I was surprised that there wasn't more media coverage given to the suspension of James Archer, son of the well-known financial guru and Lord Mayor wannabe Jeffrey, from CSFB recently. Jeffrey is certainly used to appearing in plenty of column inches - I wonder was James disappointed by the lack of space devoted to his exploits. Archer Junior was one of a trio suspended from CSFB's equity arbitrage team who were suspected of market manipulation.
The team itself is not known as the Equity Arbitrage team but the Flaming Ferraris which is certainly more exciting a name than Equity Arbitrage. A Flaming Ferrari is a cocktail which has a nice, Thatcherite, 1980s feel about it - something of which Jeffrey would approve, no doubt. Regretfully, I haven't tasted a Flaming Ferrari and so I don't know whether Archer would have been better off sticking to the drink rather than the trading.
But the nickname made me think that it was quite a good idea to have departments or trading desks named after exotic cocktails rather than anything as mundane as what they actually do. Tequila Sunrisers could deal in Latin American debt. US municipal bond traders could be Manhattans. Asian traders have a variety of names to choose from - but since the Mount Fuji is a pretty explosive cocktail it might do the trick.
Obviously anyone with anything to do with Eastern Europe would be Black Russians or Moscow Mules. Or Vodka Martinis, perhaps, though whether shaken or stirred time has yet to tell!
Markets continue to be both shaken and stirred at the moment. Certainly more shaken than you would have expected by chairman of the US Federal Reserve Alan Greenspan's Humphrey-Hawkins testimony last week which, let's face it, didn't say anything that anyone didn't know already. Given that Greenspan has been wary of equity markets for the past two years and is constantly surprised by the robust nature of the US economy (the National Association of Purchasing Managers survey was the strongest since last May) it was hard to imagine him saying "look lads, we need to add a bit of jizz to things, let's cut rates by another hundred basis points".
Watching him being questioned by the Senate Committee afterwards you couldn't help thinking he would rather have been sitting at home with his feet up and sipping an Old Fashioned than listening to Senators hogging the cameras, telling him what a great job he was doing and asking how things would be for the plain people of Minnesota.
It's pretty clear that Greenspan still thinks equities are an accident waiting to happen, and he's right, but the question is, what sort of accident? Hit and run or multiple pile-up? And how will it happen?
Most of us, when we think of markets, think of people making rational (or sometimes irrational) decisions based on a variety of fundamental principles. We might make the right choice for the wrong reason, or (more worryingly for our financial prospects) the wrong choice despite our best reasoning - but there's usually an element of fundamental analysis involved.
Not, however, for day traders. This is a breed of trader that is becoming more common, particularly in the US, and many of them play the stock market just as they would a casino. In fact, from what I can gather, a lot of them used to play casinos but were barred for winning lots of money so they had to look for something else. What better than the vast casino of global equity markets.
The worrying thing about these traders is that they just make bets. Now I know that a lot of people think that's all that goes on in the market anyway, but there are usually underlying investments decisions for the bets that you make. But the day traders don't care about the investments, they're just looking to see which way a stock will move on the day and they'll trade that stock hundreds of times in the hopes of having more winners than losers. There are about 70 day-trading firms in the US that offer access to the markets and, according to a recent Washington Post report, they account for around 15 per cent of trading on the Nasdaq. Most Internet shares deal on the Nasdaq! The traders keep the markets volatile - a horrible concept for long-term investors who would prefer to see orderly rises and falls (if something so awful as a fall has to happen). The day trading firms promise unlimited earning potential, though you usually have to pay around $25,000 (€22,766) as a deposit to cover expenses and losses. But since many of the traders have been professional gamblers in the past (in one firm the founders met at a casino) they're not fazed by the potential to lose money when the possibility of making it and making it big is just around the corner.
Part of the problem, which will probably increase rather than decrease in the future, is the amount of information, both worthwhile, utterly useless and plain wrong that you can now access on the good old Internet. I don't mean that knowing as much as you can is bad, but when millions of people worldwide start trading maniacally on unconfirmed snippets of information, chances are that volatility is bound to increase. Interestingly, too, it seems that while trading is increasing, the variety of shares being traded is decreasing. So fewer and fewer shares are becoming the targets of the profit hopes and dreams of more and more people.
Since day traders don't care what the share is, what the company is, what they do and only care whether it's likely to move on the day, I can't help feeling that this is not a particularly healthy state of affairs. Nor is it anything other than a complete nightmare for the regulators.
However, Equity Arbitrage trading teams (how about the Gloom Raisers - a cocktail which is a variation of the dry martini) must love the volatility, since they look for price anomalies to exploit. It's kind of interesting that, with all the information that's now available to almost everyone on the planet, there are still price anomalies to be found in anything. But there'll always be someone who thinks they have the inside track on something that'll make them instant millionaires. I only wish I was one of them. . .
In the meantime, though, I'm off to investigate the hair of the dog. It was a late night last night in which I drank lots of alcohol. But only champagne. Pure and simple. None of this Flaming Ferrari nonsense for yours truly - I have my standards to maintain.
