Saturday, February 5, 2011

Chump Time

I've expressed the opinion, on a number of occasions, that the stock market is a racket. And by saying this, I don't mean that it's unnecessary, or not constructive, or not a pillar of the capitalist/free enterprise system. It is all of these, and undoubtedly more. But it's a racket in a way similar to “modern medicine” (which also does much good), or the legal profession (which is, regrettably, necessary), or the civil rights movement (which did worthy things in its day, but which has degenerated into an outright racket), in that it is run by an elite primarily for its own benefit. And this is not to say that other benefits don't accidentally – or even on purpose – trickle down from time to time, because they do. That's part of which keeps these systems going – that and favorable legislation, regulation, and court decisions. But in the case of the stock market, it has to be realized that, whereas for the ordinary investor – the non-insider – it's a gamble and a game of chance, for the insider it's much more of a sure thing. Not a 100% sure thing, but enough of one that it pays to stay in and play. And “playing” the stock market becomes a career for many... a hobby for some... and an obsession for not a few. And when you consider also that many of the insiders also benefit from the government's habit of covering losses (with taxpayers' money) but not demanding any share of profits... well, one would have to be a complete fool not to be in the game.

Now, the consequence of this in everyday terminology is that $100 invested by an outsider – an ordinary “player” -- is more at risk than $100 invested by an insider. And it's not just that the insider has more, and better, information (which he does), but that he – or a large-enough aggregate – has ways of influencing trends. If you “gamble” that a given stock will go up in price, aren't you going to do everything in your power to see that it does? But it takes a great deal of power and leverage in order to do this. And if you “gamble” that it will go down, aren't you going to do likewise? This seems so obvious – and yet we all subscribe to the myth that the stock market is a level playing field, and that insider trading is a rare thing, because... well, for one thing it's illegal! And you might go to jail, like Martha Stewart. And so forth. Well... this mentality is stored in the brain right next to the idea that pro wrestling is a real sport, with no fakery. Or that steroid use among athletes has finally been cleansed from the American scene. Or that the government has told “the whole story” about the Kennedy assassination and 9/11. Or that... well, you get the idea. And add to this the Byzantine nature of the stock market, and securities markets in general... not to mention banking (especially the international kind)... and the fact that – I'll say it again – any halfway-competent stock trader is way smarter than any regulator (not to mention much better paid -- no coincidence there)... well, the harvest is plentiful and ripe for the picking. And the people who are ripe are – guess who – the average, dumb outsiders who (mysteriously) have money, but aren't all that good at hanging on to it. For them, the stock market is an adventure... a walk on the wild side... a climb up to the rarefied air of “high finance”... not to mention, it holds out promise of a better return than a passbook savings account. But what do we say about a person who ventures out of their sphere of knowledge, or their comfort zone? One could say “daring”. But the word “fool” also comes to mind... along with “chump”, “sucker”, “dupe”, etc. So if this is true, what keeps the system going? Well, it's the same as gambling – I mean it's the same as the thing that is actually _called_ gambling. People place bets on random events because, once in a while, someone wins; even idiots win now and then. Some truck driver in West Virginia wins the lottery; next time it could be me! Plus, there's the excitement... that adrenalin rush... the fantasy that you're James Bond in Monte Carlo, sitting at the roulette table with Miss World perched on one knee... even if most of your actual gaming-table companions are pasty, overweight chain smokers dressed in thrift shop clothes. So... in that sense, gamblers get what they pay for, whether they win or lose. (And BTW, most of them think they're “ahead” -- but that's a discussion for another time.)

Then there's that other pesky problem: What do you do with your excess money? I mean, let's be optimistic and say you've already bought your McMansion, your boat, and your Lexus... the kids' college funds are healthy... you and your mate have ample food and clothing... you've eased your conscience about charitable donations... and you still have something left. Yes! You're living the American dream. But you know better than to just sink it all into a bank account... and bonds seem a bit too stuffy... and futures too risky... and gold too “right-wing”... and you aren't anywhere near being able to play the art or classic car markets. But there sits the stock market, beckoning like a mermaid on a coral outcropping – “come in, come in, the water's fine, there's no real risk, and you could get rich”, etc. Plus, who doesn't know some blockhead down the street, or at the office, who “made a killing”, and... why, I'm a whole lot smarter than he is, right? So in you plunge – putting the fate of your money into the hands of total strangers! And who knows what they're going to do with it, or why. For all you know, the CEO might be ready to bail and hop on the next plane to Brazil, leaving the company bankrupt; it happens all the time. Or some new government regulation will go into effect that crushes the life out of whatever goods or services sector the firm is involved in. Oh – mutual funds, you say? Well, fine – but you still don't know the people running them or what goes into their portfolio decisions. For all you know, they're getting kickbacks from the companies whose stocks they buy. Maybe it's just a way for a bunch of places that are about to go under to cover their losses until their managers can hop on that same plane to Brazil.

