Sunday, June 10, 2012

War Games: The Only Winning Move is Not to Play

In 1983, a movie called War Games came out. It was an American col war science-fiction film written by Lawrence Lasker, starring Matthew Broderick and Ally Sheedy. people of my generation remember it well.

The film follows David Lightman (Broderick), a young hacker who unwittingly accesses WOPR, a United States military supercomputer programmed to predict possible outcomes of nuclear war.  Lightman gets WOPR to run a nuclear war simulation, originally believing it to be a computer game. The simulation causes a national nuclear missile scare and nearly starts World War III.

After millions of simulations, the WOPR comes to a conclusion:

 Today, Investors are asking the same question.....and coming to the same conclusion.

Today's "WOPR's" are hedge fund written computer algorythms
that trade faster than any person can think, even trading headlines coming over the news wire in nanoseconds. These same algos manipulate the stock market with "quote stuffing" whereby huge amounts of fake buy bids drive up a stock price then are suddenly pulled without executed, followed by sell orders, literally as plit second later.

This was the primary cause of the "Flash Crash" in May, 2010. This combined with a distrust of Wall St. has lead to the retail investor pulling their money out of stock funds and into short term Treasuries (aka cash funds or stable value funds).

In a rare CNBC story, that's both intelligent and meaningful, Jeff Cox writes just how much money is "sidelined":

Mom-and-pop investors, and not the Federal Reserve, have been the ones most responsible for driving the mad dash to government debt, according to newly released data.

 Households picked up about $170 billion in the low-yielding government debt during the quarter, while foreigners increased their holdings by $110 billion.

 And why wouldn't they? In this new world of centrally planned economies and blatant market manipulation by both central banks and hedge funds the retail investor is faced with only one conclusion:

The only winning move
is not to play.

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