Asymptotic trading.

January 26th, 2011

asCurve copy.jpg

My brother and I met at the VA today. Our health ailments, and the good health care deal we get from the government, led us into a farther ranging discussion of the ailments and health care of our economy. Yes, the economy’s health needs care from its appropriate doctors, too. My brother, Dan, a Ph.D. in biology has a pretty damn good idea. I think it deserves real attention from the economists. Before I get to it, some background:

22 years ago, Dan and his then partner invented a biological remediation system for human waste. It fits within a septic tank and not only wipes out the bad germs (mostly e. Coli), its remediating action spreads out to the property and into what is called the leach field. A failed septic system leaves this part of the homeowners yard a sludgy mess. Appropriately, the device is called The SludgeHammer.

During its first 20 years it has been a constant struggle to keep the company going. As a small businessman, most of his funds have been taken up covering the testing costs of various bureaus at the state, local, and federal levels. In addition, he and his partner are constantly on the go — to Libya, China, England, Nigeria, and Central America — putting their units into the waste systems of oil barges and other large industrial work platforms. Chevron, for one, got serious some years ago about protecting the Nigerian Delta. They use the SludgeHammer exclusively in those operations.

But the company comprises only two field engineers, who are also the business partners, Dan and Buzz, and an office manager along with one inside sales person. It’s nearly impossible for two men in their sixties to travel constantly and at the same time, keep the domestic business as healthy as it should be. They need to hire more people.

Two years ago, Dan and Buzz were heartened by the election of Obama. Aside from all the marvelous change he would be bringing to America and the world, he promised to help small business. So it was a little bit odd when he put all the big bankers into the business policy jobs. It turned out to be worse than just odd, it’s worse than nothing. No small business loans. No small business investment strategy at all. The large corporations are getting fatter and fatter, owning more and more, and actually buying out small businesses for a song. The inventors and entrepreneurs have been sucking hind tit. All the while, the stock market is going great. But jobs are not being created. It’s all about trading now.

Paper trading — actually not even paper. Traders are scoring big with trades that last only a microsecond. A sufficiently well-heeled investor can buy and sell the same stock in less than a second and, through some sleight of rational thought, become a good deal richer. All in the time it takes to cough in the face of his intern.

I asked my brother if, as a small businessman, he could have any wish, what would it be?

“Get rid of the stock market,” he said. I gave him a get real look, then he continued. “Get rid of the trading system as it is currently structured. These bastards are trading lickety-split, but there’s no incentive for them to hold onto their investments. The stock hiccups, they take their profit and bail. The point of the market, old-fashioned as it may sound, is to capitalize a venture that you see as a viable addition to the economy. The designer, the workers, the sales staffs, the entrepreneurs and, yes, even the consumer — these are the people who must benefit to have a market that inspires production.”

With that, Dan outlined his cure. Those who buy and sell stocks in a micro-second, should pay a 99% capital gains tax on their (excuse me while I clear my throat) earnings. Yes, outrageously confiscatory in order to stop this outrageous practice. A day trade, 90%. Sure it’ll piss off the day traders on their laptops, but it should open up a few tables at Peets when these guys get off their asses and find something productive to do. Hold on to your stock for a week, 70%. A month, 60%. Year, 50%. Two years, 35%. Five years, 10%. Ten years or more, zero percent capital gains taxes.

Certainly, this scheme would trigger outrage. The rich don’t even like to pay taxes on their Grey Poupon. But that’s the point. Propose it as it is. Let them scream. Wake the public up to what it is that investment is supposed to do for the economy, for the honest businessman, for the job-seeker.

I said, what would you call this? “Well, it’s based on an asymptotic curve — might as well call it asymptotic trading.”

Sounds good to me. Dan Wickham’s Asymptotic Trading. DWAT.

