The recession, pt. 2

[Jerome Scuggs]

Derivatives, once again, are not dangerous and in fact protect against risk when used properly. Many of the derivatives that went bust were due to false signals investors received - such as the false assumption that the government would bail out investors on certain derivatives, such as housing. You don't see crises in, say, the wheat market - yet there are many commodity-based derivatives.

When the illusion was created that housing would always be a safe bet, that's when investment went sour, as everyone and their grandmother hitched their livelihoods onto the various instruments avaliable. The assumption was "we have these bad investments, but the government has begun loaning out funds for housing, while guaranteeing them. So we can hitch toxic assets onto them, and so long as the underlying value keeps going up, we're good". While the government may not have explicitly stated that the housing market would become "a sure thing", their actions sent that very signal to investors. It would have made very little sense for investors to willingly ignore such a juicy proposal.

Similarly, the government is engineering a false confidence in the stock market, again.

I'm not saying individuals never make wrong assumptions - but when they do, they usually find out pretty quick, and the danger is confined to the few who were in on the venture. No individual could do what the government did with the housing market, for instance.

[Jerome Scuggs]

http://www.republicans.waysandmeans....umentID=150826

The table below compares the White House's February 2009*projection of the number of jobs that would be created by the 2009 stimulus law (through the end of 2010) with the actual change in state payroll employment*through September 2009 (the latest figures available).* According to the data, 49 States and the District of Columbia have lost jobs since stimulus was enacted.* Only North Dakota has seen net job creation following the February 2009 stimulus.* While President Obama claimed the result of his stimulus bill would be the creation of 3.5 million jobs, the Nation has already lost a total of 2.7 million – a difference of 6.2 million jobs.

this is from the biased, unscrupulous republicans who do nothing but be biased, so in reality I am sure the stimulus has created like fifty billion jobs

it seems weird to me that people want to get rid of "harmful speculation" by letting the worst speculator ever create rules and regulations for speculating. I've never seen a government report where their speculation lived up to hype.

[Xog]

Jerome,

[Eric is God]

As an investor, I have to chime in here.

I will agree that there is a similarity between trading on the stock market and being an online poker player. Both involve risk and uncontrollable factors. But then again, doesn't almost everything in life?

To insinuate that there is more skill in poker is wrong. Just like Poker, you need to learn the 'game' before investing. Proper investing requires plenty of research. So it's not simply clicking 'Buy' or 'Sell'.

Also, the zero-sum theory doesn't really apply to or accurately describe the stock market.

I'm going to just stick to my points rather than rambling on and elaborating on everything, so hopefully you catch my drift.

I'm an investor to. In fact, I could be an extremely good day trader given my education and work experience, but I'm extremely risk adverse and already have one anxiety issue lol.

No matter how much knowledge you have about a company, industry or the stock market, you can be screwed by volatility that is driven by nothing more than one or two hedge funds short selling the stock for questionable reasons. I have extremely high level insider info on a $40 billion company and I refuse to invest my company because it can fluctuate 20-30% in a week for no business or industry reason.

Yes, the stock market as a whole is not a zero sum game as the market generally moves up over time. Individual trades however are akin to zero sum games and day trading jobs create little wealth in society. I have no problem with some speculation in the market, but hundreds of thousands of day trading jobs is just asking for trouble.

People who are day traders are not making trades based on the fundamentals of companies because they investment horizon is 3 months at most. They make trades based on rumors, gut instincts, arbitrage opportunities in the options market that the market has yet to correct etc...

During an interview I had for a day trader position I explained my detailed understanding of derivative and option strategies, corporate valuation, and how to analyze a company's financial ratios. The person interviewing me said they don't use any of those basic skills for investing because they don't care how the company is actually doing or how well it will do because they usually flip stocks within a one to two week period.

[Eric is God]

Why do we hate speculators? Isn't the entire stock market built around speculation?

A speculator is a person who flips a stock, option or whatever within a very short time period (usually less than 1-2 months). e.g. buying 20 call options on Google today and selling them 5 days later when the stock goes up 2% to make a $600 profit. People investing for their retirement via pension funds or personal investment accounts usually plan to keep their money in for many years, generally do not purchase individual stocks, do not have leveraged positions, will often have some fixed income component in their portfolio and try to diversify.

Long term investors basically get shafted by speculators who aren't just individuals but often hedge funds, banks or other investment conglomerates. Individual speculators can move the entire market if herd mentality kicks in, but it's often the huge investment institutions that have the biggest impact.

[Eric is God]

http://www.republicans.waysandmeans....umentID=150826



this is from the biased, unscrupulous republicans who do nothing but be biased, so in reality I am sure the stimulus has created like fifty billion jobs

it seems weird to me that people want to get rid of "harmful speculation" by letting the worst speculator ever create rules and regulations for speculating. I've never seen a government report where their speculation lived up to hype.

The success, or lack thereof, of the stimulus package has nothing to do with the negative impact speculators have on the stock market. If I was American I wouldn't vote Democrat or Republican because neither has any good ideas.

All I care about is efficiency; in the stock market, in government, in every day life. The best thing a government can usually do is pass laws that prevent (or at least punish) people/institutions from doing things that harm society and increased regulation in the financial sector would be a very easy place to start.

