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It's approaching the level of cliché, the way market commentators remark on the "hinky," or unorthodox, nature of day-to-day stock movements. Well, all clichés and stereotypes have at least some rooting in truth.
I've never subscribed to the idea that computer-propelled high-frequency trading ever drove the market's direction. And the regulators' report on the "glitchy" roots of the May 6 flash crash didn't change that conclusion.
Someone has always been the highest-frequency trader, and the profitable activity of swiftly getting into the action has financed many fine homes on the Jersey Shore in recent decades. Take my word for it.
Still, that doesn't mean the current trading arrangement can't be improved.
Take, for instance, a gentleman named Jim Maguire, who began working as a specialist on the New York Stock Exchange floor 60 years ago, who acted for many years as the nexus point for buyers and sellers of Berkshire Hathaway (ticker: BRKA) shares, and who is now associated with Barclays Capital.
Jim recently refreshed his longstanding campaign to have stocks trade in increments of five cents rather than pennies, which could bring greater liquidity and order to the process. Trading has become faster and cheaper in recent years, but at the expense of squandering much of the public's faith in how the stock market operates.
Barron's featured Jim's cause several years ago ("Meet Mr. Nickel," April 25, 2005), and he just recently sent a letter articulating his position to Securities and Exchange Commission Chairman Mary Schapiro.
Schapiro, in turn, has lately given voice to the sensible notion that typical high-frequency traders, who profess with plenty of justification to be "de facto market makers," should perhaps be subject to the traditional obligations of literal market makersâ??such as not being able to back away from bids and offers.
There aren't many rigid principles Wall Street folks are obliged to follow. But one of them should be that a person who has spent six decades of his life advocating for the position that the public deserves a fair shotâ??and who has earned, and declined, the right to walk away from the market at a ripe age with a sense of a career well doneâ??should be listened to.
WHENEVER AN ITEM HAS BEEN in a decade-long bull market, the essential questions for any investor puzzling over how to approach it are: "Is it already a bubble? And, if not, might it soon become one?"
Some of the smartest folks who have been advocating gold as an investment, beginning from a time long before those low-production-value commercials selling gold to Mom and Pop, are answering those queries: "No. And maybe."
After an asset such as gold roughly sextuples in price over 10 years, the early-comers and true believers are already well in the money, and their opinions become lazy or simply defensive. So the key issue is whether the price has overshot.
Without weighing in on any of the quasi-religious beliefs about the metal's role as a store of value or as the supposed one true form of money, it seems most fair to say gold is a bit overbought, but not remotely in any kind of silly bubble condition.
As my good friend and longtime gold bull John Roque, of WJB Capital, likes to say, all the price of gold tells you is what paper money isn't worth. At what price per troy ounce will that cease to be true?
Louise Yamada, the eminent technical analyst who for many years worked at the various firms that have coalesced into Citigroup and now presides over LY Advisors, last week remarked in a client note that goldâ??based on its current trajectoryâ??most likely wouldn't represent a true bubble unless and until it gets to $5,200 an ounce (from its $1,317.80 December-contract close on Friday) within a couple of years.
So, does gold seem a bit uncomfortably popular here, a kind of heads-I-win, tails-you-lose instrument? Sure.
Would a predictable rally in the dollar challenge the metal's winning streak? Absolutely.
Is it slightly disconcerting that the SPDR Gold Trust (ticker: GLD) controls something like 4% of all the gold that can fall into the public's hands? Definitely.
But there are just too many sound reasons for people of wealth to continue pushing money toward gold, and there is too much of a discount being placed on gold reserves in the ground based on the valuations of gold-mining stocks, for this trend to fall apart with any drama anytime soon.
E-mail: michael.santoli@barrons.com
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