Are ‘Rookies’ Responsible for Messing Up Financial Markets?

When you hear someone called a "rookie," two concepts usually come to mind. Youth and inexperience.

Youth is generally something we envy in American culture. But when it comes to operating the controls of your money, youth is generally an unfavorable trait.

That’s the case with inexperience. This characteristic means you have yet to grapple with the ups and downs that come with "time in grade," as a military buddy of mine describes it.

So, when I saw the Bloomberg story titled "Rookie Currency Traders are Causing Big Problems" this morning, I had to click on it.

The article cites a recent report written by the Bank for International Settlements (BIS). It argues that "rookie traders" could be partially to blame for the flash crashes that, as Bloomberg puts it, "have roiled the $5.1-trillion-a-day currency market over the past two years."

The report also cites falling volumes and the growing pervasiveness of electronic trading as reasons for the flash crashes.

But it’s the human element here that’s most interesting to me …

In presenting support for this claim, the Bloomberg article contained the following paragraph about the BIS report:

One case the BIS found particularly worrisome was the time last October that the pound plunged 9 percent in a matter of minutes during early trading hours in Asia.

The organization concluded that "less experienced" traders handicapped by a limited knowledge of which algorithms to use at that moment "amplified" the rout.

Translation: The young soldiers didn’t know to properly operate the weaponry.

The story went on to cite one industry veteran, Keith Underwood, who spent 25 years as a trader at Lloyds Banking Group Plc and Standard Chartered Plc. According to Underwood:

"If there’s a shortage of senior people, there’s a shortage of knowledge."

I would add that when there’s a shortage of knowledge, there also is a shortage of wisdom.

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Despite the lack of knowledge, experience and wisdom, the trend toward younger and greener on Wall Street continues.

Per Bloomberg:

Younger, lower-paid employees make up a greater percentage of trading desks today than they have in years.

Part of banks’ broader effort to cut staff, boost electronic trading and lower costs following the global crisis, the "juniorization of Wall Street," as some call it, has been especially acute in the foreign-exchange market.

There does seem to be a trend toward more inexperienced traders on Wall Street. However, I’m a bit hesitant to stick those traders with the blame for computer algorithm issues and the lack of liquidity that’s caused some of the bigger down days in recent years.

To clarify my thinking on this, I turned our resident Uncommon Wisdom Daily very experienced currency expert, JR Crooks.

Like me, JR was hesitant to blame Wall Street inefficiencies on youthful traders.

He did, however, offer me the following observations on the issues the Bloomberg piece brought up:

Frankly, we’re in a brave new world of hyper-financialization — economies that are increasingly tightly coupled with asset prices and the financial system. The trend toward "less experienced" labor to operate "more experience" computer trading models is simply a symptom of it, not a cause for its vulnerabilities.

When the seas are calm, there’s no reason why these rookies are any less capable of trading algorithms than a more-seasoned money manager. It’s just that I don’t think they’re any more susceptible to sinking the ship than a seasoned money manager when the perfect storm hits.

The trader best able to weather that storm is the one paying the most intimate attention to the ebb and flow of the markets.

That final bit of wisdom is why I value JR’s opinion so much.

JR is the type of expert who pays "the most intimate attention" to all the markets he follows. His subscribers get the benefit of knowing they have an experienced and wise hand stewarding their trades.

So, if you are concerned about Wall Street’s "juniorization" … and if you are worried that a lack of wisdom is in partial control of your money … then now is the time to put a bit more "uncommon" wisdom into your trading.

You can do that by subscribing to JR’s services, and to the services captained by each of our experienced and wise Uncommon Wisdom Daily editors. JR has even found a way to get the government to pay you to own gold. He shows you how to claim your "rebate" here >>

***

Speaking of "juniors" … rather, the "small stocks with big potential" kind … small-cap mining expert Sean Brodrick is back today with another idea for you.

And its chart is showing a classic pattern that longtime traders may recognize as a buying opportunity …


Mining for Money

Energy Metal Lights Up!
By Sean Brodrick

What if I told you that there were metals more bullish than gold right now?

In fact, there are a bunch of them. And I say this as someone who is so bullish on gold in the longer term, it’s a wonder I can wear a hat for the horns growing out of my head.

The energy metals, in particular, are looking hot-hot-hot!

Today, let’s look at a chart for the Global Lithium X ETF (NYSE: LIT).

Looking at this chart, you can see that LIT bottomed back in November. Then it broke out and went on a 20% tear to the upside.

It calmed down and cooled its jets from January through March. And now, it’s taking off again.

