Insights & Advice


Watching Thin Paint Dry


This week I have had a hard time deciding what’s worse: this summer’s heat and humidity or the meandering markets. The averages barely budged over five days and the volume was, well, atrocious.

Of course, volume shrinks during the summer months anyway. Wall Street participants take three day weekends or vacations while finding excuses to be on the golf courses whenever possible. For many, it is a genteel, less hectic time when junior traders man the turrets and talk to their friends via cell phone.

However, Securities Technology, an organization that monitors changes in stock and derivative volume, reports that the daily volume of trading stocks is down 16.9% from a year ago. In June alone volume declined 9.9%. In Europe it was even worse with a 12.3% plunge last month. In addition, trading in derivative markets fell off a cliff, falling 15.8% from June to July worldwide. There was also an almost 30% drop in exchange traded funds transactions versus 2011 as well, and this is supposed to be a growth area.

This trend is all the more disturbing since last year’s volume declines were just as bad. It appears that investors are abandoning the nation’s stock markets wholesale with a growing number of private and even professional investors jumping ship.

Some of the blame can be pinned on the continued presence of high frequency traders who brought us 2010’s “flash crash”. Last week one of their fraternity brothers created another mini-crash of over 100 stocks that listed for well over half an hour. They claimed it was a computer glitch that cost that firm over $400 million in losses as well as its independence. 

This fiasco follows closely on the heels of the multi-billion dollar derivative loss racked up by one of our nation’s “most reputable” banks. It was caught speculating the wrong way in the same markets that brought us the financial crisis.  In the eyes of most investors, these incidents simply strengthen the notion that the markets are nothing more than a global casino where the bets are rigged in favor of the dealers and croupiers.

Investors are absolutely correct in my opinion. The game is rigged; the banksters and fat cats get richer while the rest of us get poorer. And if this were not enough, this same one percent of the population is now busily using their ill-gotten gains to buy this year’s presidential election. What the diminishing volume shows me is that there is an on-going “buyer’s strike” among investors big and small that will continue until it doesn’t.

Is it any wonder that the financial sector continues to lay off thousands and thousands of well-paid Wall Street types? Their business is shrinking away to nothing. Before long all that will be left are the billionaires and their firms. Poetic justice would be a scenario where they are left trading against each other with the same insider information bought and paid for from the congressmen and senators in their back pockets.

But enough criticism, let’s  focus instead on buying the dips. There is a dearth of news coming out of Europe and America between now and the end of the month. That gives traders plenty of opportunity to move markets whenever and however they want. For you, that may mean another chance at picking up some equities at cheaper prices, so stay vigilant.







Posted in At the Market, The Retired Advisor