Wall Street WARZONE
Day Trading’s Hot! New Bull Roaring! Maybe Too Hot! Soon “Overconfidence” Will Sabotage Macho Traders. They’re Addicts, Can’t Stop, Will Lose 77%-82%
by Paul B Farrell, JD, PhD
| Discuss | Print | 4/26/2010

They’re back! Matt Kranz ‘ USAToday column barks like an Army Recruiting Poster: “Online Brokerage Firms Want You!” Yes, here they go again! One of the best signs the markets is moving into a roaring bull market again is the fast growing popularity of day trading out there in Main Street America. Daytraders ride the tide up in bull markets, then hibernate during bear/recessions. Here’s how Kranz sees the trend as brokers rush in to feed the beast and get rich off traders who inevitably lose 77%-82%:

After years of hunkering down, clinging to cash and retrenching to survive the credit crunch themselves, online brokerages are rediscovering their competitive mojo. In a new wave of competition that’s likely a big positive for individual investors, online brokerages are looking for ways to not only lure customers wading back into the stock market but wrest existing investors from other firms. Charles Schwab fires the opening salvo to the latest post-bear-market showdown today when its commission price cuts go into effect. The firm stunned the online brokerage world this month by cutting the price of online trades 31 percent to $8.95 for all its individual-investor customers. … Whether Schwab’s move will trigger an all-out price war among online brokerages is an open question …

And over at the New York Times David Segal stirs the pot: “Day Traders 2.0: Wired, Angry and Loving It.” Yes, they’re jumping back in with the same confidence as before during the roaring dotcom trading era they lived (and died) on adrenaline and (More)

End Wall Street’s Out-of-Control Casinos! Detox Wall Street’s Gambling Addiction! No More Bogus “Financial Innovations!” They’re Killing Capitalism!
by Paul B Farrell, JD, PhD
| Discuss | Print | 4/24/2010

You want to really understand what’s going on inside Wall Street’s brain? Read USAToday: ”Financial Reform: Wean Wall Street Off It’s Gambling Addiction.” You get images of Wall Street as an upscale skidrow with its own private casino, a “gated community” protecting millions of unrecovered self-destructive gambling addicts, to extend USAToday’s metaphor.  And as with most addicts, Wall Street sure hasn’t taken that crucial “Step One: Admitted We’re Powerless Over Our Gambling Addiction and Our Lives are Unmanageable.” Yes, out-of-control and unmanageable.

Without that Step One admission, Wall Street’s addicts just keep ruining everything in sight, not just themselves, their families and friends, but American capitalism, democracy and the global economy, as we saw in the recent subprime credit meltdown. Addiction and addicts are easy to spot. Years ago I worked professionally with about 300 recovering addicts and alcoholics from Betty Ford and other centers. Here’s how USAToday’s editors see Wall Street’s out-of-control disease today:

Once upon a time, Wall Street was about providing services to institutional clients. It helped them raise capital through lending, and the underwriting of stocks and bonds. It helped them manage their assets by advising them on what to buy and what not to buy. These days, Wall Street has come to resemble a vast and sophisticated gambling operation aimed at making fast profits and paying out fat bonuses. Its investment banks place bets with both their own money and that of clients. And, not infrequently, they make money by taking what might be considered contradictory positions — like the recent disclosure that Goldman Sachs was secretly betting against mortgage products that it promoted in public. (More)

You Can’t Beat the Pros … But You Can’t Stop Betting? Stock Market “Trading Addict” Tells All … 8 Sure Signs You’re Also “Addicted!”
by Paul B Farrell, JD, PhD
| Discuss | Print | 4/17/2010

Researchers comparing the performance of institutional portfolio managers with average retail investors conclude that three factors make it not only unlikely but virtually impossible for individual investors to match the performance of a professional … First, the pros live and breath trading 24/7. Second, they have too many analytical, data, tax, timing and regulatory tricks that give them a clear competitive advantage over the average passive investor. And third, the individual investor’s brain is simply not wired in a way to consistently make winning investment decisions against full-time professional managers. In short, Main Street investors are playing with a enormous handicap against an undefeated enemy that controls the battlefield. Yes, this may be irrational, but they can’t hear the warnings. Gamblers talk about winning, but deep inside there’s a saboteur, a loser.

The idea of day-trading triggers an instant and automatic flashback to that classic 1974 movie, “The Gambler.” James Caan, plays a brilliant college professor, the ultimate symbol of the “rational man.” Unfortunately, he’s trapped in his addiction to gambling. He’s in hock forty-five grand. Time and again he gets close to paying off his marker. Then he’ll sabotage himself—again. He’ll take a big risk, lay it all back on the line, one more time. To make the big killing. Can’t stop himself. Like all addicts, his disease controls his brain, blinding him to the consequences. Addicts are irrational.

Now he’s drowning in markers. The sharks want him to pay up. He ain’t got it. Keeps betting. Gets deeper in debt. Killers are after his brilliant head. In one tense scene, with the goons closing in, an anxious professor begs his bookie for another loan, to place one more big bet. To bail him out. “Ya know how all gambling addicts are alike?” says the bookie, sitting in his fancy new sports car, looking at the begging gambler: “They all wanna lose!” (More)