Good Knight Public Markets
By Dara Albright, Founder of NowStreet Journal
August 10, 2012
With all of the recent financial scandals
and trading losses, the last thing Wall Street needed was another
humiliation, but those black eyes just keep on coming for public trading
markets. Last week, Knight Capital, known for its electronic execution
and high-frequency trading algorithms, suffered massive losses when a
software glitch sent out a stream of unintended trades. This debacle
came just weeks after Knight posted dismal quarterly earnings, in part,
due to Nasdaq’s technology malfunction that slaughtered Facebook’s IPO.
Nasdaq’s technical “glitch” cost market
makers upwards of $500 million in losses. Knight’s trading “glitch”
triggered an estimated loss of $440 million (nearly four times its last
year’s profit). Some estimate that the losses incurred by JPMorgan’s
London Whale could total as much as $9 billion. With billions vanishing
into thin air, I was wondering when we could stop sugarcoating the
mutilation of the financial markets by referring to some of these
computer failures as “glitches” and start labeling them, more
Today, Wall Street looks worse than Rocky
Balboa’s blood-drenched face when he delivered his “Yo, Adrian!”
speech. How many more market capitalizations do we need to watch
disintegrate before we can admit that our public markets are no longer
Instead of fearing Grandma receiving a
stock cert in exchange for doling out $2000 to a Crowdfunding campaign,
we should be terrified of the high frequency trading that continues to
destroy the markets and impede economic growth.
And why the hell are we allowing
computers to run amok with our capital markets anyway? Soulless machines
should not be “investing” in human-run businesses. Sometimes the brain
is more adept at making decisions than the appliance. Geez, didn’t we
learn anything from the movie, WarGames?
Now, I am not prejudice against robots,
or to be politically correct, “Automated Americans”. In truth, I
treasure technology and value how it advances global communications.
However, there is nothing to be gained by de-humanizing the investing
process. Computers get it wrong. And they get it wrong a lot. Otherwise
my mobile phone’s spell-corrector would not be directing me to Whore Foods for my organic kale.
America’s businesses extend far beyond
ledgers and trading volumes. You can’t see creativity, ingenuity or
personality in a balance sheet. You won’t find vision on a “confirm”.
The next world-changing product may at this very moment be lurking in
the mind of an employee of a company whose stock continuously drops
through its support level. Apple (AAPL) was once on the verge of
bankruptcy and Steve Jobs was written off as a failure.
We can no longer afford to allow machines
to dominate the financial markets. While it may enable a guy named Al
(Al Gorithm) to vastly increase his wealth, American businesses will
continuously lose their ability to expand, compete in a global economy
Since becoming Al’s electronic
playground, the public markets are incapable of facilitating growth
investing. Once upon a time companies went public and used the capital
they raised for expansion. Public market investors were able to
capitalize on that expansion. 99% of Microsoft’s appreciation occurred after it had gone public. All of Facebook’s appreciation was realized in the private markets before
ever going public. Today’s IPO just ends up becoming another one of
Al’s play toys at the expense of the small retail investor who is
legally prohibited from investing his own money in emerging private companies.
From 1990 to 1999, the S&P averaged a
19% annual return. From 200 to 2009, it averaged a mere 1%. Treasuries
are yielding a whopping 1.5%! You can generate more interest keeping
your money under your mattress than in a bank savings account. With
inflation over 3%, unless smaller investors are given the freedom to
invest in growth opportunities, America is going to be facing an entire
generation of retirees with zero savings and no social security to fall
Fortunately, a Knight in shining armor
has come to our rescue. He has arrived in the form of a nascent
marketplace for private company stock which is being fueled by
unprecedented advancements mass communications and the most economic
restorative legislation in modern history.
Join us in Atlanta on August 21st
for our upcoming Evolving Capital Markets & Crowdfunding Symposium
and learn how the amalgamation of new regulation resulting from the
passage of the “Jumpstart our Business Start-ups Act” (JOBS Act), social
media and the rising private company marketplace is transforming our
financial markets and leading America toward a new era of economic
prosperity. Registration is only open for another few days. Click here to register today.