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Arbitrage &
The "Gordon Gekko Myth"...
Whenever a discussion on investment strategies is
undertaken, sooner or later someone brings up the subject of arbitrage.
Most people hear the word and think of the character Gordon Gekko out of the
movie Wall Street and immediately have visions of empire... and vast
banking and wealth conspiracies... and arbitrageurs like T. Boone Pickens and
the infamous Hunt brothers.
Arbitrage Explained...
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With respect to investments
in securities, arbitrage exists whenever and wherever there are market
inefficiencies, as arbitrage "works" to correct market inefficiencies.
Once the market becomes efficient (selling price offer and buying price bids
closely match one another), the arbitrage opportunity no longer exists and the
trader moves on to the next opportunity area. The current subjective
risk elements that plague the stock market exchanges serve to continually
create inefficiencies that allow for this type of investment manipulation and
security speculation. |
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Think of arbitrage as a
traffic jam. A traffic jam is an extreme example of an inefficient
operation of highways and motorists respond by constantly switching from the
slow moving lane to the faster moving lanes seeking to keep moving at optimum
speed. When the traffic jam is cleared, the "traffic arbitrage" game is
over - until the next traffic jam is encountered and then the game starts
over. The same is true with security investment arbitrage - when the
difference between the offered sale price of a security (or commodity) and the
bid price to buy that same security is great enough, the arbitrageur steps in
and takes a middleman position until the price gap closes to a point where the
arbitrageur can no longer make a substantive profit on buying and reselling
the security of commodity. |
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Day trading is the most extreme example of high-risk
arbitrage in that most day traders are assuming that excess market capacity
exists for trading of a given security and they are literally betting on the
change of a given security's price within the course of a single day (up or
down) where no pre-existing market inefficiency is found. |
About Rainmaker...
Rainmaker Marketing Corporation is the
brainchild of Clint Lovell, a seasoned business finance consultant with
more than 20 years experience. Rainmaker is a B2B consulting firm that was incorporated in 1994 for the
purposes of providing market feasibility studies to businesses
seeking capital financing in the commercial and institutional
markets. Today, Rainmaker Marketing Corporation provides a
comprehensive array of due diligence documentation services for most
major industry groups. Rainmaker Marketing Corporation also
provides syndication management services for fractional commercial
real estate syndicates that can provide mezzanine gap funding for
income-producing commercial property developments as early as the
pre-construction phase. Rainmaker Marketing Corporation serves
clients throughout North America and the Caribbean Basin. Rainmaker
Marketing Corporation, Inc. 15519
Dawnbrook Drive, Houston, Texas 77068
© Copyright,
2009 Rainmaker Marketing Corporation, Inc. All rights
reserved. |
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A
Few Words on Change...
Clint
Lovell, the Managing Principal of Rainmaker, has written a book on the
subject of capitalism and the creation of a new economic society that
ends our reliance on taxation and retires all of our national
debt. The book is called The Fix and you can order an
advance copy now at www.the
fixbookstore.com. Order today and we'll pay your shipping,
saving you some real change. |
What's
New...
Read
our latest whitepaper on capitalization strategies and commercial real
estate syndications that provide developers with a new arsenal of
capital finance weapons they can deploy in the middle of this
recession. Click here and download the whitepaper
free! |
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