It's been a whirlwind of a few months.
I'll be honest: I am not comfortable with this market. Last Monday, the Dow swung more than 1,500 points in one day.
From the month of October, the Dow has swung more than 11,000 points. That's a 41% swing from the top to the bottom. That is a staggering amount of volatility, and I don't think the market is done yet.
That being said, I've received tons of questions from my readers about everything from the role of high-frequency trading (HFT) to what I think about Warren Buffett's bullish stance on the banking sector.
I'm always interested in hearing your feedback, and if you didn't get a chance to ask me something before this issue, you can send me an email here.
Here's what inquiring minds want to know…
You've Got Questions, I've Got Answers
Here are your most-asked questions:
- Why not outlaw high-frequency trading? It doesn't seem to have any redeeming social value. – Randy A.
That's a great question, and unfortunately the answer is anything but great. It's about money – as usual.
There's so much money being made in HFT that, for years, the players have slathered lobbyists with money to exert every pressure on the inanely ignorant, bought-and-paid-for SEC to not only allow HFT, but to actually aid and abet it.
The SEC oversees the exchanges, who – with the blessing of the SEC – grew their server floor space to the size on several football fields so HFT operators could "co-locate" their superfast servers right next to the exchange's servers, to be able to read and front-run our orders.
That's power – the kind of power that's self-perpetuating because it begets more money to keep legislators paid and regulators as lap dogs. There is no redeeming value to 95% of what HFT is about. It should be illegal.
- What is the most important takeaway you have regarding volatile markets going into 2019? – Thomas F.
What's important to understand about the crazy volatility we're seeing more and more of is it's directly related to HFT. And since that's not going away, neither is the crazy volatility we're seeing.
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The first order of volatility is about investors making decisions, about fear and greed, about speculation, and about investing and profit-taking.
The second order of volatility is about the mechanics of the markets, about HFT's undue and overbearing influence, about too many exchanges and dark pools, about decimalization, and about the lack of a central order book. The new order of volatility isn't going away any time soon, or ever. It will subside in up-turning and bull markets.
But in sideways and downward-heading markets, it will make life for investors virtually intolerable. Going into 2019, that's what we're facing – more of the kind of volatility we've been seeing since February, then again in October.
2019 is going to be a stock trader's market. Not a stock picker's market – a stock trader's market.
Buy 'em and sell 'em higher, but take your profits. Short 'em and cover with quick profits, but take your profits.
It's a trader's market now; get used to it, because this is now our future. For how long is anyone's guess, but I'm guessing for at least another year – or maybe two.
- I've heard lots about your products, but I do not understand carbon trades, neither does any other person that I have asked, even those selling put options. Can you educate me on carbon trades? – Alton B.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.