sitting around 1150 and I suspect it has a lot further to go down before it starts going up again. It always looks pretty if you imagine buying at the bottom and selling at the top, but that ain't how life is.
posted by unSane at 1:00 PM on September 26, 2011 [1 favorite]

> Now is a good time to buy. When the market crashes it will be a better time to buy.

...and after that will be an even better time to buy!
posted by goethean at 1:00 PM on September 26, 2011 [9 favorites]

If BAC hits even half its 2007 high in the next 10 years, I'll eat my hat—assuming I haven't sold already to pay for healthcare.
posted by dephlogisticated at 1:00 PM on September 26, 2011 [1 favorite]

Also remember that indexes are skewed because the firms that go bust disappear from them -- they have a strong survivorship bias.
posted by unSane at 1:01 PM on September 26, 2011 [7 favorites]

how will you really know it's really "the bottom" bottom

Seriously? Did you read any newspapers at all in '08 or '02? Because it was pretty darn obvious.

The most charitable interpretation of the chart (meaning you bought near the its lowest point that year) shows that if you bought BAC in 2002 you'd be down 80% and if you had bought it in 2008 you'd be down 50%.
posted by (Arsenio) Hall and (Warren) Oates at 1:04 PM on September 26, 2011 [1 favorite]

Even after a huge market crash - even after a depression - it goes up - eventually

The problem is you never know where the bottom is. The downward slope of a bear market is called the slope of hope because people buy it all the way down, hoping to pick a bottom.
posted by unSane at 1:04 PM on September 26, 2011 [3 favorites]

So actually buying and selling real stuff and services, that's not the "Real Economy," but buying and selling legal notes that offer a heavily-qualified legal claim to some percentage of ownership in certain companies that make some of those actual goods that are bought and sold in the--um, I guess "Fake Economy"?--now, that's the Real Economy? Am I getting that right?

Yes, investment helps move capital around, and theoretically, that helps an economy function more efficiently and better. But Wall Street is not the "Real Economy" for any particularly meaningful value of that term. It's a bunch of useful meta-markets, that's all.
posted by saulgoodman at 1:07 PM on September 26, 2011 [5 favorites]

Also remember that indexes are skewed because the firms that go bust disappear from them -- they have a strong survivorship bias.
the impact of survivorship in something like the S&P is actually pretty small - turnover in the index isn't that great.

stocks do go up in the long-term, alas that long-term is sometimes 15 years. But they do have to go up, if only because the relationship between risk and return holds up.
posted by JPD at 1:11 PM on September 26, 2011 [1 favorite]

This thread is AWESOME! It consists of people getting pissed because some professionals have applied some sort of logic to how to make money in the market then people getting pissed when someone tries to explain how that logic works. It's like this:

'i'm angry because X!!!' and someone else says 'well X makes sense this is how you do it' and then the rest of you are like "you're STUPID if you think you can do X GRARRRRRR'

Meanwhile, people without anger mgmt problems continue to do X and make money.
posted by spicynuts at 1:11 PM on September 26, 2011 [2 favorites]

The market always goes up over the long term (meaning 5 to 10 year outlook) .

Japan over the last 20 years or so is a good counterexample. Basically you can't pick an arbitrary time and say that you're absolutely going to make money by buying and holding for ten years, and more importantly you can't know that any given time is a significantly better time to buy than any other time. You can argue that the nature of the system functions so that shares in any random company tend to be worth more on average over time, but the "Buy AT&T when the headlines say Recession" strategy is not going to be more effective than a monkey flipping a coin to make trading decisions.
posted by burnmp3s at 1:11 PM on September 26, 2011 [1 favorite]

When the stock market does poorly there's photos of glum traders because most stock traders are net long and make money in bull markets.

When the stock market does poorly newspaper editors go to the stock image web sites and look for glumtrader.jpg.
posted by dirigibleman at 1:12 PM on September 26, 2011 [4 favorites]

It is good to be reminded of the fact that some people (the technical term is greedy vultures, I think) also make fortunes from crashing markets. If only to understand why the same shameless shills that once sold the myth of ever-rising stock-prices now have reconverted themselves into merchants of gloom.

The number of people who have made money long-term being short the market can be counted on one hand. Its very hard to do because of how the mechanics of shorting it self functions.

Japan over the last 20 years or so is a good counterexample. Yes, but part of why its done so poorly was because it did so ridiculously well in the previous 20.
posted by JPD at 1:13 PM on September 26, 2011 [1 favorite]

> Meanwhile, people without anger mgmt problems continue to do X and make money.

...and plenty more do X+1 and lose their shirt.
posted by goethean at 1:14 PM on September 26, 2011 [3 favorites]

If BAC hits even half its 2007 high in the next 10 years, I'll eat my hat—assuming I haven't sold already to pay for healthcare.

It's trading $6.60/share right now. If it hits half of its '07 high (~$25/share) ten years from now you'll still have gotten a 14% avg annual return.

You don't need to know where the bottom is, you just need to know that you're close, be confident that the company will survive the recession and be able to wait it out. Then just don't get greedy and wait for the highest peak and sell after you've got a good return.

Of course, all of this assume that you're better at determining a company's value than the market is and you're probably not so you shouldn't just put all of your eggs in one basket.

Then again, that gets to be a lot to manage and there are people out there who are better at it then you are (they call them money managers) but its really hard to find one is actually good instead of just lucky and you have pay them a lot.

Now, if you invest in an index fund along with a something like a bond index fund and use asset allocation to balance your portfolio (IE always keep it 50% equity 50% bonds) you can make a nice return and be pretty stable.

If you know what you're doing, any of these strategies can work really well some are riskier than others but that doesn't make them a bad idea.
posted by VTX at 1:21 PM on September 26, 2011

um, I guess "Fake Economy"?--now, that's the Real Economy? Am I getting that right?

I'm not sure where you got those terms? The point I was making is that, contra the suggestion that the way to fix the economy is to 'get rid of traders,' the global economy as we know it is defined by markets. Removing the system of securities trading entirely wouldn't fix the economy, it would remove the mechanics of the economy. Something else would exist, and we could call that an economy, but I wouldn't call that a 'fix.'
posted by shakespeherian at 1:21 PM on September 26, 2011

I think its further proof that Darwin is right - humans are definately descended from locusts.

This vox-pop is further evidence of the kind of instant journalism we have condemned ourselves to, and its a shame to see it on the blue, as thats why I come hear, to avoid the "news" that the papers consider worthy of paper these days.

fx day trader says stuff: news at 10
posted by fistynuts at 1:23 PM on September 26, 2011 [1 favorite]

I don't think [ANY JOB TITLE] dreams of a recession. For example "I'm a
general contractor. I go to bed every night and dream of a recession" doesn't really work.

Maybe not, but there are probably a few general contractors who aren't too upset when a hurricane or tornado hits a nearby community.
posted by rocket88 at 1:25 PM on September 26, 2011 [2 favorites]

Yes thank you...a tornado is not a recession.
posted by spicynuts at 1:25 PM on September 26, 2011

Sometimes selfish-interest + selfish-interest =/= public interest.

That's why Rand is an idiot and the wisdom unregulated free markets is a snake oil sold by the unscrupulous. Individual people can and in fact often do behave in ways that are not in the best interests of humanity in general, but that can be viewed as rational or "right" from a certain narrow point of view if you ignore the fact that we have humanity in common.

I guess if you ignore our shared humanity and its moral obligations rigorously enough, that problem goes away. If you see that as a good, then good for you, I guess, and bad for the rest of us. Just remember there are more of us.

I'm not sure where you got those terms? The point I was making is that, contra the suggestion that the way to fix the economy is to 'get rid of traders,' the global economy as we know it is defined by markets.

We're all traders. Every damn one of us makes daily choices about buying and selling. We can't get rid of all traders, but we can certainly recognize that not all forms of trade are created equal, nor equally beneficial to the public interest.

I'd add, though, that that comment was not specifically in response to your comment, but to some of the follow-up discussion.
posted by saulgoodman at 1:27 PM on September 26, 2011 [4 favorites]

We can't get rid of all traders, but we can certainly recognize that not all forms of trade are created equal, nor equally beneficial to the public interest.

I agree with this, but I think the solution, other than a wholesale overthrow of the capitalist infrastructure, is stricter and better-enforced regulation, especially as pertains to automated trading.
posted by shakespeherian at 1:30 PM on September 26, 2011

Anyone here who says they can time the market is defacto declaring that they are smarter than all the MIT quants and all the computer sims running in all the big investment houses. Combined.

