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Post 60

Wednesday, July 25, 2012 - 12:39pmSanction this postReply
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I've never been tempted to try to "pick" stocks and strike it rich in the stock market. I always thought that the information that could make a stock break good or bad would never be available to anyone outside of the company in time to make a profit on it. Being an outsider living in ignorance of these details this type of investment is more like gambling than "investing" and I'm not tempted. Reading "Throw Them All Out" [see the author interview here: http://www.amazon.com/Throw-Them-All-Peter-Schweizer/dp/0547573146 ] illustrates how laws against "insider trading" simply stack the deck so a privileged few (the lawmakers!) can legally take advantage of what would put others in prison. It seems to me that if the "insider trading" laws didn't exist at all the system would be less corrupt. Unless a person has a contractual duty to not reveal information he should be free to speak about what he knows to anyone at all then let the chips fall where they may. In other words, let the rule of law work. Let every organization write it's contracts with officers and employees as they see fit and let markets decide who wins and loses. I would also like to see entities be able to contract with the buyers of their stock to limit the "hold time" of their stock. That is, if you buy their stock you are contractually obligated to not trade it for a certain amount of time, whether an hour, a day, a week or a month. That would end computer generated stock trading, (buying and selling in milliseconds trying to "pump" money out of the stock market) for companies that desired to do so. In my opinion algorithmic computer trades are not true investing, investing implies trading present value for future value, not simply manipulating prices and dumping stocks.

Post 61

Wednesday, July 25, 2012 - 9:19pmSanction this postReply
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Erickson, thanks. Nicely said and duly noted.

Merlin,  sorry, what you quoted was mostly rhetorical.  I do indeed expect that you (and certainly Fred Bartlett among others) signed non-compete, non-disclose contracts.  Thus, for a fact, your claim that a contractual agreement is in force is absolutely right.  And it applies to more people than just the CEO.

As for what is on the back of a stock certificate, it depends...

From Pacific Coast Aggregates, the back looks like a large check or draft: simply endorsements.



This is from Gulf States Utilities Corporation.   As you can see, there is a lot of detail.


Just to say, that I agree with you that contracts are in place here. My own claim is that for others to post without knowledge of such details is simply armchair philosophizing.


Post 62

Wednesday, July 25, 2012 - 9:42pmSanction this postReply
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...simply armchair philosophizing
There you go again. Incidently, Michael, when I headed up the software side of UCB's Record Date system we pulled out stock blanks from the vaults. Pre-printed blanks for well over 250 different corporations for whom we kept the holder-of-date stock records for, and printed the new the holder's name and number of shares along with the new date on the new certificates each time shares were transferred, and for stock dividend events. So, yes, I've seen and read more than my share of stock certificates.

Ask yourself why you'd want to demean or dismiss others especially when you don't know anything about their individual backgrounds. What is it we all do here if not armchair philosophizing? Write books about philosophy? Teach it? Would those activities change the worth of our comments?

Post 63

Thursday, July 26, 2012 - 8:11amSanction this postReply
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Mike E:

I agree that there is something screwed up with Silicon based trading, especially when true arbitrage is extended to risk arbitrage via Silicon based trading systems. But that is still tempered by views of the consequences of freedom.

I understand the service provided by true arbitrage; pressure to equalize market prices in different markets for equivalent instruments. What Silicon based true arbitrage effectively does is keeps these differences as low as technology permits, by allowing Silicon based bottom feeders to trim the random deviations. But wouldn't this same adjustment occur with wetbits only trading? I don't think most other non-Silicon traders even assess on the level of differences fed upon by true arbitrage driven at the speed of Silicon.

But risk based arbitrage is something else, and is disturbing. Under the general concept 'do all players in the game understand the rules of the game they are playing?' I think there is an ethical problem with encouraging day traders to swim in an ocean in which Silicon sharks are feeding at some fraction of the speed of light. In that game, day traders are willingly? knowingly? providing the analyzable energy/turbulence needed to twitch in predictable ways to the news of the day, and no matter how fast day traders think they are responding to their assessment of that news using their wetbits, an entire tier of Silicon based sharks are way ahead of them, and analyzing not the news and its effect on company performance and the long term value of stocks or financial instruments, etc., but the reaction of day traders in different markets to that news, and getting to the market just slightly ahead of the wave. The impact of the news on companies long term success and value is not of primary importance; the reaction of day traders (and even other arbitrageurs) to the news is.

So unlike true arbitrage, which responds to already occurred differences in market price in two or more markets, risk arbitrage is analyzing real time news feeds and based on models of market response, anticipating actual market differences in the future. Risk arbitrage is the competitive pressure of true arbitrageurs trying to beat their fellow silicon based traders to the school of fish. They aren't competing with the slow as molassess wetbit constrained day traders, they are competing only with each other.

Do the wetbit constrained day traders fully understand the rules of the game they are playing? If so, and they volunteer willingly to be the required energy/turbulence, then there is no ethical problem.

But do they? And when they use those free consoles provided by E-Trade, etc., do they fully understand what is being done with the signals they are providing, required in order to do exactly what is being asked of them?

Day trader reads the news, applies wetbits analysis, makes his trades, which maybe even E-Trade guarantees at 2 seconds. But how much time has passed since the news came out on the RT news feeds? Day traders are competing, they think, with other day traders.

Does the SEC(or anyone)understand the total system dynamics when this type of trading exceeds a certain level of total activity? Because with Silicon battling Silicon, it begins to seem like a room full of mousetraps waiting for that ping-pong ball to set them all off, like digital lemmings. We tune PID loops, but what tunes this? And indeed, whacky excursions of prices sometimes occur. The markets have some kind of crude shutdown/safety valve when it is obvious the Silicon has gone whack battling each other, but that is about it.

Sounds more than a little whack. A consortium of traders just built a shortened fiber cable between NYCity and London for $350 million dollars, in order to shave a few milliseconds off of their transaction speed.

Seriously? Sounds very efficient. Is it? At doing what? Because what it appears to be efficient at doing is concentrating capital and human capital in activities that employ very few; a cul de sac where capital is in service only of pursuing more capital.

At its peak, Beth Steel employed over 300,000 Americans. The biggest IPO news of the last year was Facebook, who employs maybe 3000. Capitalism has meandered into a going nowhere and doing nothing cul de sac.

But we will so rock Twitter while we're circling the drain.

regards,
Fred

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