Perry Glasser

Wall Street Myth$

In Business, Finance, Personal Finance, Wall Street on October 5, 2008 at 11:12 am

If you read any traditional financial news outlets—The Wall Street Journal, Business Week, Forbes, the green section of USA Today, Forbes and the like—you have read a rhetorical device called anthropomorphism.
Anthropomorphism ascribes human characteristics to things not human. It makes good poetry, cute Disney cartoons, and helps children understand thunder as just some old guys bowling in Heaven.
But as a rhetorical device describing the stock market, anthropomorphism and its handmaid personification enable the Wizards who cast illusions from behind curtains to suck money from our wallets.
Dollar$ hastens to speak plainly.

Advance & Retreat

The stock market does not advance nor does it retreat. For every buyer, there is a seller. When buyers and sellers agree to prices, they set asset values. Buyers buy with the expectation of future profit; sellers sell when they believe continued ownership of an asset constitutes a risk no longer commensurate with possible reward. No one is under compulsion. Wall Street is not a battleground for territory. It is not an adversarial contest. But Wizards and Buccaneers require small investors to believe that generals understand the battlefield and so deserve your trust and your fees.
But there is no battlefield. It’s a market.

Market Sentiment

There was a time when tickertape was paper. A parade in New York City meant overtime for street sweepers.
There was a time when backroom ledger operations were performed by men on high stools wearing eyeshades under bright lights. They used two ink pots—one red and one black.
There was indeed a time when investors dialed their brokers, and there were indeed days when lots of investors shouted, “Buy!” or “Sell!”
All that is gone.
The vast majority dollar operations on Wall Street are performed by computers. Indeed, for the NASDAQ, the so-called market of markets, there is no meatspace. Whether New York Stock Exchange or NASDAQ, networked machines monitor every price tick and move great mountains of capital for millions of worldwide financial vehicles. The machines buy and sell when their algorithms tell them it is time to do so. There is no human sentiment involved. This is especially true of the derivatives and futures markets where the sums of capital are so vast that only the super-rich, hedge funds and governments participate.
This is why when you as a small investor get the news of sharp price movement, it is too late to act. Unless you think and decide at light speed and are plugged directly into markets, that is.
Machines do not agonize over decisions such as Buy, Sell or Hold. Machines have no hearts. They do not succumb to sentiment. They do not read the newspapers. They do not hold on to send their kids to college or because there is no other way to get the down payment on a house.
Yet Buccaneers and Wizards want us to believe market sentiment exists. If we believe that sharp moves on prices are caused by sentiment, we will be deluded into thinking we are on a level playing field. Surely, sentiment will eventually turn in our favor. All we have to do is keep giving our money to the Buccaneers.
So while our money trickles into pension funds, 401ks, college funds, health insurance funds, and all the rest of the vehicles invented by Wizards to lure us with illusions of safety in an uncertain world, machines–owned and operated by those same Buccaneers–are selling. The machines sell in torrents. We look for 7 to 10 percent each year, but when the alogrithms indicate “Sell,” prices drop 20 to 50 percent in minutes.
Sentiment? Level playing field?

The Warning

Dollar$ is aware that sharp price moves can be precipitated by events. Nine-11 and hurricanes preceded sharp price drops–all followed by sharp rises. Sharp price moves are never about mass sentiment about the state of the economy, job prospects, or any kind of long-term consideration. Panic is not a reasoned response to conditions: panic is not “sentiment.”
This is why reasoned investors await blood on the floor before buying. Warren Buffet is buying GE. Bank of America is buying Merril Lynch. Citicorp and Wells Fargo both want to buy Wachovia.
Note: these transactions are not the product of computerized algorithms. They are decisions by human beings in executive suites.
Buffet is a conservative Buccaneer with an enviable track record. They guy lives in Omaha, for Goodness sake, and he drives his own car to work.
That’s human intelligence at work, not market sentiment.

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