The Madness of Rigged Markets

 Never ever forget that rigged markets can stay insane for much longer than YOU can remain solvent betting “rationally” against them.



Click here: What Will It Take for Joe the Plumber to Invest in the Stock Market? by Sandra Hamilton
It seems these days the question for every stock market pundit is “what will make the common man feel safe again about investing in the stock market?”  Sadly, every government intervening solution they propose completely misses the mark.  The simple answer is: nothing.  Do nothing and people might start investing again.  I can’t speak for all people, but I am certainly a common person.  I do not have a ton of money to invest.  I have a small IRA that now will not get me through 4 months of retirement let alone get me through my golden years.  Yet, through my IRA I was invested in the stock market, although now it is mostly in cash. (I must make a small disclosure here.  My name is not Joe and I am not a plumber.)

I admit I am not a sophisticated investor.  I am just an average person.  But this average person sees that the government is playing favorites and unless you know who are on their “special” list then you have no way of knowing how to invest.  If you see a housing market slowing, you can make a decision based on that information, but what do you do when the government decides one day that the housing market cannot slow:  You lose your shirt because all your investments just fell through the floor.

If any of these pundits would bother to ask me what it would take for me to reinvest my money in the stock market I would be happy to tell them.  There is no amount of government intervention that can get me to “trust” the market again.  The reason I do not trust the market is because of the government intervention.  How can I enter into a contract with any company when the government can come along and undo that contract or do something that makes that move foolish?  I cannot play in a game where the rules change hourly.  If I short the financial market and the government can come along and hand one trillion dollars to that sector I lose my pants.  If I buy one pharmaceutical company thinking that they will do well because they are a stable company making a good product, I will be in trouble when the competitor of that company gets a huge check handed to them by the government because they are too large to fail.  If I buy one soft drink, what happens when the Secretary of the Treasury decides he likes another brand better and hands them some of my hard-earned cash?

This market is crazy and volatile right now because the government is trying to create stability.  The worst part is, I do not think that there is anything that can be done at this point to make me want to test the waters again.  Even if the government magically took back all the money they handed to a few companies, I couldn’t trust that they would not jump in again.

Playing the stock market is all about predicting the future based on what you think people are apt to do in a given situation.  However, when someone can come in and hand out checks willy-nilly, then all that predicting is worthless.  You can’t know what situation you are actually in anymore.  You may think that extravagant purchases would go down in a recession, but what if the government decides that everyone must own a Ferrari?  You can bet your stock in Kia will drop dramatically as soon as the word gets out.  What if I invest in gold and the government decides, again, that people should not own gold and then confiscates all the gold I have?

Until the government gets out of the way and lets the free market be free, then investing in the stock market becomes simply a quest of trying to decide what the government will do next.  Unfortunately, the government is a lot more irrational than the general populace and its politicians have agendas we can never know about.  I can make a prediction about human action; I have no idea what the government will do next.

Sadly, I do not believe the government will ever get out of the stock market. Historically, politicians are loathe to give up power they managed to steal.  Indeed, it is my hunch that from here on out, whenever a sector starts to dip below “acceptable” levels, they too will have their hand out and the government foxes will be only too happy to guard the sector’s hen house.  Since I have no idea what is considered “acceptable” I cannot predict a thing from here on out – except that I will not be able to predict a thing from here on out.

When businesses have the ability to force the government to steal money from the people to give to them if they fail, you get businesses that are incredibly risky.  After all, what benefit do you have of being a carefully well-run company?  If you gamble and lose very, very big you get your money back, if you win, you win very, very big.  If you do not gamble and are careful, you will fall far behind.  Who wants to gamble on companies that have the incentive to be reckless?  Should I now look for the worst-run companies with terrible, corrupt directors?  Even that will not work unless you know which of those companies has the most political connections: Apparently Lehman Brothers was not well connected.

You want to know what it will take to get me back into the stock market? Nothing. Absolutely nothing.

October 21, 2008

Sandra Hamilton [send her mail] is a retired attorney.

Copyright © 2008


The only intelligent strategy is to go on the dole, or get a government job, but I repeat myself…




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