Color me skeptical.
posted by The Violet Cypher at 1:30 PM on September 26, 2011

It consists of people getting pissed because some professionals have applied some sort of logic to how to make money in the market then people getting pissed when someone tries to explain how that logic works.

It's remarkable how some people completely miss any point that has to do with ethics. None of us can possibly imagine what kinds of economic systems might evolve if shitty behavior weren't incentivized more than ethical behavior. The point isn't whether or not some traders can use reason and intuition to make a buck, but whether or not the system makes this kind of behavior inevitable. I think it does, but there is room for debate.
posted by jwhite1979 at 1:31 PM on September 26, 2011 [5 favorites]

Securities trading, to a large degree, is the economy.

NO. The only reason that high finance exists is allegedly to more productively allocate excess capital into creating real wealth rather than sitting idle. The economy isn't nominal GDP, it isn't the DJIA, it isn’t the NASDAQ, it isn't the PIIGS sovereign bond spreads, it isn't Goldman Sach's exposure to the Magnetar trade or the sum of AIG's CDS portfolio and it sure as fuck isn't JP Morgan's year-end bonus pool.

Finance is supposed to finance real things and real ideas to create real wealth for real people, Wall St. spent decades telling us that that's what they do, create wealth, allocate capital, because they're the Masters and they know best how to best maximize the value in worthy projects, and no one else is smart enough to do what they do, so back off with the regulations, alright? Let the masters create and the wealth will trickle on down.

Well guess what, they're not creating, they haven't been creating for nigh on a decade or more. Rather they're passing their worthless paper ones and zeros around, creating ever more obscure and inscrutable time bombs of risk with ZERO real effect in the real world that exists outside of fancy computerized gambling houses. Derivatives don't finance new inventions. Mortgage backed securities passed back and forth 1000 times don’t create a new factory. Fraudulent lending schemes never created a single real job (that wasn't based on the fraud itself).

Maybe securities trading makes up a large percentage of the imaginary bits and bytes that fly around the world's markets on a daily basis, but it benefits only the tiny few people that have conned, lied to, fleeced and cajoled the rest of us into thinking that their meaningless game is somehow the end all and be all sum total of all productive human activity we call the real economy.
posted by T.D. Strange at 1:31 PM on September 26, 2011 [40 favorites]

And on the pedestal these words appear --
"My name is Ozymandias, king of kings:
Look on my works, ye Mighty, and despair!"
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare
The lone and level sands stretch far away
posted by seanyboy at 1:34 PM on September 26, 2011 [9 favorites]

inscrutable time bombs of risk with ZERO real effect in the real world

What?
posted by shakespeherian at 1:36 PM on September 26, 2011

sum total of all productive human activity we call the real economy.

uh... maybe that's what you call "the real economy"... but that's not what economists study.
posted by LogicalDash at 1:37 PM on September 26, 2011

uh... maybe that's what you call "the real economy"... but that's not what economists study.

Did you notice any irony in your comment? A dash maybe? See, you've explained in part why most of economics is bullshit. It functions as a barrier or a smokescreen between the public at large and the business class.
posted by jwhite1979 at 1:43 PM on September 26, 2011 [6 favorites]

Somebody twitter Diogenes to bring his lantern over here - I'm pretty sure his long search is over.

"Goldman Sachs rules the world... " "... relentlessly jamming its blood funnel into anything that smells like money..."

Well ... there it is.
posted by Twang at 1:44 PM on September 26, 2011

MetaFilter: People upsetting people by acting like people.

people
verb (transitive)
to upset by acting like people: Independent traders people Mefites.

people people
noun
plural of people person

People people people people people people people.
posted by Anything at 1:45 PM on September 26, 2011 [10 favorites]

Economists actually do study the real buying and selling of goods and services, you know. In fact, that was kind of how it all started...
posted by saulgoodman at 1:47 PM on September 26, 2011 [1 favorite]

Economists actually do study the real buying and selling of goods and services, you know. In fact, that was kind of how it all started...

The problem with phrenology isn't that they don't study real heads. The problem is that their predictions are based on folk wisdom and rationalizations.
posted by jwhite1979 at 1:52 PM on September 26, 2011 [5 favorites]

See, you've explained in part why most of economics is bullshit. It functions as a barrier or a smokescreen between the public at large and the business class.

I'm having a hard time seeing why this line of argumentation couldn't be wielded against physics, mathematics, musical composition, medicine, or any number of other human endeavors that affect the population as a whole.
posted by shakespeherian at 1:53 PM on September 26, 2011 [1 favorite]

People people people people people people people.

Yes, but don't forget, people people people people people people people people, too.

Oh man, total semantic saturation on people right now.
posted by mellow seas at 2:00 PM on September 26, 2011

We should probably be more specific. There are lots of different kinds of economists.

Development economists are not the same things as Corporate Economists or Wallstreet Economists. So it depends on which kind of economist you mean.

But definitely, economics-based arguments are used to justify-as-science certain kinds of arguments that are ultimately socially and politically motivated, or that are simply motivated by certain personal financial interests.
posted by saulgoodman at 2:01 PM on September 26, 2011 [2 favorites]

It functions as a barrier or a smokescreen between the public at large and the business class.

okay, so

when people go into business with other people

and they can't assume that anybody understands anything about anybody else's business

and even so, they need to exchange services and goods

that's going to be confusing no matter what you do, right?

i mean, geez, even different departments in the same business have a hard time communicating

there were stocks and speculators before there were economists, because these are actually pretty simple ways of dealing with the problem of exchanging shit you don't understand

economists study that

sometimes they make up weird language to do this in, for the same reason that biologists make up weird latin names for species nobody else has names for

and sometimes the business class uses that language to confuse people

and you're blaming the economists for it?
posted by LogicalDash at 2:01 PM on September 26, 2011

(And I agree, a lot of it is formalized folk wisdom.)
posted by saulgoodman at 2:02 PM on September 26, 2011

I think it's time for George.
posted by adamvasco at 2:03 PM on September 26, 2011

Next up on "Ask An Asshole".... Used car salesman on auto safety: crashes I love crashes, sells me some more cars that way.
posted by ennui.bz at 2:04 PM on September 26, 2011 [6 favorites]

there were stocks and speculators before there were economists, because these are actually pretty simple ways of dealing with the problem of exchanging shit you don't understand

It wasn't about swapping shit people didn't understand before, though. Owning some piece of a company is not that complicated, after all. It was just that there had to be actual physical traders to complete transactions.

Now it seems Wall Street's has developed some kind of God Complex.
posted by saulgoodman at 2:04 PM on September 26, 2011 [1 favorite]

Physics and math gave us GPS and a moon landing. Musical composition gave us sonatas and hard bop. Medicine gave us vaccines. An average person can easily engage with the products of any one of the fields that you mention and experience their merit. But what has modern economics given us aside from a debt crisis, an unprecedentedly wealthy upper class, and a working class that subsidizes their wealth? It's just so obviously the case that our business class started out with the answer, "We need make ourselves rich," and built a pseudoscience based in rationalizations for that principle.
posted by jwhite1979 at 2:05 PM on September 26, 2011 [14 favorites]

Well guess what, they're not creating, they haven't been creating for nigh on a decade or more.

Longer than that. I had a front row seat for the Junk Bond Boom & Crash at the end of the 80's that began when Michael Milken discovered that the risk on SOME low-grade bonds was a lot lower than they were priced for, therefore a great bargain. So many people started demanding the "Good Junk" that Bad Junk got sold as Good to satisfy the demand (and Milken got caught using insider information to try to find any remaining Good Junk - that's what he went to jail for) and a lot more Even Worse Junk was created because people would buy it... and the price of All Junk went sky high until the Bad Junk started failing and then everything fell to almost-worthless. But ever since then, the Investment Scene has been nothing but ever-larger bubbles and the only reason it's hard to sell the "Recovery" we're in is because nobody can find a potential bubble bigger than the Housing Bubble was.

