Market Data Trader

It’s not a wizard behind a curtain, there is no central planner to blame, it is the pure nature of a market to screw the most people most of the time. How do I know this? Through experience. It’s all around you. You can measure it in an endless array of studies. Take any options book. What price does the underlying come in at the end of the month? It comes in the price that will reward the fewest players and screw the most. You put one hundred people in a room with a million dollars. One person will leave with nearly $500k, another two with $125k, and four with… and so on… but, most will leave with nothing. It’s a bi-product of human interaction. And, even more curious, it’s not limited to markets.

Take any book off the shelf and count the frequency of every word in the book. The most frequently used word will occur nearly twice as much as the next most frequently used work… which occurs nearly twice as much as the next and so forth. In mathematics, they refer to these as “power laws,” more specifically Zipf’s Law. But, I’m not selling mathematics. Back around the turn of the century I did data mining on web traffic. I observed that the most commonly visited site on the internet was visited approximately twice as frequently as the next most visited site. Not only does the pattern appear across sites, but also within sites. The home page to other pages…. albeit there are deviations to this, particularly for search engines. But, that very distinction helped us to automatically differentiate one type of site from another. But, this is a very important claim to get your mind around. It is all around you. The ramifications are huge.

Ben Bernanke is not responsible for the outcome of America. He has no bigger responsibility than the man selling the newspaper outside the grocery store. No offense. Our place is all different. But, we are in this together. The point I’m driving at is that the market correction has no more to do about mismanagement of businesses, banks or trading practices, or bad policy, etc… it has to do with fulfilling the law of the market: to screw the most people, most of the time. And, what just unfolded was simply that…

Take the largest population of money bearing individuals, the baby boomers, on the eve of their retirement… the exact moment when they want to take the most risk out of the system and you absolutely anhiliate every asset class: equities, bonds, housing, etc. What do you get… the justice of the market.

I watch the media rationalize market behavior every day. It’s by and large a crock of shit. I can picture some journalist, who has never sat behind a trading desk for a day in his life, scratching his head… thinking “how do I explain this one?”… “ahhh that’s it… bad earnings from GM…. moved the industrials 35 points.” Bullshit. That’s hindsight. The market moved because somebody got of his or her ass and had the guts to put their blood behind a subjective view on the world. Of the billions of market participants… and the gazillions of events that happen between all players every day… the odds of a journalist nailing it in a sentence are zero. The financial news is an afterthought… a tradition that once served a very different purpose in a very different time. Welcome back to reality.

But, this logic not only covers the past… but, the same principle can be extended to understand the future. When will the economy recover? That’s very simple. When it no longer matters to the baby boomers. Hope must be extinguished for the driving entity, at this time it’s the baby boomer. It doesn’t mean any form of mortal wound… just the dreams and expectations that were driving them irrationally exuberant. When there is no more place to them… a new game will begin again with the next largest generation, the tweeners that follow Generation Y. But, the new cycle will start in a new culture, a new language, encoded in fashions and products not understood by the last dominant generation. I hate to be the bearer of bad news but, the economic reign of the baby boomer generation is over.