by Joyce Marcel
American Reporter Correspondent
May 9, 2010
BRADENTON, May 7, 2010 -- British Petroleum says the Gulf of Mexico oil spill may ultimately cost them $16 billion. Where does that kind of money come from? Say that BP has a computer genius who is commissioned to hack the stock markets. They figure out how to do it, place buys in street name through 500 different brokers, then make their move. Wham!
Procter & Gamble (P&G) falls from over $60 to $39 and change when BP's brokers make the move. They buy a huge amount of P&G, which at $39 and change has lost $16 billion of market value. Minutes later, P&G is back above $60. Presto! BP's play has made $16 billion in about two minutes.
"Federal officials fielded rumors that the culprit was a single stock, a single institution or execution system, a $16 billion trade that should have been $16 million. But they did not know the truth," the New York Times says Friday morning. That says a lot, to me.
There's more than one way to skin a cat. Regulators have decided to annul all trades between 2:40 PM and 3 PM today in which any of 286 stocks moved more than 60% during that time. So BP would have to give all the money back.
How do we get our money back? You and I, the little guys devastated by the high-stakes gambling of Goldman Sachs, Bear Stearns, Lehman Bros., Bank of America, Citigroup, AIG, Wachovia Bank, UBS, RBS, HBC and all the rest? Simple. You identify the guilty parties - the people that cost us our homes, our savings, and perhaps our lives - and you liquidate their instruitutions. Then you identify us - we who have lost our homes, our savings, and perhaps our lives - and you divide the income among us.
You say it doesn't sound like something Solomon would do? He'd chop a baby in half to stop a feud between two mothers who claimed the infant. Why wouldn't he chop down some bad trees in the orchard and divide the firewood among the people who owned them? It's not quite making them whole, but it would help.
It was madness today. As I watched CNBC's anchors lose control of their emotions and all of them - Maria Barteromo, Jim Cramer, etc. - start talking at once as the market suddenly fell off a cliff, I saw the confusion, disbelief, awe, revulsion, feigned indifference and other emotions flit across their faces as fast as the numbers changed. I last saw the screen when the Dow was down 964 points as I turned away to my PC to tell our readers.
"Those guys are nuts! They're nuts! They know nothing!" Cramer, who knows all, screamed. He suddenly began to mimic talking to his broker. "$49 and a quarter bid for 50,000 P&G," he shouted.
That price was "available only to the people who were bidding at that moment when the panic hit," he said later on his syndicated tv show. He didn't hit it, either.
It was back to just 600 points down in the space of a minute or so, and back to the upper 400's down a few minutes later; it eventually closed down 347 points and change.
Sotheby's, which deals in the commodities of art and antiques and other collectibles, saw their shares go to $100,000. It's hardly conceivable that anyone bought it at that price; it closed back down in the 30's.
If you were trading Accenture when it fell from over $40 to a penny, for an investment of $10,000 you could have bought a million shares and sold them for $40 million three or four later. If you waited until it came back to $25, and spent $1,000,000 to buy 40,000 shares, you would have made $600,000, which isn't chump change, either. And, anyway, it would have taken that long to enter the order unless you are one of those Wall Street guys who do "high-frequency trading" (HFT) that allows them to buy and sell stocks.
HFT is "the buying and selling of stocks at extremely fast speeds with the help of powerful computers. Using complex algorithms, these computers can scan dozens of public and private marketplaces simultaneously, execute millions of orders a second, and alter strategies in a matter of milliseconds. In the U.S., high-frequency trading firms represent 2.0% of the approximately 20,000 firms operating today, but account for 73.0% of all equity trading volume," the site Wikinvest says.
Millions of orders a second? Powerful computers? Complex algorithms? Dozens of markets simultaneously? And 73% of all trading volume?
The market has gotten away from the little guy. In the name of "free" markets, trading stocks has become extremely expensive for the little guy. He can make one or two trades a minute using his home computer, maybe, presuming the bandwidth is still there when panic buying or selling hits. He can't compete.
BP could. So could all the rest of these bums who run investment houses and banks on Wall Street that inadvertently costs us our jobs and homes and get bailed out so they come back to normal in a couple of months. To do it again? If the ordinary investor had a tidy profit on a "safe" stock like P&G, which he or she was nursing along as it went up after the meltdown last fall and enjoyed the dividends, he or she would probably - remembering last fall - protect himself or herself with a "stop-loss order" that automatically executes a sell order when the stock falls a preselected number of
P&G is nice and safe, so, say the investor bought it at $55 and nursed it along up to $61 as of today. His $6,000 gain made him or her happy, because they lost a lot of money last year. But when the stop-loss order went in, all his or her unrealized gains were wiped out. Their $6,000 evaporated.
But P&G probably has a few powerful computers and all the latest programs. Let's say it trades for its own account. It would have executed millions of buy orders a second when their stock hit $40, and a few minutes later could have sold it again at $61 (it closed at $64). They would have now recovered any losses they had over the past several years. Say you are Accenture and you buy your stock at $0.01, down $40. Five minutes later, your corporation is suddenly debt-free. But in the end, people who work on Wall Street are probably the dumbest anywhere. Look at all the money they lost last year. Look at all the money they lost today. Were they ever smart enough to devise a total game-changer like today's? I don't want to say "no," but I don't really think so. It would take one substantial player, well-armed with big cash, powerful computers, algorithm geniuses, and a vast web of connections. China could do it. BP could do it.
Isn't it a lot like ticket hustlers who put dozens of people on the phones to buy Springsteen concert tickets for Ticketmaster or whomever, beating all the normal fans Springsteen was trying to sell the tickets to? Say there's a giveaway down at the supermarket. Wal-Mart is going to open its doors and give everything away free for five minutes. The guy with the fastest car is going to get there first, is he not? But is that what Wal-Mart intended?
The problem is that the SERC is supposed to make the stock and commodity markets an "even playing field" to the greatest degree it can. So how does it let people who can make a million trades a second compete with day traders who can make one or two or But is that what Wal-Mart intended?
The problem is that the SEC is supposed to make the stock and commodity markets an "even playing field" to the greatest degree it can. So how does it let people who can make a million trades a second compete with day traders who can make one or two or 20? When they are not busy perusing the offerings at sex.com, they're busy making deals with Bernie Madoff. How is the little guy supposed to win sometimes at this supposedly shining gem of the free world, the poorly-regulated stock market?
As you ponder that, ponder this: One of the largest oil companies in the world, with a little cleverness, could have made their entire loss on the Gulf of Mexico oil spill back in cash in the space of three minutes. And if that can happen - and I'm not saying it did or didn't - then, really, what else is going on?