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8/15/2012

More delisting is good in a virtual stock market




In the pages of the media yesterday there were talks of more delisting of companies in the SGX. This is the natural trend of development in the stock market given the lack of interest in the investors and the depressed value of stocks. Many stocks are now trading below market valuations and there is no point in listing and becoming targets of takeovers. Stocks that are doing well in real business will find it more attractive to delist or relist in markets that give them better valuations.

Basically, why waste money paying listing fees and not getting the real value of the stocks and not able to raise funds? I have been talking about his development for a while. What is happening in the stock market today?

The long term investors and analysts are talking about real values and market valuations that made investment in stocks really attractive, good bye, pun intended. On the other hand the big funds with their gambling machines are only interested in scalping the markets, cornering the market with programmed trading to make the margins. Whether a stock is up or down, below or above market valuation, is not their concern. Neither do they have to worry about such meaningless stuff. As long as they move the market the way they wanted, with sheer volumes, they are happy with their profits.

Companies listing their stocks will find it meaningless, with little incentive to pay the listing fees. They will be better off saving the money or to list them somewhere else.

The market is dying and soon mortis rigor will take over. And with the kind of volumes generated, the commission generated, broking houses will find it a struggle to pay for their overheads. Commissions, not clearing fees, are the life blood that feed all the parties in the market and keeping everyone afloat. It is like Quantitative Easing. The need for liquidity is not for fun. Jokers are constantly talking about cutting cost, lowering commissions. In the absence of real commissions, the industry will end up a wrinkled apple, and finally a dried apple without any juice.

Stock markets must operate under the dynamics of real business and organic growth on a fairly long time scale. When the prices of stocks have no bearings to their real values, when machines are only interested in buying and selling in micro seconds, it is a sign of a mismatch as pure gambling based on odds and lightning speed has no place in a real stock market. The machines will thrive very well in a virtual stock market without any real stocks. They talk differently and think differently from investors looking for good value. They belong to different worlds.

How good is a virtual stock market with virtual stocks, no need for real stocks? Put in a few more high speed computers to generate a few more billions of trades. Is it liquidity? A virtual stock market can exist with fictitious stocks and fictitious trading volumes by computers and there is no need for real stocks and real investors. All the broking houses can pack up, all the backroom staff, analysts, management, and remisiers can look for other jobs. And the stock market can continue to exist in full glory with the machines roaring against each other, with hundreds of billions of virtual trades in a virtual world of machines.

Yes, save all the commissions and liquidity, cut more commissions. There is no need for commissions and liquidity. The cost of trading can be reduced to non existence. Machines and computers do not need to be fed. It will be a cheap cheap stock market.

3 comments:

Anonymous said...

[NASSIM TALEB WARNS: Stay Out Of The Investment Industry]

http://www.businessinsider.com/nassim-taleb-investment-industry-2012-8?op=1


[At trial, U.S. asks fund manager to explain insider ties]

http://www.reuters.com/article/2012/08/15/us-insidertrading-whitman-idUSBRE87E1C420120815?

john merits said...

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