Commentary

Tim Quast
Traders Magazine Online News

We're All HFTs Now

In this guest commentary, author Tim Quast looks back at the history of HFT and how the market has evolved to where many firms now fit the definition of high-frequency trader.

Traders Poll

Are you in favor of a pilot program and examination of the rebate system by the SEC?




Free Site Registration

June 20, 2005

Cynically Optimistic: Smooth Sailing Is Not On Nick Michas's Agenda, But Market Gains Are

By Kathryn M. Welling

Also in this article

  • Cynically Optimistic: Smooth Sailing Is Not On Nick Michas's Agenda, But Market Gains Are

While he labels himself, ironically, a "cryptobear," in recognition that some clients have never forgiven him for being right about the denouement of the Nasdaq bubble, Nicocles Leandros Michas is a cynical optimist. Thus Nick, who sees the economy and markets heading for rocky shoals, is nonetheless telling clients of Waltham, MA-based Alexandros Partners, LLC, that all will be well, if they just prepare for both Goldilocks and the Lusitania. Intrigued, I called and got him to explain.

Your letters leave little doubt that you think the market is trouble, Nick.

The picture crystallized for me when I looked at the sector weightings by capitalization at the end of February. There was only one real winner-and that was energy, up 21 percent. All the rest of the sectors, except utilities and a few basic materials, were actually down. It reminded me of 1980, when we used to kid that, "If you are under the ground, you are buried."

Under the ground?

In any of the cyclicals-Of course, at that time circumstances were much different: We had much higher interest rates, the energy crisis was upon us in a much more vicious way and inflation was a lot worse all around. But that market also got very narrow before it really started unraveling. And when it did, it got down to eight times earnings.

So you remember the late 1970s, early 1980s as a searing experience?

It wasn't a lot of fun. And what it tells me is that institutional investors have been behaving cautiously, with a capital "C". They have spent most of this year, so far, not panicking, but adding to their defenses: recession-resistant, higher yield and inflation and weak dollar hedges.

And you've seen this before?

Sure, many times. After all, I got introduced to the stock market in the early 1960s as a young instructor at City College. I taught economics. But my students taught me more. A lot of them were very much into playing the stock market, as were some savvy colleagues and we had some computer programs-it was a very lively environment. It was my first job and I was supposed to be writing my dissertation, but I got hooked on the market. In 1968, I joined a couple of colleagues in a small firm, trying to apply macroeconomic techniques to investment strategy and our work caught on. From there, we moved to William D. Witter, still deriving investment strategies from our analysis of macroeconomic trends, applying them to sectors and groups. Trying to catch group and sector rotation early. It sounds routine now, but doing it correctly back then gave portfolio managers a real edge.

When they paid attention.