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The tree-shake and market maker #finance

Luddite:

a member of any of the bands of English workers who destroyed machinery, especially in cotton and woollen mills, which they believed was threatening their jobs (1811–16).

Luddites weren’t really against mechanisation. They were against low wages. The factory owners were keeping wages down because they needed high profits in order to mechanise and if they didn’t mechanise their competitors would and put them out of business. The answer to their dilemma,  of course, was to bring in investment from outside the company. We are now in a new era of mechanisation. The use of computer-controlled robots and artificial intelligence. Companies need investment and so the stock market is even more important now as in the early 19th century. Technology will tree-shake whole industries and some companies won’t make it.

Tree-shake is a term used by investors in the internet forums.

The future

In the future robots will produce the goods and so what will we do? We have already become a service economy and many companies producing the goods overseas have looked for the investment they need to the stock markets but few Chinese companies have listed on the London Stock Exchange, they list on the New York stock exchange. The L.S.E (London stock exchange) needs reform and it needs to be easily accessible by ordinary people via the internet with affordable dealing fees. The big A.I (artificial intelligence) tree-shake of the world economy could see Britain looking like a nation of Luddites.

Market maker tree-shake

Tree-shake is a term used by investors in the internet forums. We saw one this week when the share price of Immupharma suddenly dropped by over 5%. There was no apparent reason for the drop, people weren’t selling, in fact, many people were buying. The market makers dropped the price to trigger stop losses and pick up shares on the cheap.

I think of a market maker like a shopkeeper who deals in shares. The price that he buys for or sells at is affected by different things. How many shares he has under the counter and how many people want to buy and how many people want to sell. Lots of people wanted Immupharma this week and his shop was full of buyers. My guess is the stock under the counter was running out and hence instead of raising the price he was willing to pay, he triggered the stop loss orders. The stop loss orders are automatic sells set on thousands of computers. They might set the stop loss at a 3% drop and so the market maker cutting the price by 5% will trigger the stop losses and the market maker picks up shares at a lower price. This doesn’t happen with FTSE 100 companies where there are lots of market makers but happens frequently on the AIM market where there can be just one dominant market maker for a particular stock.

This week

The share price of Immupharma seemed to be subdued by the tree-shake earlier this week but the trial of their innovative drug Lupuzor is finished and it looks like they are going to produce it themselves which some investors believe with make Immupharma a multi-billion pound company. The share price could have a long way to go yet so we wait as the drug goes to the production stage. Solo Oil is in a similar position, they have to start producing again too. There is a set back with gas production in Tanzania but that is probably a technical problem. The prospect of production at Horse Hill moved a tiny step forward with planning permission being granted and other problems fixed this week. Verona Pharma is continuing its trial of their ground-breaking drug for respiratory disease. The success of Immupharma is highlighting the advantages of investing in small pharmaceuticals and so Verona Pharma could benefit from the trend. We must remember that pharmaceuticals make money from exports which is very lucrative at the moment. The rest of my portfolio made slight gains and I was pleased to see that Tesco held on to recent gains and the Booker merger has been approved. Shares in the AA went from 155 to 172 which was a nice rise. They will be getting more call-outs and probably more people joining with fears of breaking down and getting stranded in bad weather. They are also getting rid of non-core assets too. I sold off the best of my portfolio earlier this year and so in the new year I will have the cash to invest but with Brexit still causing problems I have to wait for a while.

The future

I think when interest rates rise and the US cuts corporation tax we could see big market changes. The volatility that follows could bring opportunities. I’ll be avoiding the big companies that everyone is piling into now and crypto-currencies are one big Ponzi scheme. I think the demand for investment will be higher in 2018 and interest rates will be higher. Companies will have to innovate and give investors better returns to survive. I can see a cut in corporation tax coming to help them do just that on this side of the Atlantic as well.

That’s it for this week. If you would like to follow my blog and keep up to date with my ideas and views you can subscribe by entering your email address at the top of the sidebar or you can follow me on Twitter for updates. There are also links on my Facebook page.

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