Just Because You’re Paranoid

[Note to readers: First of all, my thoughts and prayers are with all of those whose lives were taken or shaken by the “Marathon bombs”.  Secondly, I normally write these blog posts from “my head”. However, between the countless emotions prompted by the developments in Boston and a very stressful trading week, I decided it was entirely appropriate to let “my gut” write the following… with the expectation that bits and pieces of it may resonate with some, if not all, of you. Be well, and as my father often said as I was growing up: “keep the faith!”]

Investors, I have a question for you:  At the end of an especially bleak and barren trading week, with red ink dripping from your portfolio like the ooze that falls off a rotten tomato in the heat of summer, how do you feel?  Unlucky, unloved, defeated, hopeless … or angry, vengeful, energized, and determined to make it all back?

Trading psychologists will tell you that, despite such emotions being common within the life of traders and investors alike, they tend to be quite counter-production in a trader’s efforts to be profitable over the long haul. Instead of holding onto or harboring such emotions, investors and traders need to focus upon (and stick with) the discipline of a proven trading plan!

That said, I confess to having each one of the feelings I listed above surge through me (yes, “surge” is the word) during this past week – particularly since the one day this week I could not be in front of a computer during trading hours (I am a tax professional) was Monday, April 15th.  Each of you knows what happened to gold and silver on the 15th, so all I need to say is that I am (‘fundamentally”) a perpetual precious metals bull.  Despite some hedging within my positions, a hole was dug in my portfolio that makes the Grand Canyon look like a gentle hill in the heart of Illinois. (“Hyperbole” is a divinely granted right for all who take keyboard in hand to write insightful investment commentary that also entertains.)

Very irrationally, but also not surprisingly, I felt I was the victim of some evil force of market manipulation – shades of a “Flash Crash”, the “Hunt Brothers”, “Dark Pools”, “Program Trading”, “High Frequency Trading”, or even the proverbial “Evil Empire” or the very real Bernie Madoff.  As we know full well, few venues of life are as rife with images of conspiracy, evil forces akin to “Darth Vader”, or technology run amok in the vein of “Skynet” (the machines that controlled the future in “The Terminator” series) as is the world of stocks, options, futures, and Forex.

Image: Darth Vader (Dalekwidow).

Therefore, it is natural during a week like this to yearn for an “Obi Wan Kenobi” (Star Wars)

Therefore, it is natural during a week like this to yearn for an “Obi Wan Kenobi” (Star Wars)

Image: Obi Wan Kenobi (charlesfettinger, licensed through Creative Commons) or a John Connor (The Terminator) to help us cope with the faceless forces that seem to be in our way.  Surely there are some folks who do, in fact, stand in our corner to help us cope in the daily struggle of trading, aren’t there!?

Well, coming from Illinois (the “Land of Lincoln”) I regularly fall under the trance of the eloquent words and unparalleled heritage of our 16th President, Abraham Lincoln – who tirelessly worked to preserve the ideals in which he believed. Those ideals included the “proposition that all men are created equal” and “we here highly resolve that … this nation, under God, shall have a new birth of freedom… and that government of the people, by the people, for the people shall not perish!” (Gettysburg Address).

Image of Abraham Lincoln Memorial (Gage Skidmore, licensed through Creative Commons)

Holding on dearly to that tenant of faith, and remembering the many vehement expressions of shock and sharp rebuke leveled by senators and representatives whenever revelations of Wall Street fraud or financial abuse have emerged in the news cycle, I turn my eyes to Washington for reassurance that they will do everything they can to guarantee a “level playing field” for equity, bond, and currency traders. I also recall (with a smile) the act of political contrition in which they engaged over one year ago, upon the emergence of rumors of several credible cases of “insider trading” within the narrow bounds of Congress. With flourish and fanfare, as well as numerous photo ops and sound bites, they passed the “Stop Trading on Congressional Knowledge (STOCK) Act of 2012” – with the clearly stated objective of “prohibiting members and employees of Congress from using nonpublic information derived from their official positions for personal benefit!”  It was passed without objection (a feat notable in and of itself, given Congress’ egregiously poor record of effective action, much less unanimous action) on January 3, 2012.  Surely Lincoln could agree that Congress can be our valiant watchdog in the battle against the dark forces of Wall Street!

Wait a minute!  What’s that you are you trying to tell me?

You have got to be kidding! No way!  The Congress that has made a habit of creating, and then disregarding, their own deadlines because they cannot find a way to agree upon any meaningful solution to the plethora of seminal financial challenges that beset our nation… the Congress that stumbled through the “Fiscal Cliff” and “Sequestration” because they cannot find common ground… that Congress hasn’t been able to agree on anything!

OK, OK, I hear you. So the Congress that cannot act on behalf of the financial security and well-being of the nation can agree, without objection, to the elimination of the key disclosure requirements within the STOCK Act for almost all federal employees, including congressional staff members?!   Sure enough, the legislation was passed, and signed by the President, just days before the disclosure rules were scheduled to become effective and implemented.

So much for clinging to Abraham Lincoln!  The bottom line is that you and I are subject to potential prosecution if we profit from nonpublic information, but federal employees can breathe easy. Congress and the President have their backs!

It must be that a “Dark Pool” (or could it be the long shadow of “High Frequency Trading”) has cast a pall over Lincoln’s “of the people, by the people, for the people”.

Submitted by Thomas Petty

 

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