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Monday, March 5, 2012

Short term thinking is not thinking at all

There's an old adage that the stock market is discounting out into the future, say nine months to a year.  Now, I don't know if this was ever true.  But right now 70 percent of the volume on the NYSE is from high frequency trading.

What's high frequency trading?  It's when you place a trade to buy 100 shares of Apple, and Goldman Sachs' supercomputer picks up you trade buys the 100 shares, sells it to Merril Lynch's supercomputer at a fraction higher as it picks up the trade a split second later and then Merril Lynch sells the 100 shares at a fraction higher to your broker - even if your broker works at Merril Lynch too.

The amount of time being discounted by the NYSE in this model is about a nano second.

And a nano second is about the attention span of the average American right now. 

The fact that Goldman Sachs is now also a commercial bank and they can get the money to front run your trade from the Federal Reserve Bank at zero percent interest is far too long a thought for most Americans to grasp.  Add to that the fact that the money the Fed uses to give to Goldman Sachs to front run your trade is, in fact, your money.  The Fed uses your money to give to Goldman Sachs so that they can front run your trade should make most Americans furious.

It would be far more obvious, but functionally no different than if the US Congress declared a Front Run Tax to be taken from your paycheck and given to Goldman Sachs to use to cheat you on every trade.  If there was a tax you'd probably vote against it, I'd bet.  But since the process takes about 5 minutes of solid thought to decipher, you just don't give a damn.  (That's the generic "you.")

In fact, most Americans are furious.  But they're furious because their cell phone just dropped a call or their DS isn't working properly, or their neighbor's phone has more apps than their phone, or because the damned Liberals or Conservatives or Muslims or Jews are screwing everything up. 

On top of that they're vaguely upset that things don't seem to be going well.  But they're kind of sure things might probably do better soon enough, hopefully.

Unfortunately it does require about 5 minutes of thought to figure things are really getting worse and why they are getting worse.  And another 5 minutes to figure out how gold will be the ultimate insurance policy against this persistent decline.

If you have 5 minutes it might be worth it to try.

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