Machines Rule Wall Street

In the movie ‘2001’ a space ship’s central computer, HAL, kills one astronaut then goes after Dave, the second astronaut. After failing to kill him too, HAL apologizes for making some “bad decisions” but assures Dave that “I’m all right now.”

It would appear, Dear Reader, that the machines are trading most of the volume on Wall Street these days and that investors are playing a distant second. But are the machines making bad decisions, or is everything all right now? CNBC tell us…

Dollar Tree Suffers Two-Second Flash Crash

“Dollar Tree, the discount retailer that sells everything for $1 or less, suffered a mini “flash crash” in the first two seconds after the open Thursday. The stock plunged 18 percent before snapping back to more normal levels less than two seconds later… ‘That’s definitely the machines… this kind of stuff is going to be ongoing because the machines are contributing the only margin that’s really left in the broker-dealer community…”

With giant black box trading machines contributing just about the only margin left and jerking price up and down as they trade against each other, the question begs asking:

– Do you want to be holding mutual funds in a market like this?
– How about stocks?
– Do your 401k’s and IRA’s hold mutual funds and stocks?

Truth be told, you’re better off in bonds. Sure, bonds pay a pitiful next-to-nothing return and leave your money to succumb to the slow quicksand of inflation, now eroding the dollar at a true 5% per year. But the only player big enough to really manipulate the bond market is the U.S. government itself, and Uncle Sam is going to do everything in his power to assure a nice gentle fall of the dollar.

One of the reasons why Dave and Gordon love the Forex is because it’s too big to be manipulated by any one government. And the odds of two or more governments teaming up to manipulate the currency market at the same time are slim to none since the purchasing power of their own currency suffers when the other guy’s benefits.

Think of two cowboys playing poker, with each guy holding a gun trained on the other guy from under the table. From a sovereign vantage point, that’s the currency market in a nutshell. This marvelous variation on the ‘Mexican standoff’ renders the Forex largely impervious to manipulation. Which is why Prism Solutions expects to make good money in the Forex for many years to come; at least until the day the one-world currency arrives, in which case… what will we trade it against?

And May All Your Investments Be Profitable…

David Taylor and Gordon Philips, Directors
Prism Solutions, LLC

‘Better Investing Through Science’

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