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Zacks Investment Research Senior Equities Strategist Jared Levy on why regulations are pushing firms to replace traders with computers and what the po...
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Well we begin tonight with a controversial move on Wall Street one of the biggest banks is going to machines.
Morgan Stanley's reportedly laying off some of -- bond traders and replacing them with computers.
But the recent debacle from Knight capital and of course the FaceBook IPO still fresh -- everyone's mind.
Well this have investors running for the hills.
Jared Levy the senior equity strategist -- Zacks investment research joins us now on taxes before we get started.
You have firsthand experience with this township.
I did -- every night that this is sort of how I got my start right believe -- or not.
As a trader on the floor the exchange we did trade electronically we raised our hands we screened and fits all day long -- things got a paper.
And we transact -- your business amongst each other.
As computers came into the mix in the late on these things -- -- of change and since then believe -- -- not.
Regulation.
Hedged reminiscent back in drove me off the floor and and how to do I do trade off floor -- fond it's actually Germany away from the business and away.
So Morgan Stanley already cut ten to 20%.
Of their interest -- and exchange street traders were already seeing layoffs you know not go there entrusting trillions of -- to machines have a big.
This is scary right so.
It's 4000.
People that are gonna lose their jobs three quarters of which have already been gone.
And and here's the analogy need to think golf you know de Beers -- -- like friends -- your GPS right it's a get a look at your GPS you GPS is the most efficient route.
But what regulators are doing -- what Morgan Stanley and -- are doing to an -- saying you know what GPS.
-- -- telling us how to get there you drive the car you take the wheel drive this -- -- a busy freeway weave in and out of streets cars traffic what are we need to do just get me there.
And while that's sort of makes sense maybe it's the people's minds when you think about it when things are changing just like they are on the market every single day.
That GPS.
Name let's say there's little glitch you know little traffic.
There could be a big issue and that's exactly happened with night you know and that's what scares me I guess the most but again.
If the regulators that are really pushing this -- families making 60% less this year than they -- 2010 because of regulation right.
-- -- is saying this is that this is a bottom line issue right they can't afford the payroll is the bottom line because of all the regulation so they have no choice.
But at the end of the -- how could -- -- are going to be good trade.
You can't -- and this is part of the issue and you know it's it's funny Tracy.
There's this sort of battle going on right now like first of -- regulators the folks who put Dodd-Frank into existence in my opinion don't understand the intricacies the financial markets.
That creates a danger they tried to banded up a couple things what good does it created sort of these floodwaters coming from other places they -- anticipate and Tracy here's the thing.
With Morgan Stanley leading down this path and with all a lot of the other banks he knows that it's sort of a never ending -- -- -- there's there's no conclusion to it just gonna continue get worse and worse to worst until.
Another major catastrophe -- perhaps a flash crash of 34 times -- magnitude -- spoke seventh as you know what.
Maybe we do need someone with logic behind the screen maybe there does need to be human behind they're making sure that some of these trades are Kosher and I'm not gonna fire off millions of dollars -- my firm's -- every trade trillion.
You know because we do keep having events that that bring -- set in the human conversation back.
We have -- washing it seems almost daily and yet we still see this move your point about how -- get get hit with cost though there's nothing they can do about it.
Let's talk about trading in the mutual fund world a little bit too before we run out of time here -- We're seeing five point seven billion dollars pull out of mutual funds on the equity side.
Interestingly enough they're still going back into bond funds five point one billion dollars went into bond funds last week.
What are people do in.
Money is funny you know I remember the movie Wall Street there's a quote by Gordon -- we said you know what does it really created it's only transferred and that's the one thing you have to remember when you're looking at these reports -- Money's not flowing out of the markets this is flowing in the something else for it since ETFs believe it or not.
The Smart money -- to -- me back this up the retail traders actually put money into the worst performing ETFs over the past three years.
And that could be what's happening with -- major -- yet of flowing out of equities but look.
Equities are making like you know multi year highs now again we're back -- that -- We were -- that don't pay attention that number look at quality companies don't get caught up and a lot of this bond really just stay with your stay with your flow stay with your core.
Look for -- stuff out.
You know -- -- -- you on that the same time though it's it's really hard to find a mutual fund manager that can actually -- the overall market which.
It's very disheartening as an investors sitting woman doesn't know lack -- a lot.
It is viewed on I guess part of the Tracy get get back to -- human element you like to think yeah there's a guy running a mutual fund he's watching over things -- catastrophe happens or PCs detach it potentially happening.
This guy or girls gonna have enough sense to adjust their positions.
The reality is Tracy you're right most mutual funds do not.
The the S&P and I think that the takeoff from all this is you know what.
Stick to the tried and true methods of your long term investor there's no reason get all crazy buy good stocks by the for the long term if things start to look -- -- the money out yourself.
-- -- most -- the people watching -- probably Smart a lot of folks managing money out there anyway yeah yeah you're gonna disown my peers but but it's true.
I'm right near an act to tell you GPS -- G of the car driving itself was -- We'll let lakes are going off I'm single mother with three kids I drive everywhere I would kill for GPS that drove my car -- -- -- thank you so much.
-- honestly I'm hostage.