I recently reconnected with a former co-worker from the place I worked during the junk Bond Debacle. He took all his money and invested it in undervalued Good Junk AFTER the crash and never had to have a day-job again. He's done all right (a lot better than I have) by investing in after-crash assets, most recently buying BAC at $5 and selling it at $13 before it dropped again. He sees almost nothing undervalued today, especially Real Estate, so he's expecting/hoping for a double dip on the Housing Market. He's probably the most cynical person I know right now, but even more brutally honest than the guy in the original post (or just as self-serving, I may be wrong). I'm trying to get him to join MeFi to contribute to Economic threads but he wants to stay very very private. He says his lifetime goal is to be rich enough for the Forbes 400 without anybody at Forbes ever finding out (okay, THAT sounds like BS, but he's very interesting, thought-provoking and scary).
posted by oneswellfoop at 2:08 PM on September 26, 2011 [4 favorites]

I'm having a hard time seeing why this line of argumentation couldn't be wielded against physics

obXkcd
posted by Dr Dracator at 2:09 PM on September 26, 2011 [1 favorite]

Owning some piece of a company is not that complicated, after all

no, it totally is

do they have to pay you money now? if so then it's become a budget problem. balancing budgets is kind of a big deal

what decisions do you get to make as a shareholder?

how much stock do you need to have before you can shut the place down on a whim? actually, how would you even go about that? if the business isn't incorporated anymore, that doesn't make all its stuff disappear, it's all gotta go somewhere

...do you see where i'm going with this? the stocks are a gameable abstraction. people will game them. the game may end well or poorly for the players and the game pieces
posted by LogicalDash at 2:09 PM on September 26, 2011 [1 favorite]

Yes thank you...a tornado is not a recession.

General contractors are not stock traders, either.
posted by Kirth Gerson at 2:10 PM on September 26, 2011

But what has modern economics given us aside from a debt crisis, an unprecedentedly wealthy upper class, and a working class that subsidizes their wealth?

do you have a bank account
posted by LogicalDash at 2:10 PM on September 26, 2011 [1 favorite]

No LogicalDash, I'm not. I'm blaming them for making extraordinary claims to justify an economic system but being unwilling or unable to make more successful predictions than the average joe can make with no specialized training.

And yes, saulgoodman makes the reasonable point that not all economists are the same. My comments are directed toward the ones who make arguments.
posted by jwhite1979 at 2:12 PM on September 26, 2011

what, just any old arguments?
posted by LogicalDash at 2:15 PM on September 26, 2011

DEATH TO KRUGMAN
posted by shakespeherian at 2:15 PM on September 26, 2011 [1 favorite]

@Horselover:

That's fair, but a short while ago I was having a conversation in another thread where I asked, "So in what way is economics a science?" Several people tried to explain to me why it is a science.
posted by jwhite1979 at 2:16 PM on September 26, 2011

Keynesian Economics did a lot to build America's Middle Class which Milton Friedman and the Chicago School of Economics have worked hard (and so far successfully) to ~~undo~~correct.
posted by oneswellfoop at 2:17 PM on September 26, 2011

what, just any old arguments?

Sorry, I was being snarky. I'm actually fine with arguments.
posted by jwhite1979 at 2:20 PM on September 26, 2011

...its a shame to see it on the blue, as thats why I come hear, to avoid the "news" that the papers consider worthy of paper these days.

I think you need to work on your avoiding techniques. Try not reading threads that have "NYT" or "BBC News" in the post, for instance.
posted by Kirth Gerson at 2:22 PM on September 26, 2011 [2 favorites]

For the love of God, LogicalDash:

ABCDEFGHIJKLMNOPQRSTUVWXYZ .

And go easy on that ENTER key. I feel like I'm reading the Daily Mirror.
posted by The Tensor at 2:23 PM on September 26, 2011 [4 favorites]

That's just it, oneswellfoop: there is no evidence for that claim about Keynesian economics helping to build the middle class that can't be undermined by a conservative economist. I mean, I tend to think you're right, but the best anyone can do is make tentative arguments, and they pass off these arguments like they're worth something.
posted by jwhite1979 at 2:24 PM on September 26, 2011

axiom wrote: Because he apparently is planning for a recession; he has a plan in place to make money from the economy crashing. Which is kind of like having a plan to make money off the Titanic sinking.

I don't blame him. It's been pretty clear for a while now that there's no political will to take the steps necessary to avert a crisis. I'm only hoping that we avoid a repeat of the rise of fascism.

JPD wrote: uhm if you bought BAC 15 years ago you down 40% on it. Down 70% on sprint and flat on verizon

A little nitpick that probably won't change the outcome much with these particular examples, aside perhaps from Verizon: Stock splits and dividends.
posted by wierdo at 2:26 PM on September 26, 2011

In the last year i've gotten into writing financial trading systems for managing a few million to a hundred million.

This guy is spot on, a recession offers a lot of volatility, and volatility means a chance to make huge money.

It's the non professional investors who lose in a crash like this, people who are trained to leave their money in long positions or mutual funds.

Professional investors closed out of their long positions months ago, and are riding shorts to new homes, cars, and boats as the market collapses.
posted by sourbrew at 2:27 PM on September 26, 2011 [7 favorites]

I've recognized two basic types of economist after a few years of looking in from the outside. There's one branch of study where people are interested in improving the lives of piles of other people through understanding the management of goods and resources, and there's another branch that fabricates mathematical justifications for the enrichment of rich people.

One of these groups has a much larger impact on policy than the other and for obvious reasons. It's also worth noting that a sizable portion of the second group will do anything they can to convince themselves that they are in the first group. ('Trickle down economics' or, more recently, protecting 'job creators' being good examples of this phenomenon.)

My understanding of the stock market was that small traders are fodder that keep the machine running for larger interests, who are capable of waiting longer than individuals, wielding huge sums of capital to influence markets in favorable directions, and applying algorithms and technical ability to profit off market irregularities inaccessible to the average joe. It's similar to a poker game: the guy with the biggest stack of chips has an advantage over the other people at the table, and that advantage increases with the size of their relative advantage.
posted by kaibutsu at 2:28 PM on September 26, 2011 [9 favorites]

the best anyone can do is make tentative arguments

Or more likely, invalid arguments. Consider The Laffer Curve. It is logical that beyond a certain level, taxation will be a disincentive to economic activity, but the curve is always shown without a scale showing any peak for an effective level of taxation. We were obviously on the left side of the curve when Reagan first proposed 'Laffer-Curve' tax cuts, because statistically, they never paid off. And if you're far enough to the left of the Laffer Curve (as we are now), raising taxes will probably increase economic activity with a multiplier! But Neowhatever Economists would rather hide the chart's scale and LIE about its effect.
posted by oneswellfoop at 2:36 PM on September 26, 2011 [5 favorites]

I was just today listening to Arthur Laffer and Phil Graham arguing on Intelligence Squared. Their position was that "big government is stifling the American spirit."
posted by jwhite1979 at 2:53 PM on September 26, 2011

One day the poor will have nothing left to eat but the rich
posted by growabrain at 2:56 PM on September 26, 2011 [3 favorites]

Their position was that "big government is stifling the American spirit."

Boy, economics sure is a hard science.

I have my political views on Facebook listed simply as "Krugman", but it seems like at least half of people who claim the title of "economist" are either full of poo or serving interests that aren't mine (or most of anyone's). The merit is not easily distributed along micro/macro lines as Horselover suggests, either, as Krugman is a master of the latter.
posted by mellow seas at 2:59 PM on September 26, 2011

"Merchants have no country. The mere spot they stand on does not constitute so strong an attachment as that from which they draw their gains." -- Thomas Jefferson
posted by jadepearl at 3:10 PM on September 26, 2011 [1 favorite]

A little nitpick that probably won't change the outcome much with these particular examples, aside perhaps from Verizon: Stock splits and dividends.

My rough calculation is that BAC was $21 in 1996, $6 today, and paid out around $18 in dividends. (They were paying out 1% per quarter when the stock was in the 40's.) So I think you probably are up after all.
posted by smackfu at 3:23 PM on September 26, 2011 [1 favorite]

Kind of interested in one post on this thread:

We can fix the trader problem by fixing capital gains. Anything held under a month should be taxed at 50%, under a year, 25%.

