October 19th, 2012 — Investing
On September 28th, the New York Times’ Business Page published “Beyond Wall St., Curbs on High-Speed Trades Proceed“. It shows how Australia, Canada, the European Union, France, Germany, and Hong Kong are all leading the United States in cracking down on high speed trading.
High speed trading employs computers located as close to the stock exchange computers as possible. The fastest computers use private high-speed cable rather than the Internet. Then high-speed traders employ programmers to build special algorithms (computer code) that can execute each trade in one trillionth of a second.
These “algos” are invisible to others. Algos prevent trades made by institutional investors and retail investors from taking place until the high speed traders need to sell their shares of stock that are about to fall in price.
Are “algo wars” among high speed traders causing stock exchanges and other financial markets to crash? Are algo wars increasing volatility in the market? In America, thanks to the opaqueness of the Security and Exchange Commission (SEC), it’s anyone’s guess. But many active traders and financial regulators in other countries believe high-speed trading is the cause of flash crashes and excessive volatility. Continue reading →
October 18th, 2012 — Government
For the Presidential debates, Mitt Romney promised to throw zingers at Obama. He did, but the zingers didn’t really stick. What stuck with viewers was the amazing performance by Mitt Romney at the October 3rd debate. Continue reading →
October 18th, 2012 — Word of The Day
Comparative advantage – a win/win way to trade
Definition: Comparative advantage is gained when two parties each specialize in making a different kind of product and exchange them with the other party
Discussion:
When asked during the Town Hall debate about how they would bring back jobs to America, the candidates for President of the United States had two very different answers. The distinction between the two could be crucial for the next generation of American workers.
(1) Romney said he would “level the playing field“. This was in order to make American workers more competitive with workers in other countries. This attempt to increase equality of American and foreign workers apparently means many Americans would wind up being paid the same low wages as foreign workers. Moderator Candy Crawley questioned whether it would even be possible to accomplish this. Could Americans live on the pittances foreigners get paid? I wondered if this goal is the reason there is pressure to build a wall along our border with Mexico to keep Mexican day workers out of the US. Should we expect to see unemployed Americans soon be encouraged to take these jobs at the same low wage rates?
(2) Obama said that we would need to use education and training programs to raise the skill levels of American workers so they could be paid more than foreign workers. This is an economic model of domestic and foreign trade called “comparative advantage“. The solution gives workers in both countries (or regions of a country) a unique competitive advantage. We can trade high-end products made by skilled Americans to other countries. Other countries can trade cheap products made by unskilled foreign workers to us.
As an economic theory of trade, comparative advantage makes sense. In the real world, with many countries trading, it may not be so simple.