A rhumbline is a direct heading to a point. On a map it's a straight line. It looks like the perfect way to get where you're going. On a globe, though, it may be the long way around. For example, New York and Madrid are about the same latitude. On a map, a course due east from New York is the shortest distance to Madrid. On the round face of the earth, though, a curved path (called the great circle route) passing over Greenland and the northern Atlantic is shorter. Try it with a string and a globe if you don't believe it. That's probably what a lot of the comments on this blog will be like. Random? Disconnected? Circular? Probably. But maybe they will lead to a point eventually.



Thursday, November 3, 2011

Ralph Nader and the Stock Market

I can usually get quick laugh from anything Ralph Nader says, but this time he's talking about an idea I've thought about more than once.  The idea is to impose a small tax on securities transactions.  For example, if I buy 1,000 shares of Renasant Bank stock at $15, a .01% tax would cost me $1.50 - not even noticeable on a $15,000 transaction. 

Where this would really come into play would be with trading computers that initiate millions of transactions a day.  These transactions take advantage of tiny anomalies in the market and are often opened and closed in less than a second, with the profit locked in before the transaction starts.  I'm also convinced that these trading programs are the reason our markets regularly gyrate more than 1% a day.  Remember when a 100 point move was big?

Reducing the number of computer-driven trades and the day-to-day volatility of the stock market would be a blessing for us small investors.  Still, I can't get comfortable with taxing these transactions.  Liquidity is the lifeblood of our market, and one thing I don't have to worry about when billions of shares a day are trading is whether or not I can find a buyer if I want to get out of a stock. 

I disagree with Nader as usual, but I'm not laughing at him this time.
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