And my favorite momentum indicator, the Force Index, says the Force is strong in this one.

Also, LIT’s price action consolidated in what is called a "Flag" pattern. Old Wall Street hands have a saying: "Flags fly at half-mast." In other words, technicals say the big move is only half-over.

I’m not saying that this fund MUST run up another 20%. I’m just saying that kind of move wouldn’t surprise me.

So what is the Global Lithium X ETF anyway? It holds a basket of stocks that produce or deal in lithium. I’m talking miners, explorers and battery manufacturers. They are leveraged to the metal. LIT’s operating expense is 0.76% per year. And you avoid single-stock risk.

You can find lithium-ion batteries in everything from cell phones to electric cars. Lithium is also crucial to the new energy infrastructure being built around the world now.

There is a lithium supply-demand squeeze going on right now that is so bad …

"How bad is it?" you ask.

It’s like an elephant trying to fit into spandex shorts. It’s gettin’ ugly. Hence, any company that can raise lithium production now or near-term is the bee’s knees for investors.

However, lithium is a mysterious metal, in that it doesn’t trade on an exchange. Price discovery is limited to contracts that are revealed after the fact.

Also, there’s more than one kind of lithium. A lot depends on purity. Ay-yi-yi!

But here’s what we do know: The average price of lithium rose 60% last year. It’s also up threefold since 2014. That’s according to an index by Benchmark Mineral Intelligence.

Still, in February, prices calmed down — rising only slightly. That’s why we saw LIT cool its jets. Then, earlier this month, China’s lithium-ion battery manufacturers announced they would cut prices by as much as 40%. I think that scared investors into thinking that prices for the metal itself would be under pressure.

That chart above says otherwise.

There are many ways to play lithium. Heck, I play the individual miners myself. But for average investors, there’s nothing wrong with buying LIT.

‘Cause a 20% move in a little over three months? Man, all our stock positions should be LIT like that.

Energy metals are an exciting space right now. Lithium is just the beginning. Stay tuned. I’ll fill you in with more to come.


If you have a comment or question about today’s Afternoon Edition topic, or any of the topics we cover, let me know. All you have to do is leave me a comment on our website or send me an e-mail.

***

The markets tumbled as healthcare reform took center stage. The House of Representatives is likely to vote on the "American Health Care Act" on Thursday, and President Trump went to Capitol Hill today to urge Congress to vote "yes."

If there are obstacles to the bill’s passage, that means a delay for corporate tax reform. The markets don’t like that idea, and stocks saw their worst day since the election as a result. The Dow dipped 238 points (-1.1%).

• Bank stocks took the biggest hit, with the Financial Select Sector SPDR (XLF) falling 2.8%.

• Nike was the Dow’s worst performer in 2016. Today it fell 1.1% in anticipation of its after-the-bell earnings. Although it reported good earnings-per-share (68 cents vs. 53 cents estimated), it missed on sales. Shares are down more than 1% in after-market trading.

• UK joins U.S. laptop, tablet ban: Cell phones and medical devices will be the only electronics allowed in the cabin on flights to and from some Middle East destinations. U.S. Homeland Security says the ban — which includes DVD players, gaming devices and cameras — is for "security precautions." The UK also said its carriers will require that large electronics remain in checked luggage for certain MidEast flights.

• Speaking of lithium-ion batteries: Current aviation rules require that passengers bring large electronics into the cabin, as these batteries can overheat and possibly catch fire.

• Winking emoji, hashtag rejected as Monopoly game pieces: After tallying 4.3 million votes from 146 countries on 64 proposed items, the famous board game is making some changes. Look for a new trio of birds — a T. rex, penguin and rubber duck — to replace the boot, thimble and wheelbarrow.

Good luck and happy investing,

Brad Hoppmann
Publisher
Uncommon Wisdom Daily

Your thoughts on “Are ‘Rookies’ Responsible for Messing Up Financial Markets?”

  1. I disagree! the primary messUp of markets always has been controlled manipulated and pushed off, Is really the rather large billion dollar Money Moguls of mostly Wall Street and their ability to drop billions of your my monies to influence the markets to control how they want to see the financials move. Usually starting with the Forex Cash flow. Many of the very young traders are actually as astute and are learning fast how to edge into the markets- have the large banks been Fined for Stealing the billions right out of All Forex Trader Gains since Jan 1st 2011. Many have been caught out right and fined big dollars. But what has this done to many confidence levels. Even the Hobby’n’Retail traders are not going to make this fault. They try too. So lets get out the truths and make more truths to aid everyone to make good trades.

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