And so on. So... your money, basically, disappears into a black hole, and you spend half your waking hours from that moment on wondering what on earth is happening inside that black hole. But, oh yeah, it sure beats that small-town bank down the street that loans money out to honest farmers and guys starting pizza parlors. See what I'm getting at? You're playing a game, you think you're a “player”, but actually you're as ignorant when it comes to the stock market as a Hottentot is when it comes to fighter jets. It exists in a different world from the one you live in – and it's full of extremely smart, extremely aggressive, extremely devious people, for whom you – and your hopes and dreams – simply don't count. So what are the chances they're going to “care for” your money? They'll use it, sure; but once they use it, how much is going to be left? Or, more precisely, do you really think your return is going to be anywhere near their return? I mean, they put in 16-hour days, reading reports, running computer programs, staring at the “big board”. And what do you do? You sit home and worry. If it's a matter of “sweat equity”, let's face it – they probably deserve a better return than you do.

But it gets better. They have devised ways to win – to come out ahead – no matter what happens to stocks. If the market goes up, they profit. If it goes down, they also profit – for reasons too complex for the ordinary person to comprehend. I always say, if you want to know who is really in charge, look at who wins no matter what. That select group includes doctors, lawyers, bankers, and investment insiders. Doctors still get paid if their patient dies... lawyers still get paid if they lose a case... bankers take a cut every time money passes through their hands in any direction... and investment insiders seem to come out on top no matter what. And what this means is that you – the ignorant one – come out on the bottom no matter what... not necessarily in an absolute way, but relatively speaking. In other words, when you lose, they still win – and when you win, they win even more. And my model for all of this also includes the notion of what I call “churning” -- that the insiders gain every time a stock changes hands (whereas you're likely to pay a fee)... which means that the more they can speed up the process, the more they're going to make (and the more you're going to not make). So you're caught up in a whirlwind – but guess who's controlling the giant fan? So gradually, over time, your wealth – and the wealth of the great, gray middle class – is turned into the wealth of the ruling elite. But the process has to be gradual, like blood-letting. Too much, too fast would tend to kill the golden goose. Or, it would tend to expose the process for what it actually is. This is why the “downturn” that was one element of the Great Recession was so upsetting – not only that people lost money, but that they (or some of them, at least) started to suspect that the whole thing was a racket – that the playing field was anything but level, and that insiders were calling the shots. And who can blame them for feeling this way, since, once the value of their stocks had significantly dropped, there was always someone right there who was willing to take them off their hands – maybe the same people who had sold to them in the first place (at much higher prices, of course). And of course, the conventional wisdom – what comes through the mainstream media – when stocks are down is “Sell, before things get worse!” And those would be the same people who, when the stocks were about at their peak, are screaming “Buy, because they're going to keep going up!”

Are you starting to see a trend here? There is always someone out there giving the wrong advice – and those “someones” are almost always lackeys for the Regime. What they're trying to do is build in an unfortunate habit of buying high and selling low – just the opposite from the classic advice, and just the opposite of what the insiders do. I mean, have you ever wondered why, when things are going splendidly, there is always someone willing to sell? Are they nuts? Who is the “bigger fool”? A visit to the mirror might be of profit. But they are using time-honored psychology in their quest to part you and your money. They know that people will only buy things that “look good”, and that they will only sell things that “look bad”. So that enables them to always be at the right place at the right time. And if you allow for the very real possibility of stock manipulation (not only individual stocks, but stocks in the aggregate), the fact they they always sell high and always buy low has nothing to do with luck, or with intuition. It's because they know when things are topping out, or bottoming out, because they had a lot to do with it – with making that determination.

But wait, you'll ask – what about “market forces”? People talk about this as if it's some kind of abstraction – as if it's a force of nature. But isn't it really nothing more than the net product of individual actions? And how many of those actions is one even aware of? How do they interact with politics? It's certain that they do - but which is in the driver's seat? And what goes into the price of a given stock at a given time? As I've said before, if it's all about tangibles, then stock prices should be quite stable. If you move into management competence, sales, and so on, things get a bit more vague – then if you get into innovation, and popular fads and crazes, it gets even vaguer. But I don't accept that the price of a stock (as opposed to its value) is simply a matter of agreement between buyers and sellers. Someone has to decide to buy, or to sell – and these things are traded, in many cases, in huge blocks. If you don't like the direction a company is heading in, you can dump its stock, which plunges in value, and your prophesy becomes self-fulfilling. The same goes for predicting success. So who makes these decisions? Mr. Average Joe On The Street? Hardly. What I'm saying is that once someone gets high enough in the hierarchy, they can more or less write their own success – give themselves a carte blanche. It's a concentration of power and a concentration of wealth at the same time – and the two are, to say the least, highly fungible. One of the many privileges of power and money is that one acquires the means for keeping them – means that are simply not available to the average person, and in fact are not even imagined by the average person.