I'd love to explore this a bit more. Isn't this a definitive growth strategy? As a thought experiment what would happen?
posted by cromagnon at 3:32 PM on September 26, 2011

There was an interesting interview on CBC yesterday with Roger Martin (dean of Rotman Business School), who says that we need to stop the system from being gamed by those who run it. He compares Wall St., where the owners and players are free to move around where they like, to the NFL, where there's a strict separation between the business side and the gaming side of the industry. He seems pretty sure that expecting the financial world to play by SOME set of rules would be a good thing. And of course he's flogging a book.
posted by sneebler at 3:36 PM on September 26, 2011

Share Traders More Reckless Than Psychopaths, Study Shows
posted by homunculus at 3:44 PM on September 26, 2011 [1 favorite]

> Share Traders More Reckless Than Psychopaths, Study Shows

There is a body of work (Prospect Theory, Tversky, Kahneman, &c) where they have collected lab data to support the idea that sociopaths have a distinct advantage in zero sum iterative prisoner's dilemma games. If you have a conscience, you mostly lose. If you do not have a conscience, you might win.

Guess who runs Goldman, Morgan, Citi, UBS, &c.
posted by bukvich at 4:01 PM on September 26, 2011 [8 favorites]

I like when our corporate overlords let the mask slip every now and then. This is like when Patrick Bateman occasionally blurts what really is on his mind.
posted by Ghostride The Whip at 4:09 PM on September 26, 2011 [1 favorite]

Though he does help make a lovely argument for trading taxes and what not.

What argument?
posted by BrotherCaine at 4:17 PM on September 26, 2011

Warren Buffett: "Please tax me."
Alessio Rastani: "We don't care what happens to the economy as long as we make money."

From these two data points, it looks as if the system is broken. Rather than efficiently distributing resources and managing risk, markets are now about concentrating capital in the hands of fewer and fewer people.

And those people in whose hands capital is concentrated are waving those hands saying in essence, "It's too easy to win this game. We need different rules."
posted by nickrussell at 4:23 PM on September 26, 2011 [1 favorite]

He gets points for honesty. It's not like pathologists get sad when an autopsy shows up.
posted by Renoroc at 4:24 PM on September 26, 2011

"big government is stifling the American spirit."

Not necessarily a bad thing. Have you SEEN the way people with 'the American spirit' act? Extreme asshole-ness that even 'hipsters' can't match.
posted by oneswellfoop at 4:35 PM on September 26, 2011

He says his lifetime goal is to be rich enough for the Forbes 400 without anybody at Forbes ever finding out (okay, THAT sounds like BS, but he's very interesting, thought-provoking and scary)

The Sociopath Next Door, and other enlightening tomes
posted by Vibrissae at 4:51 PM on September 26, 2011

We can fix the trader problem by fixing capital gains. Anything held under a month should be taxed at 50%, under a year, 25%.

I'd love to explore this a bit more. Isn't this a definitive growth strategy? As a thought experiment what would happen?

The concept is of course already in place, now you're just arguing time spans and rate.

One thought that occurs to me is that with higher tax rates for shorter periods, the gamblers and the churners will take ever larger bets to get the same kind of returns. And we all know where that leads. Sad, but there it is.
posted by IndigoJones at 4:57 PM on September 26, 2011

Don't forget a transaction tax.
posted by T.D. Strange at 5:03 PM on September 26, 2011

I really don't understand the hate here. You guys talk like plans like this guy's to make money from the recession were causing our economic problems. People like this guy that buy stocks when the prices are low are part of what helps to end a recession.
posted by straight at 5:07 PM on September 26, 2011

HAHAHAHAHAHA
posted by nola at 5:28 PM on September 26, 2011

Give this man a reality show!

Or some arsenic. Either suits me.
posted by Joey Michaels at 5:31 PM on September 26, 2011

You're thinking on the wrong timescale, Phattie. Crashes happen when there are no buyers. Everyone is trying to sell at once. This is a liquidity problem, in that you can't find a buyer at any price. However, when there are a substantial number of players with short positions in the market, those people will 'cover' at a certain price (i.e. buy the stock to repay the counterparty they borrowed it from). They will often do this well before anyone thinks the bottom is in, just to lock in profits. Thus, shorts are a substantial source of liquidity in a crash window and the spike rallies you often see after a crash are precisely short-covering rallies.
posted by unSane at 6:06 PM on September 26, 2011 [1 favorite]

So... everybody agrees that this is legit, not a yesmenesque subversion or something? I hesitate taking at face value anyone whose name anagrams to "rationalise ass", despite the fact that the name has appeared in an unrelated news story a year ago. And that he has a youtube account from '09 and a twitter account from '10...

Alternatively he might have some sort of trading agenda, or might actually be brutally blunt about all this... However the question remains: why in heaven's name would the BBC actually choose to interview him in particular? AFAICS he was at most a guy with a couple of sites on the interwebs... Anybody know anything about this man beyond the obviously googleable?
posted by talos at 6:09 PM on September 26, 2011

The market always goes up over the long term (meaning 5 to 10 year outlook) . Always.

The price of your home will always go up. Always.
posted by vibrotronica at 6:18 PM on September 26, 2011 [1 favorite]

So... everybody agrees that this is legit, not a yesmenesque subversion or something?

I know lots of traders like this. Go to slopeofhope.com or capitalstool or any one of a hundred other bear sites.
posted by unSane at 6:34 PM on September 26, 2011 [1 favorite]

We can fix the trader problem by fixing capital gains. Anything held under a month should be taxed at 50%, under a year, 25%.

I'd love to explore this a bit more. Isn't this a definitive growth strategy? As a thought experiment what would happen?

Rent-seeking by the government is still rent-seeking.
posted by unSane at 8:22 PM on September 26, 2011

I prefer it when bigots where sheets and burn crosses. Good to know who your enemies are.

Same with this guy. I'll take the guy who admits he's a economic narcissist over asshats like Mitt Romney any day.
posted by bardic at 8:25 PM on September 26, 2011 [1 favorite]

Isn't this a definitive growth strategy?

Another definitive growth strategy is only allowing share sales on an uptick, i.e. you can only sell a share when the price went up on the last sale. Every sale then adds value. What could possibly go wrong?
posted by unSane at 8:41 PM on September 26, 2011

"Capitalism isn’t delivering the goods. It’s delivering the bads, and that’s changing this country’s history." Richard Wolff tells us how.
posted by hortense at 9:50 PM on September 26, 2011

shorts are a substantial source of liquidity in a crash window

I've heard traders are prone to panic, but I didn't realise how bad it could get.
posted by logopetria at 11:47 PM on September 26, 2011 [5 favorites]

And just a data point:
In the 1929 depression, if you bought when the market was down 50%, and sold at the lows a couple of years later, you would still have lost over 60% of your original capital.
And if you had bought and held the day before the crash, you would have to wait until 1955 to get your money back, and the 1970s if you wanted to match inflation. Chart.
posted by bystander at 1:04 AM on September 27, 2011 [1 favorite]

"Do you dream about the Economy at night?"

"I try not to. Gives me nightmares."

Yeah, that about sums it up for me.
posted by sarastro at 1:07 AM on September 27, 2011 [1 favorite]

bystander: It's worse than that because these are absolute values not inflation adjusted. If you take inflation into account and if you had bought and held the day before the crash, you would have to wait until ~1960 to get your money back. But if you didn't sell then and waited until 1973, you would have to wait again until the early 1990s to get your money back
posted by talos at 3:17 AM on September 27, 2011

I know a hand surgeon who loves the winter because people slip and fall and break their wrists. I know him, but I am not friends with him.
posted by callmejay at 3:37 AM on September 27, 2011 [1 favorite]

Looks like your man likes to do lots of unsavory things.

It's pretty obvious in retrospect. Once again, I have been felled by my own biases.
posted by seanyboy at 3:58 AM on September 27, 2011 [1 favorite]

Good spot seanyboy, here's a page of "Alessio Rastani" and the Yes Men's Andy Bichlbaum spoofing a Dow spokesman.

Fantastic hoax if it is him! This clip was everywhere.
posted by TheophileEscargot at 5:14 AM on September 27, 2011

I really don't understand the hate here. You guys talk like plans like this guy's to make money from the recession were causing our economic problems. People like this guy that buy stocks when the prices are low are part of what helps to end a recession.
posted by straight at 5:07 PM on September 26 [+] [!]

The stock market has fuck-all to do with the economy, except that it occasionally correlates with it.

I'm no economist, but waiting until a stock bottoms out isn't really helping. Investing in a company when its stock is undervalued or needs a shot when it otherwise looks promising, and then retaining that stock in one's portfolio long term might more be considered "help".
posted by Horselover Phattie at 5:48 PM on September 26 [+] [!]

