Business as usual?

Book Review: Broken Markets: How High Frequency Trading and Predatory Practices on Wall Street Are Destroying Investor Confidence and Your Portfolio by Sal Arnuk and Joseph Saluzzi

First off: I am not a trader, broker, analyst. I am not even an Investor (with a capital-ized I) - I am only an investor - an average American with a day job, bills to pay, and the hope that someone is watching the store where my 401k is being bought and sold.

Broken Markets left me feeling like I had just wandered into 'Black Friday' (the retail version), and that my investment is as safe as the racks at Wal-Mart. Yes, I have diversified, and no, I don't shift my portfolio everytime the market hiccups. I am at least ten years from retirement and I am taking the long-term view. And with IRAs and CDs at fractions of a percent interest, I don't have a lot of options.

And that is what is scary. The discussion in the book of the flash crash, the regulatory reactions to it, and the continued debate over the causes does not give me a warm fuzzy feeling. As I write this, Facebook's IPO is trading at about half of its initial price (which was probably too high to begin with), and a mini-flash occurred two weeks ago [Knight Capital]. These events underscore authors Arnuk and Saluzzi assessments - even if they are not spot-on regarding the causes. I'm not sure anyone is 100% sure.

Truth be told, most of the book was beyond my limited scope of financial acuity - but thorough re-reading got me the key points. HFT may not be the only culprit, but it is clear that the liquidity they offer is ephemeral, and at any rate is a side-effect to their function. Someone compared the Market to a casino, except that instead of the house making the rules, the high-rollers decide the winning hands. The trust that the average American once had in their financial institutions (including the market) is fast disintegrating. Broken Markets gives a clue as to why.