Unplug the Machines

The solution to avoid ANY more crack-ups in the markets is so simple and pure that, of course, the SEC and Congress will not do it. This potential for a disaster has been talked to death for almost 25 years since the crash of 1987.

Thursday's meltdown appears to have been purely machine driven as they took over the markets: trading algorithms, rapid-fire trading, program trades ... on and on. They moved so fast that no one had time to make rational decisions. And we all know that the "selling" was largely naked short selling by hedge funds and market makers. You know very well they did not have borrows in place. That famous "market maker" exception - that's the same fig leaf Goldman Sachs hides behind for a lot of its deceptive trades.

Sigh ... 25 years of building trouble and no one listens or does anything. That's the power of money. Wall Street and hedge fund money has bought the markets for their own playground. The seller ? The SEC, which dithers for years doing ... nothing.

The solution ?

Unplug the machines. Not permanently, as in stable markets they provide good liquidity benefits in stable or slowly drifting markets. Unplug them whenever stock has fallen (or risen) 2% or a major average has fallen (or risen) 2% from the prior day's close. Let people handle those trades. And enforce trading halts nationwide. And extend them to options and futures markets. AND to derivatives. AND "dark pools". Apply them to ALL broker-dealers for ANY trades.

I don't care if "market makers" have a tougher time. That's their problem. If they want to sell options and can't "hedge", just charge more for the risk.

I don't care if electronic exchanges have trouble and lose business. That's tough - they simply do not work fairly in rapid markets. Force all trades in fast, unstable markets onto the NYSE.

More: no short selling when a stock is down 2%. No naked shorts by ANYONE including market makers AND ETFs. And for ANY short sale not from the broker's in-house holdings, I think a borrow should be pre-arranged.

No more ETFs backed by derivatives. And get rid of the ones that exist now. The markets should be brought back to REALITY from the phantom zone.

Travel

I spent a few days in my hometown last week. What a fine place to live ! Uh .. that is, if one has a good job. Unemployment is very high and I'd guess "underemployment" is stunning. A cousin had me over for a BBQ - ahhhh ... the pleasures of burgers, baked beans and beer ! And a taco salad for multicultural diversity.

And then ... Big Al had a BBQ and produced a culinary masterpiece: grilled spam burgers with cheese. Mon dieu ... c'est magnifique !!!

Actions

Krypto has many buy orders for me, as does Sky. I will do them sometime today, likely not at the open as futures indicate a huge up day on the news of the Euro-EU stabilization package. Krypto wants me to sell TIPs, and cash and buy European, Emerging market and US. Sky wants me to re-buy some resource stocks (these will be one or all of BHP, FCX and CLF).

By the way, I closed Fido Fund as a separate fund and now put those stocks in the Sky Fund, run by my fine herding dog, Sky, as directed by whistle commands from Mrs. B.

More ... Sky placed 6th and 7th in the weekend's sheep herding trials in northern New Hampshire. This was Mrs. B's (near) debut as a handler and she did very well, of course. Krypto was a bit of a goofball, but she's a beginner.

Book of the Week

The Grass Crown, by Colleen McCullough is the follow-on book to The First Man in Rome. This very fine historical novel combines good writing with solid research to produce an engaging and enjoyable story of the rise of Sulla to power in Rome. And it puts "meat" onto the dry historical accounts of the 100 years destruction of the Roman Republic. By who ? Easy ... the rich and powerful in the Senate did it by their lust for money and power. Too few had old fashioned integrity or any sense of fairness.

The Grass Crown is superb - if you are interested in Rome, read it.

Word of the Day

"Retradition" - noun [$1000] (rare)
Retradition means the action of handing back.
Sentence: Financial markets need the retradition of ALL trading in fast or unstable markets back to the NYSE where humans can stop the machines from causing disasters.