So with that overly-long introduction, I refer you to a tiny tidbit hidden in Wednesday's paper, in an article from AP entitled “Dow tops 12,000, buoyed by business”. Well – what else would it be “buoyed” by? Party balloons? But that's not the point. The lead-off follows: “Two years ago, the stock market was roadkill on the financial highway. [AP is getting more picturesque in its verbiage, you must admit.] Now, one of the greatest bull markets in history is rolling along – maybe enough to finally get the attention of average investors.” Did you get that? “Average investors”. That's you and me, bub – the ignorant, the unwashed, the outsiders -- just waiting, like sheep, for their next shearing. And why is this? Well – if the Dow is already at 12,000 and is only now “getting the attention” of the ordinary investor... isn't it possible that it's at its peak, or close to it? I mean, after all, the all-time high for the Dow was a bit over 14,000. So maybe all of the “value” of the stocks that make up the Dow has already been squeezed out – by those who are now selling, note – and so is not available to the ones who are just now starting to buy. I imagine there are people who are, even as we speak, bailing out of gold and getting back into stocks – and, BTW, there are always people who are willing to buy your gold. (What do they know that we don't? This is the flip side of the stock market – but is it any less of a racket?)

See, it's always the same game – between the knowers and the non-knowers. And as I've commented on other occasions, if the stock market consisted solely of insiders, there wouldn't be a problem. If everyone is an insider, then no one is an insider, in other words. But that would defeat one of the main purposes – that one that makes it a racket – namely to separate the ignorant from their money.

So here are the mainstream media, drumming up the stock market, where it wasn't that far back that they were donning sackcloth and ashes. Now is the time to buy! Well, no – it's more likely that now is the time to sell, and to use the proceeds to buy some of that gold that people are unloading. And believe me, this is precisely what the “knowers” are doing at this point – but not in so obvious a way as to cause “panic”. (“Panic” being the word for what happens when people realize what is actually going on.)

Oh, and here's another gem from the same article: “... stocks are still cheap by historical standards.” Now what on earth does that mean? You can make any argument you like if you select the right “historical standards”, and draw the right curves on the right graphs. Were stocks “cheap” just before the mini-crash of 2008-2009? Apparently not. Plus – the assumption is always that the stock market is an island, entire of itself. But this, of course, can't possibly be true. It's common sense that stock prices are impacted by inflation – but how about deficit spending and the national debt? Might they not have some impact in the long term? How about unfunded entitlements? How about health care? How about estate taxes? How about our extravagant expenditures for unnecessary wars, foreign aid, “intelligence”, “security”? (All rackets, by the way.) Those things might be good for some businesses, and hence for their stock values – but overall? I don't have a model to base this on, but I can't imagine that the answer is good. How do you feed, or “grow”, an economy by sucking the life blood out of it at every possible opportunity? And how can an economy that is on the ropes in virtually every respect yield up a thriving stock market? There's a disconnect here somewhere, and again I think it has something to do with the “hidden agenda” I discussed above. The stock market bears as little relation to reality as it does because it's being manipulated, controlled, and engineered for the purposes of those in charge. It's a fantasy world, in other words. We wonder why gambling casinos and lotteries do so well when times are tough – well, that's a similar case. People are looking for an advantage... an edge. And as W.C. Fields said, “you can't cheat an honest man”. And why, for that matter, are savings accounts only held by little old ladies any more? Who killed that -- at one time huge -- sector of the banking industry? Why, government, of course – through regulation, taxation, and planned inflation. They forced everyone to become a gambler -- even people who had no business gambling. Plus, our money has no backing any longer... so why attempt to save that which doesn't even exist? Try thinking of it that way.

And get a load of one of the things the article attributes the stock rise to: “...a bond-buying intervention by the Federal Reserve.” Which is another way of saying, an increase in the national debt paid for with newly-printed – i.e. inflationary – money. And this is supposed to be good news? If your stock appears to go up by 20%, but the value of the currency it's denominated in goes down by 30%, what profit is there in that? I mean – I guess it's better than holding on to the cash itself, but still... it has all the makings of a gigantic fraud, which is what I believe it is.

So – the article goes on -- “Anyone who bought an S+P 500 index fund (on March 9, 2009) has doubled his money.” Precisely. But who was buying on that dark day – when the Dow was at 6,547 and, for all anyone knew, it was headed for 4,000... or 2,000... or total oblivion? The answer is, the insiders were buying, because they _knew_. And who is selling now? Why, the same people, of course. So... with the Dow up approximately 5,500 between then and now... who made that money, and who lost it? Well, if you've read this far, you know the answer.

Want more proof? Here's the frosting on the cake. “The market has been rising without much buying by small investors. It's the professionals who have pushed stock prices higher for two years because they expected corporate profits to rise.” Well put! But it wasn't just because they expected corporate profits to rise – the wanted their own profits to rise. And rise they have. So now it is time to sell to the little guys, and once that's accomplished the demolition process will begin again.

So the next time you see a news clip of those assholes up on that balcony in the New York Stock Exchange ringing that damn bell – ask not for whom that bell tolls. It tolls for thee.

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