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5/16/2011

Whither the Stock market?

What would happen if there is no retail traders left in the market, of if the number is too small to be meaningful? The last few weeks told a story of a stock market that is verging on the edge of being barren, when retail or genuine investors have abandoned the market for their own safety. At 1 billion shares transacted daily, there was hardly any phone ringing in the trading floor of broking houses. Compare this to the heydays of the 1990s when a billion shares were traded, the phones of all the remisiers would not stop ringing for the whole day. In fact many had problems picking up their phones as two or three phones would be ringing at the same time. The tradings then were genuine, by traders and retail investors. Today, despite the hue and cry of 1 billion or 2 billion shares traded at times, remisiers are biting their finger nails wondering why there is no phone call from their clients. In a way the volume is generated by artificial trades, programme tradings, churnings by funds, high speed tradings, all generating no commissions, as they were either house trades or funds’ own tradings. And the funds are demanding that the system be made more friendly for them to trade, even making it cheaper, or to trade for free. The stock market has been transformed to the likes and dictates of the big funds to facilitate their tradings. What the regulators have forgotten is that the funds are not here to do charity. They are in the market for profit. And, unfortunately, stock market trading is a zero sum game. When the funds are making profits, someone else is losing his pants. We have reached a state when most of the big retail traders and investors have lost practically everything and are no longer in the market. Only a few small traders who have not lost their savings yet, and a few remisiers who still have some money left to lose, are left in the market. As days pass, this number is going to dwindle to non existence, if the system continues in this mode. The question is whether the broking houses can survive without the income from commissions generated by the retail investors or high net worth clients? The exchange can still laugh all the way to the banks with the clearing fees from the high volume. But the high volume means nothing to broking houses that have to feed all its staff, rentals, overheads etc etc. When retail trading reaches a point that is no longer able to sustain the business, the broking houses will have to pack their bags or downsize. But even before that, the funds that the exchange is begging to trade in the market will be the first to disappear from the scene. When there is no money to be made, there is no reason to be here even if they can trade for free. Who is left to feed the big funds? Can the stock market continue to exist without the participation of genuine investors? Can the current mode of operation that favours the big funds sustain the business of the stock exchange? As Merlin continues to wave his magic wand, the stock market is turning into a toad instead of a prince. And no one knows what is wrong with the market. They think that they can keep waving the magic wand and something good will come out from it when fundamentally the market is rotting at the core.

6 comments:

Anonymous said...

Just like the church. No one is going to tell the emperor he has no clothes on.

Need to wait for a minister to be sacked for him to want to see the rot. If not, better pretend that the emperor is wearing his new suit.

Anonymous said...

Sigh!

Anonymous said...

Wait for them to fatten the goat for the slaughter. Just beware, the fattening is getting shorter and the selling will be deeper.

After every fattening season, many small investors will be holding on to huge losses.

Anonymous said...

Now the goats are getting smarter. They are avoiding the fattening sessions, because they know they are the ones to be slaughtered when the time comes.

Let the remaining brave goats be fattened to satisfy the slaughterers. Hari Raya comes only twice a year.

Wally Buffet said...

Mr. Bean,

Forget about the stock market lah. It's getting too complicated for us, the old school of investing.

Just call it a day, give up your desk space to another sucker, grab your camera and go on jaunts to snap the world out there. It is closer than you think, lovelier than you dream.

Life, whatever is remaining, has more meaning doing what we want to do rather than what we have to do.

For Yodas like us, time is more precious than money.

Chua Chin Leng aka redbean said...

We used to trade with stocks. Now they are printing papers to trade, much more vicious than COEs. Print bananas on them and sell. When no more buyers, print potatoes on paper and sell. When no more buyers, print coconuts on them and sell. It will go on and on and some poor buggers are going to end up with a cupboard full of papers with bananas, potatoes, and you know what printed on them.

So brilliant.