Neither helps the company. When you buy a stock, you aren't giving a company money. You are just buying an investment someone else made long ago.
posted by gjc at 5:27 AM on September 27, 2011 [2 favorites]

We can fix the trader problem by fixing capital gains. Anything held under a month should be taxed at 50%, under a year, 25%.

Under a year is already taxed at greater than 25%, and it doesn't seem to matter to most traders. Profit is profit, and a tax just means you have to trade more to get the same amount. It's not really that much of an incentive.
posted by smackfu at 5:42 AM on September 27, 2011

I went looking for pictures of "known yesmen" last night, and I saw the Bhopal video. It seems to me like a different person. I went and actually asked him on his f/b wall but I have not received any reply (yet?)... His site is on and off but that's consistent with an awful lot of people checking him out around the world...
posted by talos at 5:52 AM on September 27, 2011

Robert Peston, the BBC's business editor, admits on Twitter that they may have been hoaxed by YesMen.
posted by TheDonF at 6:15 AM on September 27, 2011

These Yes Men guys who I never heard about until this morning are very good.
posted by bukvich at 6:26 AM on September 27, 2011

If this guy is a fake he is faking out Forbes too. Link.
posted by bukvich at 6:37 AM on September 27, 2011

Good link bukvich, but I don't think that Forbes article really comes to any conclusion about him. From their interview:

The guy who wrote [on Forbes] mistakenly wrote that I’m a Wall Street trader. I’m not an institutional trader. I wouldn’t dream of ever doing that. I trade my own money, my own account...

...I started trading for real in 2006...

I trade mostly the Dow futures, also a bit of forex, and I trade stocks, the most liquid stocks in the market.

His story is that he's a day trader who has always traded with his own money, online from his home. He's never worked for a bank or an instititution. So, there's nothing out there that could really confirm or deny whether he's a "real" trader, or a fake trader, or just a random guy dabbling in the market with smallish sums.

He doesn't seem to specialize much: he claims to trade futures and currency and stocks, which seems a bit odd. It would be pretty hard for one guy working on his own to keep informed about all these different markets.
posted by TheophileEscargot at 6:56 AM on September 27, 2011 [1 favorite]

HAHAHAHAHAHA

That's just what I was thinking. Missed this thread, as I was off having fun trading and stuff, making 100% profit in two days on some options. For like $500; I am "just a random guy dabbling in the market with smallish sums" and wasn't too confident.

Those of you offended by this guy can take comfort in the fact he probably lost a lot of money so far this week. FTSE 100 as he says "the market is toast": 5083. Today: 5247.

Because he apparently is planning for a recession; he has a plan in place to make money from the economy crashing.

Being prepared for a crash; good idea. Betting on one happening right now; very likely to be bad timing.
posted by sfenders at 7:19 AM on September 27, 2011 [1 favorite]

So the yeslab.org site is down, probably due to traffic overload, but The Yes Men have confirmed on the site that Rastani is *not* affiliated with the group. The fact it's hard to tell satire from reality any more is pretty disturbing.
posted by stagewhisper at 8:07 AM on September 27, 2011

Shorting stocks doesn't hurt anyone. Every stock trade has two sides. For every short that wins, there is a long that loses. And vice versa. Betting on a horse race doesn't change the outcome.
posted by gjc at 8:09 AM on September 27, 2011

For the last fifteen years, the financial industry has become a major component of global capitalism, indispensable to its operation. The ideologues of the left who profess to see it as a parasitic activity, phagocytozing the real economy, are ignorant of the reality of the facts. Since the beginning of the 1980s, financial transactions have yielded more money, overall, than capital invested in the production of goods, whether material or non-material; the purchase and sale of fictive capital on the stock markets and exchanges yields more than the productive development of real capital. More than half the profits realized by the great American firms come from financial operations. The 500 firms of the Standard and Poor's Index own $643 billion of liquidity that find profitable employment only in the financial industry. This apparent prosperity of the great firms does not in any way contradict the contraction of the overall mass of profits that productive capital yields. It only means that a minority of firms, thanks to their dominant position, phagocytoze the value produced by the totality of companies, notably through the use of sub-contractors, through reciprocal accords, and through monopoly rents.

-Gorz, Theorizing Deliverance from the Labor- and Commodity-Centered Society

(emphasis mine)
posted by Reasonably Everything Happens at 8:30 AM on September 27, 2011

Betting on a horse race doesn't change the outcome.

It does change the odds for the other bettors though.
posted by smackfu at 8:36 AM on September 27, 2011 [1 favorite]

For the last ~~fifteen~~ four hundred years, the financial industry has become a major component of global capitalism, indispensable to its operation.
posted by sfenders at 8:39 AM on September 27, 2011 [1 favorite]

For the last four hundred years, the financial industry has become a major component of global capitalism, indispensable to its operation

That may make good copy on mefi, but it's not really true if you take the word "indispensable" literally. Maybe it's more than 15 years, but I assure you that financial capital was quite different even 100 years ago.
posted by Reasonably Everything Happens at 8:52 AM on September 27, 2011

no, it totally is

All of the complications you mention are factors that go beyond the role of traders, though--things that have to do with the terms of specific offerings, etc., The trader's role is really simple: buy x amount of this thing on behalf of a client at a price your client has offered.

The traders don't negotiate the terms of the trade in a conventional stock offering beyond the haggling over price. It's the company that decides the terms of the offering, and the trader doesn't necessary play any role in explaining or defining those terms to a client. We were talking specifically about traders here, not financial advisers, right?

With the exception of the more exotic investment instruments, I mean. Synthetic derivatives, etc., haven't always been traded on our exchanges and in many cases have been expressly prohibited as gambling. Ordinary trading in stock certificates, as far as carrying out the trades themselves goes, is not inherently all that complicated, is it? If you disagree, tell me what specifically is so complicated about trading stock certificates? Obviously, making wise investment decisions is another thing, but it's not the trader's role to do that for you, is it?
posted by saulgoodman at 9:08 AM on September 27, 2011

do you have a bank account

The modern FDIC gave us those, because during the depression era we all but abandoned the banking system because it wasn't reliable.

If it weren't for government backing, the markets operating on their own would have already killed off the banking system. We wouldn't have banks if we allowed the free market to run its course without government intervention.
posted by saulgoodman at 9:14 AM on September 27, 2011 [2 favorites]

The ideologues of the left who profess to see it as a parasitic activity, phagocytozing the real economy, are ignorant of the reality of the facts. Since the beginning of the 1980s, financial transactions have yielded more money, overall, than capital invested in the production of goods, whether material or non-material; the purchase and sale of fictive capital on the stock markets and exchanges yields more than the productive development of real capital.

Aaargh. This is kind of a true statement supported by false reasoning.

Markets do in principle serve useful purposes.

Suppose you're a soybean farmer. You're worried that when you harvest your soybeans, the price will be so low you can't afford to pay your costs, like the wages of the farmhands. One thing you can do is buy a futures contract for X dollars that pays you some money if the price of soybeans falls below Y cents per kilo. That means at least you'll be able to cover your costs.

Have you as a part of the real economy, just been "parasitized" by the financial sector?

Suppose the price was higher than the threshold. Your X amount of money has gone to the financial sector, true. But it's not really been "phagocytozed" (not sure why the word "eaten" can't be used there instead BTW). You have received something in exchange for that money: a reduction in risk. It's not a parasitism, its symbiosis. You've paid something, you've received something: even if risk is not as "real" as a physical object, it can still have a value to you.

Now that's the theory. In reality, it seems that at the moment the financial sector has grown too big, and too volatile, and that volatility is causing harm to the real economy. But that doesn't mean you can just call the whole financial a "parasite" and eliminate it entirely. It needs to be cut down to size, not destroyed.

But the fact the financial sector makes so much money doesn't mean it's not parasitic. If anything, it may be the other way around. If the financial sector were small, then it would be likely that it was serving a useful purpose for the real economy. If the financial sector is really big, then it's likely to be a distraction of effort from the real world, and it's likely that the "animal spirits" of traders are distorting prices from efficient levels.
posted by TheophileEscargot at 9:23 AM on September 27, 2011 [2 favorites]

Just to be clear, Alessio Rastani *is. absolutely. not.* the same person as "Andy Bichlbaum". Which is not to say this isn't part of a Yes Men prank. They're somewhat amorphous and have lots of ad hoc spokespeople at their disposal at any given time.

