High-frequency traders are killing Main Street
In a brilliant cover piece a few years ago Forbes magazine canonized high-frequent traders: They are the “New Masters of Wall Street … even as financial markets collapsed … high-frequency traders collectively enjoyed $21 billion in gross profit.” They rule bank CEOs from inside. What happened to J.P. Morgan is an early warning shot.
These guys are playing the ultimate video games. Today “high-frequency traders are sending out 1,000 orders a second.” They think in milliseconds, love their math algorithms, machines, server banks, all to play their newest “games” in the NYSE, Nasdaq and most of all in the Wild West world of the unregulated $650 trillion global derivatives market, making naked derivative side-bets.
The profits are blinding. In late 2010 Goldman Sachs traders made over $100 million net profits a day for 23 days one month.
Meanwhile, America’s 95 million average Main Street investors hate the “new normal” and hear that day trading’s the road to riches. In a sidebar, “Trading for Dummies,” Forbes listed some tips, like streaming quotes, limit orders and “pay attention to premarket action.”
But in their fourth “Trading for Dummies” tip they really show their cards, telling Main Street investors something we’ve been preaching for years in our Lazy Portfolios: Very simple.
“Don’t day trade: It’s a losing game to try to make money chasing momentary market inefficiencies. Too many pros with too much computing power are already at it. Instead, decide on a set of long-term investing goals and trade infrequently to achieve them.”
And yes, you can trust Forbes, the capitalists bible.
Still, the beat goes on and every 20 milliseconds another addicted can’t-stop-because-it-makes-me-super-rich high-frequency trader steals more of the retirement funds of another naive addicted too-dumb-to-stop-trading Main Street investor.
The bottom line here is that, unfortunately, Wall Street’s too-big-to-fail banks really are addicted to high-frequency trading and derivatives gambling. That’s the investment banking side of the banking business. And that’s what’s carrying the low-margin commercial banking side of the business.
This disastrous losing merger is destined to implode … needs decoupling … and unless our too-big-to-fail banks voluntarily separate the two businesses, Dimon and his CEO buddies will trigger a new meltdown, bigger that 2008 … because if not voluntarily, a bigger-than-2008 crash is waiting in the shadows.
And just as in the 1930s, they’ll be humiliated into another Glass-Steagall against their will. Yes, an unpredictable black swan, which, trust me, is so very predictable.
So tell us, do you think Jamie Dimon really learned enough humility to lead us in these 4 lessons?
