Should I hope for calm or cheer on the storm?

djiThe words “The Dow hit 20,000” may not mean much to you, but if you are lucky enough to have some savings invested somewhere, you probably do know that it is worth more on paper today than it was last October. And you are probably happy about that.

But does this high-rising Dow really mean that our country is on the right track? That could be a possible explanation, if it weren’t for the fact that the stock market is far too moody to behave so simply.

In my opinion, the health of stocks as a whole is a sort of aggregate thermometer of how calm the wealthiest parts of America feel. Money, big money and big institutions, appear to care little about politics and a lot about predictability. The stock market fumbled and finally did it’s housing-bubble fizzle on George Bush’s invasion-laden watch. Then it rose steadily in the midst of Obama’s alleged socialism. I think that those with a lot of money understood that life was stable then, and that there was no real socialism to be found.  Stocks floundered in the late stages of the election, hating the whole mess right along with the rest of us. They likely would have risen in relief at the election of either candidate.

moneyI don’t think Mr. Dow (actually short for an index of large companies known as the Dow Jones Industrial Average) got overly excited until Mr. Trump began to put forth his cabinet nominees. As their wealth and ties to institutionalized money became apparent, major investors began to consider that the next four years could be exceptionally good for big business.

But will they be?

I wrote a book about prescience, the ability to see into the future and understand the true likelihood that an event will or won’t occur. Constructing the plot of d4 forced me to spend quite a bit of time considering how such an ability could work.  What’s more, several of my characters were attempting to use their prescient skills to make money in the stock market, so I ended up learning quite a bit more about Mr. Dow Jones and all his friends, too.

crystal-ballI think the market will get very nervous if our new president’s ill-considered interactions with foreign governments raise the possibility of an international crisis of some sort. I think the market will become unhappy if the 2016 election results are tied more firmly to Russian influence, and a rocky period will follow until the matter is resolved, possibly with the president’s removal.  I think the market will level out and become bumpy if internal protests and unrest continue to grow, or if the 2018 election proves that the majority of the American people truly do want a regime change.

How likely are these events? Well, my talented and courageous character Ariel could answer that question if she were real, but alas, she is not. As her creator, I have no ability to foresee the future. My confidence that the 2016 election could not possibly turn out the way it did certifies that I should not be trusted to make predictions.

But I do have investments. Thanks to a 401K and several years with one company, I have a little account, some financial security and a personal interest in seeing the stock market happy.

And, I have a passion for social justice. I want to see my nation at peace, behaving with compassion and inclusion within our borders and outside of them. I want to see the current administration hamstrung as much as possible regarding its horrible agenda and I want to see it exit as quickly as it can.

cropped-lightening-2These two aren’t compatible interests. I could hang on to my little investments for four more years, hoping that politics goes smoothly and that I will make more money. Or I could sell everything now while the Dow is happy and then hope for the worst for our current regime. Or hedge my bets and do some of both. Oh, if I only knew how this all was going to go.

That’s why the stock market is a gamble. I don’t know what the next four years will bring and neither does anyone else. But I do know that I have to go with my principles instead of my pocketbook. I’m going sell investments and move funds to safety, and then sit back and cheer on any storm that returns America to the compassionate values that I hold dear.

“The Big Short”: a review and a look at modern investing

BS3In 2007 I took over managing all the money my husband and I had saved over our lifetime, even though I knew nothing about investing. Most of the money was in a 401K plan with my employer. I got laid off, was damned sure I didn’t want to keep that company’s stock, and so I had to do something else with it. We’d already had bad experiences with professionals too busy to answer the questions of folks with our meager level of savings, and twice we’d been directed into investments clearly not in our own best interest.  There wasn’t going to be a third time. Not when everything we had was on the table.

B8So I spent the rest of 2007 figuring out how to buy stocks myself and, hopefully, how do it well. The jargon was overwhelming and the websites intimidating and the calls from other people who wanted to handle my money for me were relentless. I think it was the tenacity of those who wanted to get their hands on my savings that pushed me to persevere.  I mean, if they were all that eager to do this, it couldn’t be that good for me, right? Then, well…..

I guess you all heard about what happened to the economy in 2008, didn’t you?

BS1“The Big Short” is an emotional movie for me for many reasons, but the biggest is the way it attacks the veil of complication draped over modern money management. In an attempt to get the average viewer to open their minds the movie uses techniques like having a champagne-drinking blond in a bubble bath explaining what a sub-prime mortgage is and letting chef Anthony Bourdain tackle describing a Collateralize Debt Obligation as he makes a fish stew. Even after nine years of studying this stuff, there are parts of the movie that I still did not understand, so I can’t say they were totally successful making all of this simple, but it is an impressive attempt.

