What the Proposed Transaction Tax Means for the Market
The War on Capitalism continues.
So there I was, in the middle of Turnaround Tuesday and enjoying the last nibbles of my Chinese chicken salad, when the one-liner crossed my Bloomberg Terminal:
"France, Germany to propose financial-transaction tax in September."
My guttural reaction, as shared in real-time on the Buzz & Banter at 12:20 PM (as the S&P and Nasdaq flirted with the flat-line) was as follows:
This will quell HFT and impact the banks and institutions that make cake on those microsecond strategies. Watch Goldman (GS), Bank America (BAC), JP Morgan (JPM), The New York Stock Exchange (NYX), Morgan Stanley (MS), and Deutsche Bank (DB) for the reaction to news.
As Kevin Depew noted when I turned to him to synthesize this news, "In the eighties, there were long-term investors but many turned to day-traders in the nineties -- and some of them have morphed into "SOES on Steroids" these last few years."
This news "should" ultimately reduce volatility in large-cap names while generating revenue for cash-strapped countries -- and like it or not, it will likely cross the Atlantic for stateside implementation as The War on Capitalism continues.
Two questions remain, however.
How much of this "news" was responsible for the decline in bank shares last week (if this in fact leaked, as most things do)? Also, how will the market respond to the sudden dearth of liquidity, if and when?
I'm a card-carrying free-market enthusiast who yearns for the more simplistic days of market assimilation -- when we could quantify the fundamental, structural, psychological, and technical metrics and identify an advantageous risk-reward, as opposed to being caught in a massive game of chicken between the cumulative imbalances and government intervention.
I also want more hair, less weight, and the Lombardi Trophy back in Oakland, but if wishes were knishes, I would weigh twice as much as I already do.
The risk here isn't the end goal -- the market has morphed into a matter of national security, and speculators have long been deemed an acceptable casualty of war. The risk is, as usual, the unintended consequences that will manifest.
For if we're not careful with how we wean the market off the 70% plus of daily market volume, which is where some estimate high frequency trading is responsible for, zombie banks may be the least of our worries. We could recede into a zombie market, where merchandise trades by appointment.
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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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