Michael Santoli

  • No, the stock market isn't 'rigged.' A primer on speed trading

    Michael Santoli at Michael Santoli21 days ago

    Life is too short to waste time worrying over computer traders that sift the stock market for pennies with millisecond maneuvers. The phenomenon of “high-frequency trading” has gone from obscure cyber-nuisance to popular phantom menace in recent days. Credit — or blame — the release of Michael Lewis’s book on this Wall Street subculture, called “Flash Boys,” and his comments in a 60 Minutes segment Sunday that the stock market is “rigged” against ordinary investors and in favor of predatory software fraudsters exploiting arcane trading rules and enormous computing power for easy gain. This burst of media focus on the electronic scrum that occurs in suburban server farms was followed Tuesday by news the FBI is investigating potential insider-trading violations by unnamed HFT players who might have acted on information slightly ahead of when it becomes public to most investors. These storylines reinforce an abiding mood of public suspicion toward Wall Street institutions — one stoked in the tech bust more than a decade ago and fed potent fuel by the credit fraud and recklessness behind the 2008-’09 financial crisis. Yet the narrative of crooked computer sharpies feasting on the retirement accounts of grandma is simplistic and mostly wrong-minded. While certain HFT practices are of questionable value, and all unfair information advantages should be eliminated, here's a bit of perspective on this issue. While the U.S. equity market is maddeningly convoluted and open to all sorts of loophole-seeking gamesmanship, the fact is that, for small investors, trading stocks has never been cheaper, faster or fairer. Meanwhile, the middleman profits collected by HFT players are a fraction of their peak a few years ago and represent a trivial cost for investors as a whole.

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  • Fed's in retreat, but shortage of safe bonds persists

    Michael Santoli2 mths ago

    Even after the world’s most voracious consumer of bonds pushes away from the table, there still probably won’t be enough safe, nourishing government and mortgage-backed debt to satisfy investors’ appetite for it.

     This reality should dampen or forestall any rise in interest rates, while also squeezing some investors into somewhat riskier investments than they would prefer -- or, in a worst-case scenario, riskier than they are equipped to handle should financial markets become unsettled.

    The Federal Reserve began scaling back its purchases of Treasury and federal-agency mortgage securities in December, reducing its monthly buying to $75 billion from the $85 billion pace that had been in place since September 2012. That was cut further, to $65 billion, last month, and, barring severe erosion in economic growth indicators, the Fed is expected to continue this “tapering” process until bond-buying sunsets by the end of the year.

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  • If this were 2013, the market correction would be over. But now?

    Michael Santoli2 mths ago

    If the 2014 stock market were playing by the rules of 2013, then the recent gut-punch decline has been swift, deep and fright-inducing enough to reset over-optimistic expectations and gather up strength for a renewed climb before too long.

    This, admittedly, is a big “if.” Last year's tape was among the kindest to investors in recent decades, a broad and steep 30% advance in the headline indexes with only the briefest and most modest downside interruptions.

    With Federal Reserve policy in transition to a less-generous mode, stocks somewhat more expensive based on corporate profits and the bull market another year older, 2013 might indeed prove to have been the“easiest year of this bull market," as I wrote here in November. Marginally less Fed stimulus, hints of a less-aggressive Bank of Japan and several other measures imply this could be a year with somewhat more volatility in the indexes and churning beneath the surface.

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