POOR RICHARDS REPORT
Chapter 19
The Sins of Our Fathers
Once when I was a young man of 26 I had the opportunity to visit the floor of the NYSE. A wily trader of about 60 years of age pulled me aside and warned not to commit the sins of the past. “If you do” he whispered in a tragic voice, “the government will take over our business and the free spirit of our country will vanish.”
As it was, I was having hard time making a living because “I hadn’t been through THE CRASH!” Do I proceed to learn everything I can about the later 1920’s and 1930’s that was possible for my little pea brain?
The tales of the survivors were amazing for the positive individuals and horrific for the greedy. It was also bad for the unsuspecting public who were conned into believing there would be “a chicken in every pot.” That mantra would haunt the Republican Party for a generation. It also haunted President Herbert Hoover until President Harry S Truman invited him back to the White House and asked him to take charge of the Marshall Plan in rebuilding war torn Europe after WWII.
Since the stock market Crash of 1973-74 I have sadly watched all the past safeguards that had been put in slowly drain into the gutter of despair on its way to the sewer of despotism under the false guise of “freedom”. The poor and “have-nots” will require more from the wealthy and they in turn will vanish.
This can be stopped if you, dear reader, will contact your elected representatives in each country with some of these ideas presented to you. WE have a chance because in the United States both Houses are controlled by the same party, and members of the opposite party can be swing voters to provide “veto – proof Laws”. This is true for almost every democratically elected country in the world today.
We must act now to preserve our freedoms and independence.
1. The Congress must advise (mandate for 6 months or more) that all margin accounts be raised to 100%. This means cash for cash. Before you scream bloody murder please take this into consideration; If you are on margin at 50% you stay there until you make a change. If you make a same day substitution you remain at 50%, but if you wait one day then you lose the 50% margin. This puts the onus on the short term traders, because if they pick the wrong security as a substitution they will receive a margin call. The rule of thumb is “do not meet a margin call with cash” – the security is telling you something – sell.
This will shut down the manipulators overnight. The ones fleecing us will scream the loudest.
2. Revert back to the fraction system for quotes. This system allowed market makers to make money off the spread between the bid and ask price. This allowed the market makers to try to “support” their stocks in down markets which in turn reduced volatility in the market place.
Also, and more importantly, it shuts down the “casino” aspect of the market place in general. Just look at the internet for brokerage firms that offer new accounts 100 “first free” trades. Nothing is “free” in this business and all this does is tempt the new account to try a “lottery type” trade by buying thousands of shares of a penny stock. Back in the 1920’s and 1930’s these firms were called “bucket shops.”
Also, reinstate the Uptick Rule for short sales. This was Joseph P Kennedy’s brain storm as first chairman of the Security Exchange Commission. Before this rule there were “pools” that would spread dis-information about a security that caused the small investor to sell(including unwary funds) while the traders stood on the trading floor buying all they could. Today JP Morgan does the same thing in Gold and Silver manipulation in commodities with High Frequency Trades(HFT’s). Then when the pools had their fill they would release positive information that would cause buyers to come back in at higher prices and the “pools” sell at a tidy profit.
By using the uptick in price of the security one would have to wait. If the security was already selling off it would discourage the short seller. There is also another caveat to UPTICK Rule. One has to be on Margin and receive permission to sell short with the firm he is doing business with. The firm must then find the same security in one of its margin accounts. Then the firm “lends” that security to the short seller who then delivers it to the buyer if the short sale is transacted. Also the short seller must pay all dividends declared to the lender. The biggest risk is if another company tries to acquire the company. So your downside risk on a short sale is if the stock goes to zero (theoretically) that is its profit potential, but your loss potential is unlimited. (If the stock gets acquired in a bidding war.)
Now traders will complain that short sellers are providing liquidly to market place. It is their liquidity that they care about. Not ours.
A respected service for market timing that must go unnamed measures what they call 90% down days. Those are days when 90% of securities traded are down and also 90% of the volume was on the downside for the exchanges with the NYSE in particular. This, in theory, would wipe out all the potential sellers and within a three day period the market rebounds on higher volume that would indicate that the market had turned positives. Since the Uptick rule has been dropped the number of 90% down days has increased dramatically without a positive long term rebound in the markets. Recently these down days have been few. My reasoning is that HFT traders are doing the major portion of business on the exchanges by themselves. I mean computer versus computer written by programmer.
Computers have been taking a bad rap. It is not the computer’s fault. It is the programmer or person in charge of the computer. We must find a way to regulate what goes in and what comes out. Just the way society takes care of their laws. Computer programmers that operate in the grey area of laws are not working for the “common good” of society, but for their own aggrandizement. Their fortune is coming out of our pockets. A thousandth of a cent is not much unless you add up millions of shares every minute or so. High Frequency Trade programs are like a dentist telling you this will hurt only a “little bit”.
This government, in collusion with others, have forced the public to invest in stocks or bonds as they have kept interest rates low and have even forced savings banks to invest only in 90 day treasury bills (Yes, there is one in Connecticut USA doing this) while the major bankers have been using our funds to invest for their benefit – not ours.
This is just the first of many reforms for our betterment.
Poor Richards Report Chapter 19