Seconding for further clarity. Bill Wasik (formerly of Harper's, now an editor at Wired, purported inventor of the flash mob) just tweeted: "Alessio Rastani may be a hoax but he is def. NOT "Jude Finisterra" of the Yes Men, whom I have met. Watch the Yes Men doc and you will see."
posted by gompa at 9:29 AM on September 27, 2011

NPR: No Hoax, BBC Says: Alessio Rastani Is A Trader Who Wants A Recession

But really, I'm surprised people think this would be a hoax. It's not like traders have been shy about expressing similar views on finance-related comment boards.
posted by saulgoodman at 9:57 AM on September 27, 2011

And then there is this guy: Felix Solomon.
posted by bukvich at 9:58 AM on September 27, 2011

Suppose you're a soybean farmer....by TheophileEscargot

Thanks, I get all this.

You're not getting the full context of the Gorz quote, which is understandable since it isn't linked (they used to host his piece on Truthout, but it's since expired, not sure where to find it now).

The point here is that the financial industry is not valueable because of its ability to reduce risk or balance liquidity fluctuations. Instead the industry serves as an overflow for capital resources that can't find profitable use in physical production. In short, we've produced enough stuff (even with synthesized consumption) so that money really has no where else to go.

The machinations created to receive this excess capital do increase volatility, but much more significantly, they retroact on the real economy to allow the gains on 'fictive' capital to create gains that put real money in peoples' pockets to buy real food. Basically allowing a small number of financial giants to reinvest their hoarde again necessarily creates food for X thousands more people to exist and eat.

Clearly it's unstainable, but that's easy to say being here on the internet, not so much when you're part of the next X. Another of the myriad sustainability issues here is that the risk engendered by this continued operation is growing to a point where the consequences are uncertain.

The existential issue of capitalism is really the nugget that Gorz works over in that article: the task at hand is not figuring out the 'right' size of the financial industry, the task is finding out if global society is ready for another paradigm shift away from capitalism and towards something more humane and sustainable.
posted by Reasonably Everything Happens at 10:09 AM on September 27, 2011 [1 favorite]

Anyone here who says they can time the market is defacto declaring that they are smarter than all the MIT quants and all the computer sims running in all the big investment houses.

Your computer sims and MIT quants all rely on human assumptions and biases. If a set of assumptions is incorrect, then the best methods may yield poor results. However, 'good' assumptions can make up for some technical inefficiencies. And sometimes you just get lucky. So sure, some people are going to guess right and beat the market. Quants are trying to ride trends, in my understanding, not so much attempting to engineer a quick-flip windfall. The windfall thing might work for an isolated guy in a bunker, but a big financial house isn't going to put all its eggs in one basket - they will spread the risk and hope they pick more winners than losers.
posted by Mister_A at 11:11 AM on September 27, 2011

broadly put the market has two core exploitable biases - momentum and value. Everyone serious is trying to capture one or the other.

There are other inefficiencies out there, but they tend to be more ephemeral.
posted by JPD at 11:33 AM on September 27, 2011

The 11 year average of the S&P500 is about 1140. It's currently at near equilibrium. It almost doesn't matter if you bet long or short, it's low risk/low reward either way.
posted by stbalbach at 12:08 PM on September 27, 2011 [1 favorite]

That may make good copy on mefi, but it's not really true if you take the word "indispensable" literally. Maybe it's more than 15 years, but I assure you that financial capital was quite different even 100 years ago.

Of course it was, that is true. I also have a book around here somewhere, written in the late 1980's, about all the revolutionary changes that happened between roughly 1970 and 1985 (computers!). I'm sure people had similar concerns after 1913 for instance. I suffered some considerable angst about how many hundreds of years to claim there for my flippant comment, but I think probably somewhere around the early 19th century is about the latest one could reasonably argue for a statement like that making sense.

You're not getting the full context of the Gorz quote, which is understandable since it isn't linked (they used to host his piece on Truthout, but it's since expired, not sure where to find it now).

Here. Not really sure if I'll get to reading it.

My point of departure was actually the fact that the microelectronic revolution allows production of growing quantities of commodities with decreasing volume of work, in such a way that sooner or later the system will have to run up against its internal limits [2].

Computers!
posted by sfenders at 12:28 PM on September 27, 2011 [1 favorite]

I'm an attention-seeker, not a trader. So yeah, not a hoax, but nor does he have any more insight into Goldman Sachs and the market than that bloke banging on too loudly in the pub/coffee shop/train who read yesterday's business editorial.
posted by Hartster at 1:13 PM on September 27, 2011 [1 favorite]

The point here is that the financial industry is not valueable because of its ability to reduce risk or balance liquidity fluctuations. Instead the industry serves as an overflow for capital resources that can't find profitable use in physical production. In short, we've produced enough stuff (even with synthesized consumption) so that money really has no where else to go.

Just because money has gone into the financial sector rather than into physical production doesn't mean that physical production couldn't use that capital. It just means that the financial sector offers better returns.
posted by bjrubble at 1:50 PM on September 27, 2011 [1 favorite]

It's ridiculous to attribute all the revolutionary changes in recent years to the stock markets, though. Scientific breakthroughs happen wholly independently from the financial sector. Human achievement and scientific progress predates the specific form our modern financial systems take.

I mean, look, if you're going to make the extraordinary claim that Wall Street is ultimately responsible for every major human accomplishment or positive development over the last 200 years, you should at least provide a plausible explanation of the mechanisms that supposedly make that so.

I could see an argument for Wall Street being super important when it's used to move capital into real, productive economic investment--like actual capital investments in IPOs, rather than bets on synthetics and derivatives and all the trading back and forth that follows an IPO--but most market trading doesn't even do that.

It just makes money for traders or for sellers of stocks. The only productive capital involved is the capital injected into the real economy at the point of an IPO. After that, it's just an elaborate game that let's people with enough money make more money off of betting on what other people think stocks are worth.

Don't confuse Wall Street's opinion of itself with reality. Wall Street is not God, though perhaps one too many cocaine binges has left it with that inflated opinion of itself.
posted by saulgoodman at 2:00 PM on September 27, 2011

I mean, look, if you're going to make the extraordinary claim that Wall Street is ultimately responsible for every major human accomplishment or positive development over the last 200 years, you should at least provide a plausible explanation of the mechanisms that supposedly make that so.

Me? Didn't mean to claim anything like that. I just said financial markets more or less resembling those that exist today have for hundreds of years been an indispensable part of the way the economy works. The "revolutionary changes" that have recently happened to them haven't changed the basic way they operate by nearly so much as people often seem to think, or at least the rate of change has been more gradual than is often implied. The latest crisis has a whole lot in common with those that happened in ages past. The markets are "indispensable to the operation of global capitalism" in the sense that if you somehow dispensed with them all, the global capitalism could not exist in anything like its present form, and would have to operate in a fundamentally different way or not at all. I certainly didn't mean Wall Street or the stock markets alone, nor that there couldn't hypothetically be some better way of running things. You seem to be thinking only about stock markets, which is understandable as that was originally what the discussion was about, but that's small compared to the world of bonds, credit, currencies, commodities markets, insurance, and the whole banking system generally which is what I took "the financial industry" to mean.
posted by sfenders at 2:38 PM on September 27, 2011

It just makes money for traders or for sellers of stocks. The only productive capital involved is the capital injected into the real economy at the point of an IPO. After that, it's just an elaborate game that let's people with enough money make more money off of betting on what other people think stocks are worth.

You seem to be under the impression that the stock market only interacts with the real world when a company is listed for the first time. Not so. companies issue new stock or buy it back on a regular basis, and most companies are also active in the commercial paper market, using debt as a source of short-term operating capital to smooth out the business cycle. If it were just a casino which only affected a company at IPO time, then managers wouldn't care about the stock price. I don't think you really understand how the financial markets work or what purpose they serve.

Incidentally, it turns out that the guy is not in fact a trader, just a fast talker that the BBC called to fill the daily news hole.
posted by anigbrowl at 6:16 PM on September 27, 2011 [1 favorite]

Astonishing.

This man said absolutely nothing that could reasonably be considered evil, except for the admission that he "dreams of another recession"... Some people dream of rescuing a beautiful woman from a burning building, but that doesn't make them arsonists, nor evil.

