George Morgan's Blog, page 3

Shedding Some Light

Jason Zweig’s column, along with a couple of others in todays’ edition of the Wall Street Journal shed a bit of light on what’s been going on the with the market this week. We do know that there was significant selling in some high flying tech stocks, but that does not explain the drop in the Dow and the S&P 500. One of the WSJ articles indicated that hedge funds were liquidating, not just tech stocks, but any stock they viewed as being risky. We know that the flash traders place orders f...

Smoke And Mirrors

 Yesterday, the Dow Jones Industrial Average fell 266 points. An article in today’s Wall Street Journal attributes the drop to investors who dumped biotech and internet stocks because of the perception that they are currently overvalued. All but one of the thirty Dow stocks fell and none of them can be described as bio tech or internet related. Nothing changed concern thirty of the country’s largest corporations and yet they suffered the same fate as a handful of small cap stocks. ...

Nothing New

Since the signing of the Buttonwood Agreement in 1792, traders have sought ways to gain information on market activity before others did and then use that information to make a profit. In the early 1900s, traders paid to have ticket tape machines installed in their offices to find out about trades that were being placed before that information was available to the public. Starting in the 1970s, traders paid to have open phone lines between the floors of the New York Exchange and the Chicago E...

Flash Boys Fallout

The Wall Street Journal reported that at Goldman Sachs is contemplating closing its dark pool trading operation. Dark polls are exchanges where institutions can trade among themselves with minimal amount of regulation and transparency.  Given the size of the trades institutions often initiate the trading in dark polls allows them to operate without causing significant price disruptions. Apparently Goldman is one of the largest of the dark polls, but on the macro level, dark pools only co...

Market Makers

For many years I worked for small regional firm that was a market maker in a number of smaller stocks traded on the NASDAQ exchange. The market maker is the NASDAQ equivalent of the New York Stock Exchange’s specialists. We had a small trading desk and a trader who would post on the NASDAQ System offers to buy or sell specific quantities of a number of stocks at a specific price. The trader would watch what other market makers were doing with their prices and quantities and then make the appr...

Blame It On The Feds

In 2002 Federal regulators decided that the New York Stock Exchange lacked competition and they began taking steps to allow other trading platforms to enter the market. The NYSE had become a dinosaur because it focused on human floor specialists to facilitate its trading activities. The industry knew that computers could handle the trading operation at a faster pace and with signification larger volumes. The new exchanges that sprung up due to the regulators encouragement were state of the ar...

A Will May Not Be The Way

The two main functions of the stock market are to allow corporations to acquire capital and to allow citizens to participate in the country’s economic growth. Currently, the way we are accomplishing function number two is with 401(k) accounts. In today’s edition of The Intelligent Investor, Jason Zweig has a heads up for everyone with a 401(k). The disposition of your 401(k) when you pass is not dictated by you will or estate plan, but rather to the person you assigned as beneficiary at the t...

Need To Do Your Homework

When I started in the brokerage business 35 years ago, about 80% of the total daily volume occurred on the New York Stock Exchange. Transactions were completed by specialists on the floor of the exchange who matched the buyers with the sellers using a little black book. The specialist charged the buyer a few cents per share above the purchase price for making the transaction. The broker also added a few cents more for his efforts. In those days we worked in fractions, not decimals. The majori...

The Beat Goes On

In yesterday’s Wall Street Journal there was an Op-ed that refutes Michael Lewis’ accusation that small investors are getting ripped off by high frequency traders. It was written by an officer of a capital management firm who stated up front that they do not participate in high frequency trading. The article made a statement which I think is telling and which I fully believe in; “Few professionals completely understand the details of market micro structure. Rather when one has a strong opinio...

Nobody Knows For Sure

The “Flash Boys” begins with a discussion about how the market has changed and that people need to change their view of how it operates. Lewis points out that a lot of people still think that the market is run by a bunch of men in blue coats on the floor of the exchange matching buy and sell orders. Not everybody understands that the humans are gone and the computers have taken over. This is a paradigm shift I have been working on for the last four years. The book describes in depth how a gro...