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  • The Manipulated Market and the Middle Class : Follow Up

    The previous post explored the consequences of the manipulated stock market in the US for the middle class.

    A reasonable and trusting person will ask"How is it possible to manipulate the stock market?"

    The Middle Class has been indoctrinated  by Wall St and its  minnions in business schools into believing that the stock markets can be implicitly  trusted because markets have no masters and therefore, cannot be subverted by the few at the expense of the many. All small investor/retail investor participation in the stock market for both tactical and strategic reasons is based on this one great article of faith.

    The conditions for a free, fair and functional stock market are:

    1. There are many participants

    2. No very small sub set of participants accounts for  a large share of transactions, so systemic gaming of the market is not possible

    3. The majority of participants have access to relevant information at the same time with the same convenience and at the same vanishingly small cost

    4. Information processing and transacting capacities of most of the participants are quite similar , so there is no systemic asymmetry in in acquiring, metabolizing and acting on relevant information

    5 Disinformation or false information is rapidly identified, isolated and rejected by most of the participants with the same speed and facility and purveyors of such information are tagged and ostracised

    In the US equity markets, these conditions are far more breached than honored. A very small subset of participants accounts for most of the transactions; information acquisition,filtering,processing and  transactional capabilities are hugely and enduringly asymmetric. The assymetry has grown enormously with unequal access to and use of leverage, complex computer domiciled algorithms and the  force multiplying power of the internet. In addition, disinformation and false information is often not separable from truth for the small/retail investor or investor agent.

    Moreover,the very existence of professional equity, credit , currency, commodity and market analysts( in free, fair and atomistic etc markets such people could not make enough money to buy lunch much less mansions) should be a source of alarm, not comfort to middle class investors. These analysts are mostly in the employ of Big Money and Big Media( they have obvious, demanding and ruthless Masters.....). They are provided a privileged platform at the intersection of Big Money and Big Media. The platform ,in turn, leads to potent global reach, in itself, a source of asymmetry.

    The analysts are supposedly honest gatekeepers to the truth( the gatekeeper role clearly creates sustained, expolitable, temporal assymetry for the Masters, at a minimum). In fact, as authors and commenters on SA have noted repeatedly, several of the most avidly marketed analysts are, themselves, a source of misinformation and disinformation and therefore,instead of being tools of risk management for the middle class investor are generators of risk and channels of risk shifting from the few to the many. The more middle class investors outsource information acquisition, analysis and decision making to these analysts the more  peril they create for themselves.

    US equity markets have Masters. These Masters view the small/retail direct or mediated investor the way hyenas view young, ailing or wounded herd animals.

    Jul 24 12:38 PM | Link | 5 Comments
  • The Manipulated Market and the Middle Class

     

    Many writers on SA have suggested that the stock markets in the US have been and are being manipulated to serve the interests of the Government( our policies are working), Media(the elites know best) and Wall St( recapitalization of Big Money and escape from TARP and hence bonus limits or anty other limits on behavior).

    If one accepts this explanation, then an even more insidious notion has to be entertained. This is the thought that the Inside Money(ie Wall St and cronies in politics and media) is using the Outside or Dumb Money(ie  Middle class or small investor money, directly or through intermediaries) to create a financial  exit for itself  by encouraging the dumb money to buy financial, service and media stocks. Thus, the Middle class becomes the duped exit for the Upper class.

    But why exit finance, service, media stocks? 

    The upper class is also the fiat money class. It understands vastly better than the Middle class that fiat money means a  rapidly  eroding exchange rate beween the dollar and real assets. Therefore, a year or two before this erosion is painfully manifest in high and sustained inflation( ie escalating dollar price of real assets but not an escalation of real asset prices versus other real assets such as precious metals versus oil or industrial metals versus  agricultural land  or rare earths versus natural gas) the upper class quietly  redeploys the money from  its smoothly engineered stock market exit into real assets. It callously leaves  the middle class stuck with vapor assets in the form of finance, service and media stocks which, of course , lose value once the exit is completed and the productive economy continues, at best, to languish. 