You know what? So have I. Not because I wanted it to happen, but because I made a buttload of money, and it was addictive! Now, I'd much rather the economy flourished, but while it's tanking, I'm going to try to reapply the same techniques to make money again.

--

Let's review some of his evil, horrible, selfish statements:

"This [recession] is a cancer. It's not going to go away if you don't look at it, and the government isn't going to make it go away. You've got to be prepared." What a self-centered cretin!

"It's not just traders; ordinary people can make money in a recession... One way is to move them into bonds." [Confession: during the 2008 recession, I was holed up in bonds, and made money on my 401k. Oops! That makes me evil!]

"People have to protect their assets. " The bastard!

"You can make money from a downward market." (Obviously he meant "by eating kittens and sacrificing children to Satan," but he might also have been suggesting by investing in bonds, CDs, or short funds - all harmless acts of investment.)

Yes, Virginia, you can make money in a down market. And you can make money in an up-and-down market, as we've had for the last month+. And you don't have to be EEEEEVIL (mwahahaha!) to do it. (On that note - you could have done it by investing in Google, which has fared nicely through the downturn!)
posted by IAmBroom at 10:18 PM on September 27, 2011 [1 favorite]

Right. Because we're in a recession/crash. Now is a good time to buy. When the market crashes it will be a better time to buy. 10 years from now is a good time to sell. What you fail to mention is that if you had bought BAC in '96 at 6.57 and sold it prior to the current crash in '07 at 52 or '06 at 45 or even '03 at 32 you would have made a substantial amount of money.

Now is not a good time to buy Bank of America. Do you know anything about Bank of America?

The other funny thing is that you mentioned Apple as a company that had done down so you could buy cheap. Except they are up 26% since June 21st. They're up 4% over the past month. So if your advice is "buy stock when it's down" then this is a terrible time to buy AAPL. Since the start of 2009 they are up 365%. IMO they are way too high now, but I thought the same thing after the 2008 crash and bought Google instead. sigh

Basically you can't pick an arbitrary time and say that you're absolutely going to make money by buying and holding for ten years, and more importantly you can't know that any given time is a significantly better time to buy than any other time.

You make money over any 10 year period. Except, you know, the last 10 year period.

So... everybody agrees that this is legit, not a yesmenesque subversion or something? I hesitate taking at face value anyone whose name anagrams to "rationalise ass", despite the fact that the name has appeared in an unrelated news story a year ago. And that he has a youtube account from '09 and a twitter account from '10...

The stuff he's saying is not at all uncommon to hear from people involved in trading. They all seem to be kind of nuts. If you're not working for a major investment bank or something there's no reason to put a gloss on it.

Neither helps the company. When you buy a stock, you aren't giving a company money. You are just buying an investment someone else made long ago.

Not true, you increase the share price, which makes it easier for the company to raise money by issuing new shares. I pointed this out once in a thread where someone was trying to claim that people who owned BP stock weren't "responsible" for the oil spill because they weren't 'helping' the company, when in fact they were.

Anyone here who says they can time the market is defacto declaring that they are smarter than all the MIT quants and all the computer sims running in all the big investment houses.

Only if you assume that the MIT quants and computer sims running in all the big investment houses can't time the market. But why would you make that assumption? In fact, big investment companies absolutely do try to time the market doing things like high-frequency trading and statistical arbitrage. I'm talking about millisecond timing though.

----
As to whether or not Economists are 'real scientists' and whether or the existance Paul Krugman indicates that they are:

_{I’ve never liked the notion of talking about economic “science” — it’s much too raw and imperfect a discipline to be paired casually with things like chemistry or biology, and in general when someone talks about economics as a science I immediately suspect that I’m hearing someone who doesn’t know that models are only models. Still, when I was younger I firmly believed that economics was a field that progressed over time, that every generation knew more than the generation before.

The question now is whether that’s still true. In 1971 it was clear that economists knew a lot that they hadn’t known in 1931. Is that clear when we compare 2011 with 1971? I think you can actually make the case that in important ways the profession knew more in 1971 than it does now.

I’ve written a lot about the Dark Age of macroeconomics, of the way economists are recapitulating 80-year-old fallacies in the belief that they’re profound insights, because they’re ignorant of the hard-won insights of the past.

What I’d add to that is that at this point it seems to me that many economists aren’t even trying to get at the truth. When I look at a lot of what prominent economists have been writing in response to the ongoing economic crisis, I see no sign of intellectual discomfort, no sense that a disaster their models made no allowance for is troubling them; I see only blithe invention of stories to rationalize the disaster in a way that supports their side of the partisan divide. And no, it’s not symmetric: liberal economists by and large do seem to be genuinely wrestling with what has happened, but conservative economists don’t

And all this makes me wonder what kind of an enterprise I’ve devoted my life to. -- Paul Krugman}

posted by delmoi at 10:45 PM on September 27, 2011 [1 favorite]

I disagree with Krugman on that. Until relatively recently, biology was as inexact as economics is. I guess that the argument could be made that, unlike other sciences, economics cannot ever develop into a hard science, but who knows if that's actually true.

You also have to keep in mind that economics is suffering a problem of most of its supposed brain trust working towards the ends of the Chamber of Commerce rather than actually attempting to move the field forward. It's being attacked in much the same way medicine was attacked by tobacco companies.
posted by wierdo at 11:53 PM on September 27, 2011

Guardian: Trader's Goldman Sachs comments spark BBC hoax claims
posted by dabitch at 1:42 AM on September 28, 2011

BBC financial expert Alessio Rastani: 'I'm an attention seeker not a trader'
posted by markkraft at 4:21 AM on September 28, 2011

stat-arb and HFT aren't trying to time the market.
posted by JPD at 4:39 AM on September 28, 2011

You seem to be under the impression that the stock market only interacts with the real world when a company is listed for the first time. Not so. companies issue new stock or buy it back on a regular basis, and most companies are also active in the commercial paper market, using debt as a source of short-term operating capital to smooth out the business cycle.

No, I'm not. I understand that companies can have multiple stock offerings to raise more working capital, and I understand the commercial paper markets help with short-term operating liquidity, too. And no, I'm not one who thinks we should raze Wall Street completely to the ground or anything. But I do believe some of you are grossly underestimating just how much of what Wall Street does now would have been prohibited as gambling in previous eras, and how much certain newer trading techniques and technologies (automated algorithmic trading is now estimated at something like 40% of daily market volume!)--not to mention cultural changes that have fostered less responsible and ethical business practices on Wall Street--have changed the fundamental character of the financial sector from symbiotic to parasitic.

But people often do casually talk as if every kind of Wall Street trade puts working capital into productive use. That's not true for the vast majority of Wall Street activity anymore. Now, sure, if a company's holding a bunch of treasury stock, and there's some crazy run on the stock, then the company could see big swings in their overall market value, but that seems like a bug more than a feature of the stock markets, as it means traders playing technical indicators alone--which have no direct connection to the fundamental health or economic productivity of a company--could potentially kill or at least do serious short-term harm to good companies for no good reason.
posted by saulgoodman at 6:31 AM on September 28, 2011 [1 favorite]

NMA News has an animation up: 'Trader from Hell' goes viral on the BBC .
posted by TheophileEscargot at 6:41 AM on September 28, 2011

don't forget the equity markets basically had nothing to do with the housing bubble, and I'm not really sure why the volume levels matter all that much, and I'm pretty sure I don't care what generates those trading volumes. If those algos create volatility in the short-term, the only group of people who should care are people trying to make short term profits.

Having said that, certainly wall street people massively overvalue themselves and their industry.
posted by JPD at 6:41 AM on September 28, 2011 [1 favorite]

JPD wrote: the only group of people who should care are people trying to make short term profits.

Yeah, that misses the insidiousness. (one of) The point(s) of all this is to frontrun orders so as to steal a penny or so from each transaction. Plus, humans are not the rational creatures of economics. We see volatility and get nervous.

