Another Yo-Yo Championship day on Wall Street

It's up, it's down, it's a fiscal cliff market being traded by HFT cretins.

WASHINGTON, November 28, 2012 – When we started writing this column this morning, our current yo-yo stock market—including our own investments—was in the process of tanking, perhaps big time, largely following through on its negative reaction to Harry Reid’s negative remarks yesterday about the unlikelihood of solving the fiscal cliff issue any time before the year 3000.

Reid, like most Democrats, lives in Cloud Cuckoo Land and takes a dim view of anyone—most particularly any Republican—who even dares to mention that this or that program of the Federal government should perhaps get the teensiest of haircuts in exchange for any kind of tax increase on anyone. He’s like some little kid who gets into a snit when mommy tells him he might have to share his Snickers bar with his little sister.

In any event, when any Republican voices this opinion in front of Reid that doesn’t precisely parrot the Majority Leader’s unrealistic views on fiscal responsibility, he immediately calls members of the government-controlled media. With a compliant audience of media stooges in attendance, he either proceeds to launch an ad hominem attack on one or more members of the Republican party simply spouts general, unfounded, but negative comments on the hopelessness of it all. Which the press then writes up and dutifully opines that the whole mess could be over save for those obstructionist Republicans—who, after all, got re-elected overwhelmingly in the House, too, just like their opponents in the Senate.

And that’s what Reid did yesterday, turning a mild attempt at a positive day into a late-day route. And the market followed through quite vigorously to the downside this morning, taking pretty much every sector down with it. But wait! John Boehner just stated that he thought some deal on the fiscal cliff could be accomplished if the Dems would cut spending in line with an acceptance on the part of the Republicans of some kind of tax increase. Bang! Up goes the market, completely reversing today’s early losses. Yet, after thinking about it for a while, the market has begun to slide downward once again. Within an hour or two, we’ll probably find out which pol or pundit has just run off at the mouth again with some decidedly negative comment.

What’s going on here, of course, is fun and games among the High-Frequency Traders (HFTs). For them, the stock market is simply a playpen loaded with toys you can toss up and down depending on whatever headline is crossing the net at the moment. Individual investors have largely given up on the market. Hedge funds themselves are closing shop, unable to earn decent returns any more. Individuals, via their own accounts or via 401(k)s, are pulling their money out of stock mutual funds. Everyone is fleeing, leaving the market to the HFTs who don’t care about earnings, dividends, charts, or fundamentals. Their massively quick computers ID the latest headlines and buy or sell in mass quantities accordingly.

Thus, we currently have a market that’s being juiced by the Fed’s latest QE efforts, which are then happily thwarted by the HFTs. Or not, depending on the latest rumor or headline.

All this has made a mockery out of any kind of rational stock analysis. Add to that the catastrophic uncertainty caused by a Congress that loves to meddle but hates to really do its job, and you have a marketplace that is entirely dysfunctional and unable to produce much of a net return even for seasoned pros.

As we saw earlier in the NFL football season when the professional refs went on strike, forcing the league to hire amateur-level replacements, even the best of teams can be robbed of a victory by the stupidity of its officials. So it is now in the markets with Federal regulators asleep at the switch, with the exchanges looking the other way as HFTs keep them alive by killing the market, and as a feckless Congress collects its outsized paychecks for accomplishing absolutely nothing at all.

Our analogy for today’s market action involves the perpetual back-and-forth fate of your average yo-yo. Pictured here are versions of the colorful and ergonomic ‘Zombie’ model yo-yo being offered at the site of a Brit outfit that calls itself AERO-YO. Zombie? Hmm. That’s yet another good analogy for this market which lately has defied any kind of rational analysis.

Is it any wonder that this market behaves like a yo-yo, whose only truly predictable moves are up and down, back and forth, always in motion but with travel never exceeding the length of its string. At the end of the day, you simply can’t invest in this kind of thinly traded nonsense.

Federal regulators once commanded at least some respect in Wall Street’s precincts and once did a fairly good job of keeping the playing field level. Now they, like their Congressional and White House masters, are just sitting around, clucking disapproval, but never lifting a finger to solve the problem lest their either lose their cushy government jobs or fail to get a more lucrative offer in the private sector—which they know they won’t get if they step on any bigwig’s toes.

We’ll hold on to what we have for now. But one of these days, soon, we may just cash out like everyone else seems to be doing. Amateur referees are bad enough in this game. But achieving victory is even more hopeless when you have a critical mass of idiots in Washington who keep changing the rules and moving the goalposts. The Irrational Party remains firmly in control in DC. And nothing supports this more dramatically than a market that finds itself somewhere between Bill Murray’s “Groundhog Day” and the International Yo-Yo championships. It’s just stupid. And it’s going to stay that way until whatever rational Americans who might remain step up and do something about it.

On days like this, one thinks of that wonderful line by poet e.e. cummings:

“there’s a hell of a good universe next door

     let’s go”

Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.

Any positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.

Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.

References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any article under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.


Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.

Follow Terry on Twitter @terryp17


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Terry Ponick

Now writing on investing, politics, music, movies and theater for the Washington Times Communities, Terry was formerly the longtime music and culture critic for the Washington Times print edition (1994-2009) before moving online with Communities in 2010.  



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