[paradise!]

A speculator is a person who flips a stock, option or whatever within a very short time period (usually less than 1-2 months). e.g. buying 20 call options on Google today and selling them 5 days later when the stock goes up 2% to make a $600 profit. People investing for their retirement via pension funds or personal investment accounts usually plan to keep their money in for many years, generally do not purchase individual stocks, do not have leveraged positions, will often have some fixed income component in their portfolio and try to diversify.

Long term investors basically get shafted by speculators who aren't just individuals but often hedge funds, banks or other investment conglomerates. Individual speculators can move the entire market if herd mentality kicks in, but it's often the huge investment institutions that have the biggest impact.

I actually meant for my question to be a 2-parter but this just reinforced my thinking. More questions I have:

Why was oil singled out as a victim of speculators on wal-street? We know gas prices were going up, but aren't their many things like these that are liable to dramatic changes (potentially).

I mean why all of a sudden get mad at speculators for doing what they do best? Since speculation is a major reason for market failure, why do we even allow day traders at all then? Wouldn't we only want long term investors?

I'm not saying individuals never make wrong assumptions - but when they do, they usually find out pretty quick, and the danger is confined to the few who were in on the venture. No individual could do what the government did with the housing market, for instance

News stations regularly broadcast info telling us our ideas of the economys rebound are inflated, by using quotes from top economic advisors. Each saying something to the affect of "things are going better, because you think things are going better." It's fucked up how they deal with these things.

[Jerome Scuggs]

the oil thing has always irked me - American oil industry only controls 13% of all oil production... they do not set prices.

and their "horrible" profiteering - for every gallon sold, the oil company only makes a 2% profit margin. 2%? magazines and water bottle companies have profit margins in the 20-30% range, how come noone accuses them of profiteering? and for every gallon sold, government gets over 40% - how are they not the greedy ones?

[genocidal]

Paradise why do you keep typing "wal-street?" Is that supposed to be you making a cute play on words?

[Epinephrine]

I've lectured to tens of people about Wal-street

[Summa]

I actually meant for my question to be a 2-parter but this just reinforced my thinking. More questions I have:

Why was oil singled out as a victim of speculators on wal-street? We know gas prices were going up, but aren't their many things like these that are liable to dramatic changes (potentially).

I mean why all of a sudden get mad at speculators for doing what they do best? Since speculation is a major reason for market failure, why do we even allow day traders at all then? Wouldn't we only want long term investors?




News stations regularly broadcast info telling us our ideas of the economys rebound are inflated, by using quotes from top economic advisors. Each saying something to the affect of "things are going better, because you think things are going better." It's fucked up how they deal with these things.

Is English your primary language?

I cringed reading this. Somewhere amongst the ending of sentences with prepositions, the ambiguity of using things frequently, and the horrendous use of verbs that do not fit; i assume there was a point. My apologies, I lost it in your grade-school grammar. I hope you don't write like that regularly.

[Galleleo]

Is English your primary language?

I cringed reading this. Somewhere amongst the ending of sentences with prepositions, the ambiguity of using things frequently, and the horrendous use of verbs that do not fit; i assume there was a point. My apologies, I lost it in your grade-school grammar. I hope you don't write like that regularly.

Of course not, thiz is foruns, nod cerius busnis, I rite xsellent regurlarly.

[paradise!]

Is English your primary language?

I cringed reading this. Somewhere amongst the ending of sentences with prepositions, the ambiguity of using things frequently, and the horrendous use of verbs that do not fit; i assume there was a point. My apologies, I lost it in your grade-school grammar. I hope you don't write like that regularly.

bro same, i cringe irl when i reed sentences starting with prepositions, srsly man.

This is an internet forum. So, do the words "U MAD?" mean anything to you at this point, roflmao.

[deathking]

why do we even allow day traders at all then? Wouldn't we only want long term investors?

Ok, I think there is a general misconception of traders in this forum. I'm going to help clear it up.

Institutional traders buy or sell stocks on behalf of clients (or sometimes for the firm, known as proprietary trading).

For any stock, there is a bid price and an ask price. The bid price is the price the trader is willing to buy from you (note: 'you' is usually an institutional investors eg. mutual fund, bank, etc, who buys/sells large number of stocks) and the ask price is the price the trader is willing to sell to you at.

For any stock, the traders are both willing to buy (at their bid price) and sell (at their ask price). The price at which the traders and clients make a transaction is called the market price

The difference between the bid and ask price is called the bid-ask spread, or the spread. The day traders makes money on the spread. The trader does NOT make money based on stock price. PLEASE don't confuse traders with short seller or momentum buyers.

Now, how is a trader useful in the market?

Simple. The trader provides liquidity to the market. Let me explain

Suppose you want to buy apples. You're willing to pay $5 for a batch of apples, but you don't know any farmers to buy from. The farmer is willing to sell for $4, but doesnt know anyone to sell to. The trader is like the grocery store. He buys at $4, sells at $5, pockets the $1, but at the same time, help both you and the farmer with your needs. Without traders, we wouldnt be able to find buyers/sellers for our stocks, would not have a unified stock price, and would not have a stock market.

With that, it is good to note traders are crucial to the market

[Ilya]

http://www.chinahush.com/2009/10/21/...tion-in-china/