BS7The movie is really three stories told simultaneously. Each one is engrossing and would have made a fine movie of it’s own. In fact my biggest criticism of the film is that I would have liked to have known more about each of the characters and more details about their story. The tales never really intertwine, and while I applaud the writers for honoring reality and not forcing connections where there were none, it does leave the viewer with the feeling of having watched three movies about a related subject at once.

That aside, I enjoyed the movie immensely. It is well written, well acted and a compelling look at how something could go so wrong with so few people noticing. The housing collapse itself is well explained; I just got lost in the nuances of how each of the characters ending up making money on the collapse. The wide variety of people shown profiting from the system makes the fair point that it wasn’t only greedy Wall Street bankers that brought this upon us. Pretty much everyone who had a chance to make hay while the sun shone tried to get theirs from a system that was spinning out of control, and this makes the whole mess all that more more understandable.

BS4One can’t help but cheer on the movie’s three groups of small time investors who discover what is going on, who try to sound an alarm, and who are all ignored. It is hard to begrudge them their profits in the end. The movie does raise legitimate questions about why so few were punished for what eventually turned into fraud, and why the very richest experienced so few consequences while so many others down the food chain had their lives turned inside out.

BS9In spite of these worthy themes, I feel that there is a bigger one here, and it is best voiced by Brad Pitt’s cynical former trader. Why does this system exist as all? I mean the question seriously.

Why doesn’t a stock exchange simply exchange stocks? You know, buy and sell them.  Why can one short (bet against) a stock? That adds no value at all. Why can one trade options? Why can one use the stock market to engage in a host of other, far more complicated methods of gambling that add no value to the underlying companies but only serve to provide an increasingly convoluted casino? Does no one notice that this casino has rules that tilt in favor of those with much more to invest? Why have games been devised that are too complicated for the average player to understand? Is it primarily to provide income to those trained specifically to manage money?

BS6If we are going to have corporations, let’s invest in them, not use them like sports teams for some kind of complicated fantasy football gambling fest. Worse yet, let’s not use them like a complicated fantasy football gambling fest in which you have to hire an expert to mange your team for you because the rules have become to complicated for you to understand. Isn’t our economy too important for this kind of nonsense? Most of the folks who lost their homes in the mess of 2008 surely agree that it is.

BS5I could so easily have been one such person. I took a life savings and put it into a system I barely understood, trusting that the system would behave reasonably. What saved me was my own timidness. I split my sum into tiny parcels, directed most of the money to a variety of cautious endeavors, with all of them scattered across the spectrum of investments I was qualified to make. Basically, I drove like my grandmother. It was a good time for that, and I’m just plain lucky that I did. (I don’t always.)

At the very end of the movie, there is a hint as to why these convoluted games are not to our collective advantage. We all know that they provide for endless paths by which one can figure out a way to cheat the system. The movie is nice enough to point out a “new” investment vehicle which basically does what the Collateralize Debt Obligations of 2007 did. But hey, it’s now called something else. No one will notice the similarity, right?

 

 

HFT: not inherently evil

Bill Conerly at Forbes explains HFT

Bill Conerly at Forbes explains HFT

High frequency trading plays a large role in d4, as those who can see the future find that this subset of playing the stock market is ripe for providing them with an advantage over their less clairvoyant competitors. In real life, HFT (or high frequency trading) is not inherently bad or even unfair, as long as the rules behind it are equitable and of course as long as no traders really do see the future. This article from Forbes by Bill Conerly gives one of the simplest explanations I found on how HFT really works. Read below to see how d4’s hero Ariel explains it.

Chapter 5.

“That doesn’t make sense.” Nell was thinking while she walked. “If what you’re saying is true, then it takes a whole hundredth of a second just for information to go from Dublin to New York, because that’s about three thousand miles. Cillian ought to be losing every time he places an order just because he lives so far away. “

“That’s right.” Ariel was happy to discover that this woman could not only follow along but she could do simple division in her head while she did it. “But Cillian isn’t making the decisions. The other thing we do for Cillian is we design software to think for him. In fact, our programs take in data, analyze it, and issue buy and sell orders based on Cillian’s criteria, but far faster than he or any other human ever could. It, the machine with our software, lives right on Wall Street and right next to the London Stock Exchange. You’re exactly right, Nell. Milliseconds do matter and we make Cillian faster every single way that we can. He still won’t always come out on top in a trade, but he will more often than not, which is what investing is all about.”

“Oh,” Nell said it like she was surprised to find the mumbo-jumbo was quite so simple. “So what happens when everybody starts using your fancy high frequency techniques and they are all super fast? Then who wins?”