The old guard at Dad’s Army today flails some more as markets slip away from their understanding. From Alan Kohler:
When the market finally comes to rest at the bottom of the ocean, there are two black boxes investigators will need to recover: the one marked algorithmic trading and the other marked China.
We live in a world of greater transparency and understanding in so many ways, of minute by minute news from everywhere on the globe as well as legislated disclosure. Every organisation now has a website made available by Google; social media publishes every waking banality of most human beings.
Yet two things are closed to us: the majority of financial trading, which is now performed by computer programmes and algorithms, and the Chinese economy.
What is happening today has its own specifics but it is really no different to any boom and bust in other business cycles. Algos may add some extra amplitude to the volatility but they don’t cause it. And China may be difficult to understand owing to its transitions from command to market economy but these are details not drivers. We’ve seen its story play out many times, in Japan and other emerging markets.
Bob Gottliebsen appears to have the yips as well. After instructing his baby boomer mates to buy owing to a fine European cruise, he back-flipped yesterday and today reverts to that old chestnut of blaming the shorts:
A major factor in the Australian and international sharemarket recoveries was that the shorters were buying back their stock.
One of the biggest, if not the biggest, factor that created the severe downward market thrust was the massive selling of stock not owned by traders — so-called ‘shorting’. I alerted readers to this phenomenon in my market commentaries during the correction: (Why Australian share prices are falling, August 24 and The two sides of the sharemarket slump, August 25).
In many markets, including Australia, these traders have special pipes into the market so that they can see selling coming and short stock in advance of it arriving. It’s a form of legal market rigging. In Australia the big superannuation funds lend the shorters share scrip in exchange for fees but they use that borrowed scrip to slash the value of Australian superannuation savings. The ethics are questionable to say the least.
Honestly, fellahs, it’s time to retire. The boomer boondoggle is headed into its great reckoning and you don’t want to go down with it.
