From IT(Investment Trusts) to bots and back again...

“Several brokerage houses tumbled; blue-sky investment companies formed during the happy bull market days went to smash, disclosing miserable tales of rascality; over a thousand banks caved in during 1930, as a result of marking down both of real estate and of securities.'- Only Yesterday: An Informal History of the 1920’s by Fredrick Lewis Allen

Description of September 1929 @ futurecasts.com

The predicted reduction in steel production (down to a total of 89% of capacity) came in the first week in September. In addition to autos, it was reported that steel orders from the agricultural implement manufacturers was less than expected. The construction industry remained depressed - running at about 25% below 1928 levels. Exports continued to slip. However, retail sales, railroad car loadings, and all other economic indices remained at favorable or even record levels. Smaller profit margins were being offset by higher business volumes. At this point, nothing in the domestic economy indicated an imminent break in securities prices except the overextended nature of the financial picture. At worst, all that was indicated was a temporary lull in the advance - like so many that had come and been overcome before.

... However, the overextended financial leverage meant that even a lull would be intolerable.

The financial pages were filled with news of the record high earnings and general economic prosperity of the previous summer months, and hopes for recovery in auto sales and steel production. But news of the great increases in broker's loans each week brought periodic sharp drops to the market and general apprehension. A large short interest was reported.

(The short interest would not exceed 1/6 of 1% of the entire market at any time during these critical last four months of 1929, but it was concentrated in a few speculative leaders. By January, 1932, it would approach 2%.)

Construction remained depressed, autos, farm machinery and steel production had been cut back to 1928 levels. Exports continued to fall. There were reports of further cutbacks in steel orders. While only small further production declines were expected, hope for a rapid renewal of production increases faded. Broker's loans continued upwards and the tide of new offerings competing for available capital reached flood proportions.

The market was struck by several sharp declines and sharp, but much smaller, recoveries as each drop drew more speculators in to buy at new "bargain" prices. After each drop, "experts" could be found for "confidence game" assertions that the liquidation had run its course. Brokers were congratulating themselves that their foresight in raising margin requirements had kept the number of margin calls low.

October began with good news.

(A non MSM rendering of current conditions? Here's a great one...-AM)

Monday, July 20, 2009
http://nihoncassandra.blogspot.com/

Which begs the question: in the absence of pecuniary restrictions (message fees, fees for cancels? Tobin taxes? etc) or other yet-to-be-conceived outright heavy-handed rule-making, how can normal participants fight back, and snooker them in return. Hidden cameras watch the croupiers and box-men, keeping them honest. Surveillance exists on the few remaining pits, ostensibly though ineffectually to try to catch the covert shin-kicks, ear-pulls and information abuse that was rife anywhere rules or privileged information could possibly be capitalized into a dollars. But employ a series of probing orders, or a cute predictive algorithm upon a numerical sequence that does nearly the same thing (albeit with an element of risk and uncertainty) with the same intention, and Presto! one is sanitized and legitimate and courted by the very exchange whose constituents one preys upon. Hmmmm. Something doesn't seem quite right. They serve no purpose, even if purposefulness is over-rated.

Still, the uproar outside rantings of ZeroHedge is decidedly muted. Exchanges make money. Brokers make money. Libertarians dislike any regulation or restriction. Perhaps regulation is simply not possible and pecuniary control is not desirable. But there remain weapons at the disposal of both perturbed traders, and the daring and the bold. Guerilla tactics. In simpler times, when Atari elicited a "wow" instead of a "huh?", this might have been achieved by leaving sizable but plausible limit, stop or MOC orders, then pulling them to see who and how much was leaning on them. Now more cunning is required. Torquemada-like fear and surprise. Spoof them back. Double-spoof. Triple spoof. In size. BOOOO!! Randomize. Maybe relax or eliminate all restrictions upon transaction etiquette, thereby allowing trade with oneself to paint the tape as required shake the parasites, perhaps leveling the playing field. Or merely to make it more like quick-sand. Declare all-out war so anything goes. Let - no, encourage the 'bots to fight and predate each other. "Greetings, Mr Anderson". Is this real or are we in the Matrix??! Hunt the hunter. "Kill the bear" as Anthony Hopkins rallied in The Edge. "What one man can do - another man can do!!" Heck, it's not about investing anymore (if ever it was) - its about winning the game, and as this time of The Quickening approaches, an algorithmic battle to the death, an epic battle cannot be far behind, leaving in its wake, RAIDs, bandwidth, over-educated Russians with no scrupples, recursive bloodshed and, then yes, SkyNet...

And all the while, the thoughtful genuine investors, will watch with morbid fascination while exiting such venues and making greater use of alternative auctions that somehow keep out the riff-raff, reveal less and more optimally perform the true role of the exchange - to raise capital for growing enterprises, to match true buyers and sellers in the secondary markets.