    Then, when inflation arrives and real assets soar in dollar terms, the real wealth of the upper class is not only preserved but  tangibly  increased. The middle class is further impoverished , the lower class is given more  fantasy money bribes to keep it pacified even though more dollars buy fewer means of living(a fact the lower class in its ignorance , muttering resentments and digital  media addictions is unable to grasp)and the upper class garners an even more  unearned and underserved share of real income and real wealth. Gloating and self congratulation for the upper class, economic and social  misery for the middle class and  financial  fumes for the lower class.

    The manipulated stock market is working very well indeed: for its few masters.

     

    Jul 24 10:39 AM | Link | 4 Comments
  • Is An Economic Recovery In Sight?

    Hard times are no fun ,even for people with secure jobs and good incomes and miserable for those with no jobs and few savings. It is natural to want a recovery and want it soon.

    Unfortunately, there are some big negatives to contend with.

    1. Taxes and rumors of taxes: almost every day there are either announced increases in taxes or fees or other charges or threats of increases from cities(eg NYC) or counties(eg Montgomery County, MD)or states(eg California) or the Federal Government( including the Postal Service) or reductions in the quality of municipal, state and federal services. These depress already nervous consumers and small/medium businesses while creating more uncertainty for investors. More risk aversion and cash hoarding or flight to tax shelters is a consequence.

    2. Increased regulations : again almost weekly there are either new regulations being implemented or drafted or threatened on businesses of all kinds. Regulations are not cost free. The cost of compliance for small/medium businesses, which create a clear majority of jobs in the US, is non trivial in terms of money and scarce owner or executive time. Ths creates a hostile business climate, whose cumulative effect can be quite material.

    3. National resource misallocation via Stimulus and Intervention programs:government is not external to the economy. It has no free or magical resources of its own. The more resources the government commandeers and allocates as it sees fit, the more distortion in the economy and less resource availablity(and higher resource costs) for private enterprise. A disproportionate burden from this misallocation falls on entrepreneurs, young people just entering the labor force and ,yet again, on small/medium enterprises. Distortion impedes both healthy recovery in the short term(i.e beyond a few months) and creates structural liabilities in the mid to long term.It also makes people doubt economic fairness and justice, which, in turn depresses investments and risk taking.

    4. Shrinking global trade:the global economy cannot grow if global trade is still shrinking. The US is not an autarkic economy---indeed it is highly integrated into the global economy----so unless the world grows, especially ,our chief trading partners, the US cannot have sustained or high quality growth. Protectionism is also increasing worldwide. Growth at the expense of others has never been an enduring model. The more it succeds in the very short term(and it does) the more it fails in even the realtively near term.

    5. Rising oil prices: oil prices have risen by  over 50% this year. For American consumers and businesses and government operations, this price increase is exactly equivalent to an unrebated increase in excise taxes. In a shrinking economy a universal  excise tax increase of this kind is a clear negative and erodes both consumer confidence and the will to spend on non-oil goods and services.

    6. Increasing geo-strategic risk: everyone who was hostile to the US a year ago is still hostile and often more hostile. This is manifestly true of Iran and its proxies and clients, North Korea, Venezuela, Islamic terrorists worldwide, and even Russia. Moreover the ranks of failed states have not been reduced. Somalia and Sudan are still failed states that harbor a growing number of violent and predatory groups, Afghanistan is no closer to peace and may have regressed, Pakistan is more not less unstable than 6 months ago, Yemen is heading towards becoming a failed state, Nigeria is becoming less not more reliable as an oil exporter, Drug  cartel driven lawlessness is increasing in Mexico while oil production is falling. No one risk is major but the cumulative effect can be quite substantial. Rising and multiple geo strategic risks are not conducive to either expanding world prosperity or US economic growth. Each risk imposes a cost that must be paid explicitly or implicitly.

    May 12 2:26 PM | Link | 3 Comments
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