Guest Post: Call Of The Markets VIII

Tyler Durden's picture

Submitted by Sal Arnuk of Themis Trading

Some Thoughts:

What
is the role of the stock market? I had always learned from my
educational and work experience that markets have an important role in
free market capitalism. That role is to provide liquidity and minimize friction as much as possible, so as to give confidence to the providers of capital,
so that there is an easy, efficient, and cost-effective way to move
their capital around as they desire. When this role is being fulfilled,
capital is raised and allocated for new wealth-creating industries,
which grow, create jobs, create economic growth, and raise standards of
living. Those with capital are courted by merchant and investment banks
that generate ideas with them, and put them in touch with entrepreneurs
with vision. They invest in those entrepreneurs via seed capital, and
eventually in initial public offerings, or IPO’s. You remember IPO’s?
There used to be this thing called the IPO Calendar, and it is
typically a great barometer for how the economy is doing. Today nobody
in our industry knows what an IPO is. I actually saw one High Freak on
TV three days ago tell MC Cabrera that he thought an IPO calendar was a
maintenance schedule for a trade-engine server. Ok, I actually did not,
but you get the point. David Weild of Grant Thornton sure does. Please read, perhaps over the weekend, his research piece: Why are IPO’s in the ICU:

http://www.grantthornton.com/staticfiles/GTCom/files/GT%20Thinking/IPO%20white%20paper/Why%20are%20IPOs%20in%20the%20ICU_11_19.pdf

(And for the High Freaks… that is ICU and not CPU). And if you work for the SEC, please read this piece twice.

The image I picked for today’s Thoughts is pretty bleak one. It is
from a war-themed video game, and those of you with teenage kids have
probably seen similar imagery as you walk through the family room while
they are playing. I am amazed at the graphics, and I am even more sadly
amazed at how desolate, bleak, and shell-like the cities are that serve
as the battlefields for our well-armed teens. You see where I am going
with this. Our secondary markets have become like that game.

Massive firepower and resources are devoted to the activity of
evolved trading (scalping). Huge financial institutions called
Exchanges cater to this activity so myopically, that they have lost all
perspective of the real role of financial markets. And sadly, our
regulators have allowed them to do so. In the name of evolution and
“adapt or die” mentality, our markets have been hijacked and stripped
of its most important role and function. We need to all adjust our
thinking, because our economy demands it. We need to adjust our
perspective, because our economy demands it. Markets need to be fair, and inspire confidence!
That confidence is needed so that those with capital can feel confident
in investing. This confidence is unfortunately on the wane. You hear it
at parties, and you hear it on the street. Amazingly you hear it from
brokerage firm executives (one who yesterday wrote an article
suggesting that the source of our markets problems is the market order!
Yes… he thinks the solution is to eliminate the market order and tell
the world that our “most efficient and liquid markets” can’t handle the
100yr old market order!)

The confidence must be restored or investors (the owners of the market) will continue to flee, and then our markets will be left to the high freaks (the renters of the market), and exactly like the war video game pictured above, complete with shelled out buildings populated by well-armed kids.

Joe is back in DC today, telling those who will listen how to restore that confidence. Wish him luck.

The Euro has been weakening since 4am, by the way. I have already
seen the futures go from flat to down 1.8%. They are now below that
all-important 200 day moving average. The Euro is still what the
markets are keying off of, but note that our markets caught a bounce
from noon onwards yesterday. From that point we saw the financials
catch a bid and outperform, which I think is a good sign. HF GO!

Oh… and supposedly there was another Fat Finger in the Eurostox
futures just a little while ago, that sent them limit down. Fat Finger
is the new goto blame thingy apparently. Kind of like the dog ate my
homework.