Friday, August 12, 2011

The Wall Street Yo Yo

As we sit here, head bobbing, watching the stock market bounce up and down like a yo yo, we should realize that we are seeing yet another example of how rapid technological change has affected an institution that has been around forever.  And that has a direct effect on something as personal to us as our money.

I've been ranting for a while about how technology is now being used by short-term traders who are constantly buying and selling, making pennies on each share but trading automatically at certain trigger levels on such a high volume that they make millions doing it.  And at such a volume that it dramatically affects the market indicators.  That, in turn, leads to emotional over-reaction by us normal folks, which only contributes to the volatility.  Then, today, I see an article about Mark Cuban, a former broadcaster and now NBA-team-owner, who speaks to the same subject and used his opinions to correctly predict the dizzying last few days.

Does this mean we need to return to the days when any order on the NYSE had to be scribbled on a piece of paper and submitted in order for a sale or buy to be accomplished?  A part of me says, "Yeah!"  It will never happen, of course, nor should it.  And though I favor as little government regulation on the free market--including the buying and selling of pieces of companies--another part of me longs for the government to make any such rapid, reactive, pre-programmed trading illegal.

But something has to be done.  Remember the Whammo "Superball?"  The little ball with the super-secret rubber compound material that was supposed to bounce four times as high when you dropped it?  That's what our stock market reminds me of.  If certain key stocks drop a small percent, the SELL programs kick in and it gets pummeled.  It has nothing to do with whether the company is doing well or has a favorable outlook.

It's just that some bit of computer code somewhere is doing exactly what it has been told to do, and logic and common sense be damned.

Don Keith N4KC

1 comment:

Technogies said...

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