Born to Be Wild - 06/01/10

Our capital markets need to be policed before the quants cause irreparable damage to investors' confidence.

"Because the reality of things going on around me is more interesting than the fantasies of the world I work in."

-- Dennis Hopper

Over the weekend, Dennis Hopper died.

Hopper's real-life personality (sex, drugs and rock and roll) embodied the 1960s, a decade in which Jefferson Airplane co-founder Paul Kantner referenced in his famous quote, "If you can remember anything about the '60s, then you weren't really there."

Hopper's greatest body of work was the film Easy Rider, which he starred in and wrote with Peter Fonda.

Released in 1969, Easy Rider (starring Hopper, Fonda, Jack Nicholson, Phil Spector and Karen Black) was a landmark counterculture movie that provided a punctuation point and captured the zeitgeist of the1960s by exploring the tensions and issues as well as the use of drugs (real drugs were used in the film), the communal lifestyle and the rise and fall of the hippie movement.

Get your motor runnin'
Head out on the highway
Lookin' for adventure
And whatever comes our way
Yeah Darlin' go make it happen
Take the world in a love embrace
Fire all of your guns at once
And explode into space.

-- Steppenwolf, "Born to Be Wild"

Similar to Dennis Hopper's uneasy ride throughout life, the markets continue to display a wildness (bordering on recklessness), with high-frequency trading strategies dominating the markets and contributing to violent and random moves (especially of an end-of-day kind). It has been far from a "magic carpet ride" for investors over the last few months.

I like smoke and lightning
Heavy metal thunder
Racin' with the wind
And the feelin' that I'm under
Yeah Darlin' go make it happen
Take the world in a love embrace
Fire all of your guns at once
And explode into space.

-- Steppenwolf, "Born to Be Wild"

With numerous headwinds to economic growth both here and abroad, markets are already spooked and the destabilizing role of certain momentum-driven quant strategies is serving to alienate individual investors. And after the investment shock of 2008, this is the not a market-friendly intermediate-term development. Indeed, the phony market (as Jim "El Capitan" Cramer aptly describes it) continues to impact individual investors' appetites for stocks, it in turn threatens the demand/supply equation for U.S. equities by reducing domestic equity inflows.

Like a true nature's child
We were born, born to be wild
We can climb so high
I never wanna die.

-- Steppenwolf, "Born to Be Wild"

Over the past month, I have frequently written about this issue in "There Is No Business Like Mo Business," "Revenge of the Nerds" and "Kill the Quants Redux."

One has to continue to ask where the SEC is, but I suppose, similar to the Madoff fraud, the damage done by financial derivatives, and so on, that noble institution (and our partisan politicians) will not address the issue on a timely basis until the horse is out of the barn and after the damage has been done.

So, for now, we sit back as the tail wags the dog and watch the inmates take over the asylum.

Dennis Hopper might have been a true nature's child. He was born to be wild, but our capital markets were not. They need to be policed before the quants cause irreparable damage to investors' confidence.