Speculating

Let's say you are an average US citizen with a college degree, professional job and a 401K. The diversify and buy-hold strategy recommended by just about everyone still left you with a 30%+ hit in your investment accounts so now you also do a bit of "swing trading" on the notion that clearly you could do that badly on your own! So, you now spend a little time on the weekends and during the workday, following (Nasdaq: AAPL), (Nasdaq: MSFT) and (NYSE: IBM) and if the truth be known, you have "traded" in and out of them about a half a dozen times in as many months.

Let me ask you a question? Who did you sell to? Who bought from you? Even more importantly, what if no one else had gotten the message about buy and hold and everyone was in the market for the long term? In that case, who would you buy and sell with?

The press, the House of Representatives and way too many average citizens like to blame the specs but there is something they all overlook. Markets only work IF you have market participants who are active in them on different timeframes and for different reasons.

What the vast majority of the world misses when they talk about oil speculating or the CDO/CDS' that brought down our credit markets is that one excellent solution lies in MORE speculation not less. In fact, the one regulation that should be put in place is that newly finagled financial products must be traded on an exchange and be sliced and diced in a way that markets can be made and everyone can trade in them.

When you have people who just want to trade risk for potential reward mixed with people who have an underlying interest in the asset or even more importantly, a different timeframe, then you have a market that works.

Without short term players, long term players would be limited in when they could buy and sell.

Essentially this was the real problem with the mortgage-CDO-CDS market. There were way too few players. Bear Stears said "no bid" and so did the other dozen or so. ... the rest is the history we are living.