Juggling Dynamite

Danielle was a guest today on Talk Digital Network with Jim Goddard, talking about recent developments in the world economy and markets. You can listen to an audio clip of the segment here.

For years I have been pointing out that on-line trading platforms are all about the providers making profits off of the gambling impulses of their users. The business model is about capitalizing on addictive behavior and profiting as users bet their brains out, especially on margin.

For the investment banks that have underwriting and proprietary trading desks, their discount brokerage arms are just another captive distribution channel for product as well as “dumb money” on whom they can front-run, gouge spreads, re-hypothecate and trim other hidden timing profits. As discounters competed for fresh blood over the past 15 years, transaction rates dropped from dollars to pennies, and finally a focus on who was giving away the most trades “for free”. The marketing around “valuable research and tools for pennies a trade” was always a deft maneuver to distract their victims customers from the true nature of the business. This morning new start-up Robinhood’s Co-Founders Vladimir Tenev and Baiju Bhatt let the cat out of the bag when discussing the future of trading stocks for free. They admit the truth about on-line trading: the business is a loan shark model, enticing people to place their bets “for free” on margin. The model is a no-brainer business for them because as everyone should know by now: the house always wins.  Here is a direct video link.

This morning, the world’s largest retailer Wal-Mart confirmed that sales fell for the fourth straight quarter, and net sales growth for 2014 was trailing to the lower end of its previous forecast range. At the same time, Caterpillar–heavy equipment seller to the world and traditional barometer of US GDP–continues to defy the “demand is picking up” crowd. CAT’s sales decline led the global economy into recession in 2008 and issued a similar warning in 2013 as shown in this chart.

Data source: Not Jim Cramer.com
The Canadian dollar–canary in the global growth mine–seems to agree. After a reflex rally in the early part of February, the downturn towards fair value has resumed.