In Stock Market, The Price - Not Speed - Is Right [MARKETS CRASH, DEAL WITH IT]

Investors Busniness Daily ^ | 08/26/2015 | STEPHEN PORPORA

[expat_panama]

As long as execution "speed," not execution "price," is the master of our electronic equity markets, no one should lament the mind-bending volatility.

As long as computerized algorithms price intraday downdrafts after the opening, TV talking heads will express their dismay.

As long as there are very few orders on a centralized book and Dodd-Frank has killed the traditional risk-taking market makers and big trading desks, there will continue to be no counter side liquidity in our markets, and dramatic flash meltdowns will continue causing the public to lose confidence in our markets.

And that is the real problem.

Throughout history, there have always been reasons for periodic market crashes. And as painful as...

[snip]

...market confidence has been pummeled by other severe and often inexplicable market meltdowns, like the "flash crash" on May 6, 2010.

After each of these events, public dismay with extreme volatility, plus headlines that spread fear and mistrust, shook confidence in our equity markets.

Then came this past Monday's gyrations.

It's not that markets went down — it's how they went down. Certainly, fears of a China slowdown, devaluation, etc. are real. Yet, Monday's volatility was such a wild ride that even seasoned traders and financial news commentators were left shaking their heads.

As just one vivid example, KKR & Co., the asset management firm, traded from a high of $19.43 to a low of $8.00 and closed at $19.50. Yikes!

Fingers are being pointed everywhere. High-frequency traders...

[snip]

...not the singular cause of high volatility.

Electronic markets are here to stay and, in their defense, they work quite well most of the time. Unfortunately, more work needs to be done to enable them to handle occasional short-term market liquidity problems and hyper volatility. And these are the events that make headlines and shake confidence.

[expat_panama]

It's funny how (or not so 'funny') how times like these we hear from do-nothing clowns come out of nowhere and try and make everything illegal. Personnally my take is we're seeing it even on these threads.

mho

[abb]

Check out the oil bump today.

[expat_panama]

Good morning and happy 'Dip-Day'!  Yesterday's up-tick in higher volume is now being seen going into more gains w/ index futures +0.50%.  Metals futures are looking to an even stronger +1.14% after yesterdays drops that now have gold'n'silver at $1,129.70 and $14.35.  Lots of econ announcements to liven things up too:

8:30 AM Continuing Claims
8:30 AM GDP - Second Estimate
8:30 AM GDP Deflator - Second Estimate
10:00 AM Pending Home Sales
10:30 AM Natural Gas Inventories

Happy bargain hunting, I may even join y'all...

[Fhios]

An insider has told me to expect an investigation into Monday’s Flash Jump Dump as some large # of stocks actually started trading 2-3 minutes early than the open — due to a computer glitch of of the stacks upon stacks of automated trading orders.

Stocks that should have had automatic trading stops due to volatility never kicked in.

[1010RD]

Markets crash and deal with it. Excellent sidebar comment. We’ll make you a free marketer all the sooner. Soon you’ll see the folly in having 12 people determine an entire country’s monetary policy. Free markets for a free people.

[Lurkina.n.Learnin]

If you had stops in it is a good possibility they got tripped in a lot of stocks and ETFs. If you got a whole bunch of sellers and no buyers the price plummets. It kinda makes me wonder if stops are a good thing. In a “Panic” it makes you enter a market sell just as everyone else did.

[mad_as_he$$]

Stops are bad in a panic. Especially if your brokerage house is a market maker in the security. They will sweep all stops that are even close to their internal price for the stock. I and many I know have had stops swept well below the trade price at the time. You have to scream to get made whole.

[Son House]

The Federal reserve keeping the interest rate so low for so long should be the issue, Democrat Economic Policies failed.

[expat_panama]

...the folly in having 12 people determine an entire country’s monetary policy. Free markets for a free people...

Tell me more about how we can privatize monetary policy.  Would we like, take bids or something on how many dollars to be printed and award say, a 6-month contract to whoever can print the most dollars for the lowest bid?

 

Please enlighten us.

[expat_panama]

Federal reserve keeping the interest rate so low

Like I was just telling 1010RD, please share some specifics with the group.  Tell us which rate is the "the interest rate" you mean, and tell us what you would set it at right now.  Ah, and why.

[1010RD]

I like Friedman’s set monetary policy. The velocity is known to you going forward and you can plan (individually) around that knowledge. A return to bank clearing houses can replace the Fed and function as they did pre-Fed.

You pay lip service to economic liberty, but are far from it when it comes to the Fed.

[grania]

stocks that should have had automatic trading stops due to volatility never kicked in

The computers cannot be stopped by people in a case such as that? Are there any guarantees that any directions placed overnight will be in place when the market opens? Logic would say that if the system can't handle the volatility it would lead to a late opening.

[expat_panama]

In a “Panic” it makes you enter a market

Stops are bad in a panic.

That's what happened after the crash in '87, they passed a law making it illegal to trade at the NYSE and everyone either just traded elsewhere or they waited saying "Mother may I" and then traded w/ a vengeance.  Governments can't run a market place.  They can pretend to but that's when they only make things worse.

[expat_panama]

...Tell us which rate is the "the interest rate" you mean, and tell us what you would set it at...

You pay lip service to economic liberty, but...

Quickly changing the subject from rates to my being a bad guy  --meaning that you have no idea which rate you're talking about.   Tx.

[expat_panama]

...expect an investigation into Monday’s Flash Jump Dump...   ...Stocks that should have had automatic trading stops due to volatility never kicked in.

To bad the 'investigation' will most probably ignore the real cause, namely that we got bureaucrats making laws in the 21^st century that were written to please 19^th century thinking voters.    

[expat_panama]

Unrelated thread:  The Nation's Budget Outlook Is Worse Than You Think

[1010RD]

I apologize. I know you are the regular target of economic ignoramuses and fools. I do very much appreciate your posts and insights.

In the case of the exact velocity, I don’t think it matters what you set it at. Here’s a short discussion of the theory: https://en.wikipedia.org/wiki/Quantity_theory_of_money#Quantity_theory_and_evidence

There will be times when it will be ‘cheap’ and others when it will be ‘expensive’, but the benefits are for individual liberty. Get the politicians and bureaucrats and their biases out of the way. Here’s the velocity of the US dollar going forward and that’s it.

What really matters for credit is the real interest rate, yet we’re always confused between it and the nominal rate. Here’s a more in depth article: http://www.aei.org/publication/why-milton-friedman-is-still-right/

We know that central planning for an entire economy, even a local one, doesn’t work. There will always be inefficiencies and waste. Worse, there will always be political reasons to intervene and moral hazard caused by it. Let’s work to eliminate the politics from our economy.

I also fully understand that fiscal policy is at the heart of what ails the US economy. Regulation costs $2 trillion a year and presuming that even half of it is necessary (which I doubt) we could have an extra $1 trillion from that change alone. Not to mention deficit spending, the high debt and local permitting licensing and zoning rules.

Great explanation and charts here:

http://www.nam.org/Data-and-Reports/Reports/Cost-of-Federal-Regulations/The-Cost-of-Federal-Regulation/

[proxy_user]

An ordinary joe could just put in a limit order on good blue chips stocks at 20% below current prices. If you had such orders in on Monday morning, you might have managed to buy something at a very cheap price.

[citizen]

I’m not clear in which group I best fit - economic ignoramus or fool.

[1010RD]

If you’re mean to expat_panama, then fool. ;-]