And then you get things like the flash crash, when the market just stops (and consequently drops) for no apparent reason. This is one of those situations where I feel like we need one of these HFT people to sit down and explain why the behavior should be allowed, because all I'm seeing is downsides for the rest of us, with no real upside. I don't buy the liquidity argument, because any time the market gets seriously out of whack, thus rendering their liquidity useful, the HFT guys turn off their bots.
posted by wierdo at 7:02 AM on September 28, 2011

no it actually doesn't miss the point of anything. The flash crash was actually one of the best days to be a traditional long-term focused investor. If you can be fundamentally long returns volatility there is a lot of money to be made.
posted by JPD at 7:05 AM on September 28, 2011

Or let me put this another way - if you are a long-term investor the size of your error term in your assessment of a companies intrinsic value is multiples and multiples of what ever the deadweight loss from HFT is going to be. Not to mention in as much as HFT can contribute to periods of extreme volatility, you recapture most of that wealth transfer over time just by being prepared to take advantage of the situation.
posted by JPD at 7:09 AM on September 28, 2011

I'm still not seeing how market manipulation helps me as an investor, and I'm not seeing how increased volatility helps the wider economy.
posted by wierdo at 7:45 AM on September 28, 2011

it doesn't help you , but the damage it inflicts on you is almost meaningless unless you turn over your portfolio weekly. Of all the things that are fucked up about the financial system it should be at the very end of the list of priorities.

stock market volatility? either high or low it doesn't impact the economy, and it presents a very attractive opportunity for outperform the market. Every single profitable long-term investment strategy is inherently long volatility. You almost can't have alpha w/o volatility.
posted by JPD at 7:53 AM on September 28, 2011

You don't think volatility has an effect on sentiment?
posted by wierdo at 7:59 AM on September 28, 2011

investor sentiment? yes. But to be honest I'm not sure a little less confidence n the whole thing isn't good in the long term. We usually get in trouble when people are too happy to take risk.

Normal day to day consumer sentiment? I.e. things like the ISM - I think the link is much more tenuous. I think less people should pay attention to the stock market as well.
posted by JPD at 8:06 AM on September 28, 2011

Stock market volatility is great for traders: more and bigger movements mean more chances to make more money. But it does cause problems for the real economy.

Suppose you've retired and you want to buy an annuity with your pension fund, which has just dropped significantly? Suppose your company is bought by an asset-stripper while the price is low?

But more fundamentally, it disrupts the efficient allocation of capital and resources. The market is supposed to be a way to allocate capital to efficient, well-run organizations with good chances of growth. In a volatile market, those price signals are lost in the noise of the traders "animal spirits".

Volatility isn't "almost meaningless": it means a system failing to fulfil its purpose.
posted by TheophileEscargot at 8:21 AM on September 28, 2011

Actually I suspect most traders like trends not volatility. Volatility scares them away.

HFT doesn't create the sort of volatility that impacts asset prices in even the medium term. It creates lots of intraday volatility more than anything else. Your annunity example doesn't make any sense in that context.

But more fundamentally, it disrupts the efficient allocation of capital and resources. The market is supposed to be a way to allocate capital to efficient, well-run organizations with good chances of growth. In a volatile market, those price signals are lost in the noise of the traders "animal spirits".

this is the sort of comment others above have been saying is an example of the finance world thinking its way more important than it is. When the volatility is like that created by the Algos, it doesn't really impact economically sound deals. It will screw with the froth, but then we shouldn't want the froth anyway.

The great volatility event of the last five years (ex-the great quant blowup of '07, which I actually thinks supports my point if you look at how the rest of the market responded) was the collapse of the RMBS/Structured Finance market - a place where most of the trading - especially in the more esotric bits - is done OTC by actual people.
posted by JPD at 8:30 AM on September 28, 2011

Anecdotally look at who screams and yells the most about HFT - its day trading speculators and other short-term investors. There is information in that.
posted by JPD at 8:32 AM on September 28, 2011

JPD wrote: I think less people should pay attention to the stock market as well.

I agree, but if wishes were horses we'd all be riding.
posted by wierdo at 9:18 AM on September 28, 2011

I'm guessing the longer stock returns stay low the more likely my horse comes trotting into town.
posted by JPD at 9:29 AM on September 28, 2011

much of what Wall Street does now would have been prohibited as gambling in previous eras

The thing you linked to seems to be one of those pieces that ends up giving them impression that "derivatives" means basically the same thing as "OTC credit derivatives that abuse the gaussian copula and are sold to people who don't understand them". Of course virtually nobody understood them much when they were new. They had problems with more primitive and simple options contracts back in the 17th century tulip mania, and as a result those were banned for some time afterwards; but they've been back for a hundred years or more, and all that time they've been providing more than enough leverage-through-derivatives for people to financially blow themselves up as has happened so many times. I'm not aware of any other examples of derivatives being banned for too much resembling gambling, are there some? Obviously there are regulations limiting for instance position sizes in various things, but the ones I've heard of seem more intended to prevent or detect attempts at market manipulation. And of course there are collateral rules and such. Seems to me they are more about protecting counterparties, exchanges, etc; not prohibitory attempts to prevent gambling for any inherent evil in it.

No, the problems don't arise because some fancy new derivative has been invented, the problems we've seen with them are the standard result of people thinking they understand them when they don't, whether they came to that incorrect conclusion through clever mathematics or because a salesman convinced them of it. And that has been going on for centuries.

As for HFT, yeah, it seems to me like a very minor annoyance. Rather have that than bucket shops and boiler rooms.
posted by sfenders at 9:43 AM on September 28, 2011

"The governments don't rule the world. Goldman Sachs rules the world."

Speaking of Goldman Sachs: Big Bank Cuts Costs Via Layoffs And Smaller Cups, While Increasing Bonus Pool
posted by homunculus at 9:57 AM on September 28, 2011

I disagree with Krugman on that. Until relatively recently, biology was as inexact as economics is.

Biology gradually accumulated knowledge over time. But there is a huge difference in that, basically since the beginning of modern science you've been able to do controlled experiments in biology. You may not know the underlying why of something but you know exactly what will happen because you can isolate it and test it. That doesn't happen in economics. People look at data and infer models, but they don't really have any way to test them.

And then a lot of people make the crucial mistake in assuming that the models they've read about are true rather then observationally derived heuristics.

The measure of whether or not something is 'science' isn't "how much do we know" but rather how much of the stuff they claim to know is verifiable and arrived at through the scientific method.

You also have to keep in mind that economics is suffering a problem of most of its supposed brain trust working towards the ends of the Chamber of Commerce rather than actually attempting to move the field forward.

Well, right but that's what makes it 'not a science'. It's probably possible to do economics in a scientific way but if people calling themselves economists aren't doing it then what do you have?
posted by delmoi at 10:16 AM on September 28, 2011

So the bunkum put out by the global warming deniers means that climatology is not a science?

And in biology, you know that something will happen, except when you don't. Kinda like economics.
posted by wierdo at 10:29 AM on September 28, 2011

Speaking of Goldman Sachs: Big Bank Cuts Costs Via Layoffs And Smaller Cups, While Increasing Bonus Pool

as the article itself says, bonus accruals before the 4th quarter don't really mean much, indeed I could find you 25 articles that say pools are going to be down meaningfully because of the UBS trader losses. Bonus pools at the big firms are more about the game theory of employee retention then they are about profitability. When one big firm is down a lot there is much less upward pressure on comp.

Also shouldn't you be happy bankers are getting fired?
posted by JPD at 10:31 AM on September 28, 2011

Also shouldn't you be happy bankers are getting fired?
Only when it's out of a canon.
posted by adamvasco at 10:32 AM on September 28, 2011

[rimshot]
posted by JPD at 10:38 AM on September 28, 2011

I agree, bankers' literary works are wholly without merit.
posted by shakespeherian at 11:22 AM on September 28, 2011 [1 favorite]

So the yeslab.org site is down, probably due to traffic overload, but The Yes Men have confirmed on the site that Rastani is *not* affiliated with the group.

It's back up. Here's the message from Andy Bichlbaum: Rastani is not in Liberty Plaza
posted by homunculus at 12:27 PM on September 28, 2011

RAP NEWS 9 - The Economy ^_^ (with Ron Paul & Peter Joseph)
posted by finite at 4:51 PM on September 28, 2011

sometimes truth outdoes satire.
Unlike Rastani, true industry insiders like Paulson, Geithner et al remain silent about the way their system works, couching it all in technical jargon and full-on deceit.
posted by adamvasco at 5:21 AM on September 29, 2011

Meltdown: The Secret History of the Global Financial Collapse
posted by homunculus at 9:38 AM on September 29, 2011

Goldman Sachs let off paying £10m interest on failed tax avoidance scheme: Leaked documents show top tax official shook hands last year on secret settlement described by sources as a 'cock-up'
posted by homunculus at 8:14 PM on October 12, 2011

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