9 Responses to “Asymptotic trading.”

  1. Scott Keck Says:

    Fred – I agree with your brother’s stock market comments and ideas. I also checked out his website and thought it was pretty neat. Elaine’s family are mostly on the East Coast, and many have septic systems, which are a constant pain. At her mom’s house on Cape Cod they had to drop about $30k installing a new system when she remodeled her house about 8 years ago. I forwarded the link to SludgeHammer (which is a kickass name, by the way) to Elaine’s brother and several of her uncles back there, who’ve had varying degrees of septic-tank-heartache over the years. Maybe we’ll sell a few…..

  2. joan Says:

    (thank god his name isn’t “tom”)

  3. fwickham Says:

    Joan –

    The stewardess on TWA used to say, would you like TWA coffee or TWA tea?

  4. Jean McKenzie Says:

    That is brilliant.

  5. jon Says:

    Hi Fred,

    As a former stockbroker I disagree with your brother as the whole system is rigged and with shorting so they can sell crap and bet against it like what Goldman did to Lehman and what Hedge funds do.

    The big institutions can move the market any way they want and at far faster speeds then any day trader can hope for. Tax everything at 90% over $400,000 as Eisenhower did and all these games will go away.

    The stock market should function as a utility is it did between 1930-1980 till Reaganism, Clinton and the Bushes free it up.

    And Obama is in the hands of Wall Street for sure.

  6. M Phillps Says:

    Did either you or your brother learn anything from your vote for Obama?

  7. Dan Wickham Says:

    To Jon I would say that there still might be a role for some incentive in investments that actually help businesses prosper. Although I agree that the world worked somewhat better pre-Reagan. We must remember however that a lot of our mid 20th century prosperity was generated by arming the world for “democracy”. Of course our original prosperity came from stealing land and resources from the natives and stealing labor from black slaves. Not a great tribute to our industriousness.

    As to my vote for Obama, I can only say it would certainly have been worse if his opponents got in. I have been voting for the least bad option in elections ever since my 21st birthday.

  8. JamesM Says:

    You ask “Did either you or your brother learn anything from your vote for Obama?”

    I did, that you need more than one good man to turn around the system. He needs good economists that don’t come from the banks or Goldman Sacks.

    I learned something from Bush too, that Republicans are selfish, stupid and have no ability to balance a budget, no ability to oversee our financial markets and soundly crashed the banks, markets and in doing so took a big chunk from the personal equity of middle income Americans. In bailing out the Banks from the Bush crash, this nation has also mortgaged it’s future income.

    From Bush I learned the Republicans have a complete lack of a long term vision for this country – Other that turning it into a 1911 Fundamentalist Cristian vision Afghanistan. A place where the men with the power and guns rule, and where women and the rule of law become invisible, except as token icons.

    Yes, tax the trades. It is interstate commerce. It is a source of revenue. It can move America from focusing on the nightly Dow Jones ticker to a longer focus on research, development, manufacturing and marketing. The selling of something real and tangible to people outside the USA. Thus, eventually curing our balance of trade before a US Dollar is worth less than a Russian red cent.

    We have to compete on the world market with ideas and products. NOT with armies in distant lands.

    I know one thing, this proposal will not be backed by the Republicans, because it shifts the focus from arbitrage and instant gratification, which generates piles of cash. Piles of which they syphon off in the form of donations to their cause, speaking fees, goverment contracts for their buds and lucrative “no bribes” for being part of this or that conservative “think” thank.

    Such a sound proposal, as outlined above would shift America’s focus to working for a better and more competitive long term future. Probably way to sound in the long term to be adopted by the short term driven American political system.

  9. fwickham Says:

    James –

    I appreciate your long thoughtful comment. My blog piece got picked up by a more popular blog called Political Irony. It generated over twenty heated comments. You may wish to cut and paste your comments to that blog — where you will get many more readers. Mostly appreciative, I’m sure.

    http://politicalirony.com/2011/02/07/asymptotic-trading/

    Thanks,

    Fred

Leave a Reply