Home
I have a rule of thumb when it comes to conspiracy theories. If the theory involves aliens or government competence - such as keeping a secret for years - I don't believe the story. But if the conspiracy involves money, I generally believe it.

Here I'm using the term "conspiracy" loosely. For example, I don't think phone companies had meetings with their competitors in which they all agreed to be part of a confusopoly to avoid competing on price. I think everyone simply understands that price wars are bad for business, and they act rationally to avoid them. It's a conspiracy in effect, without the secret meetings.

This brings me to the question of banks. When I was a kid, we could put our money in savings accounts and earn 5% a year. That's how average citizens saved. Today, with interest rates so low, your bank doesn't really pay you anything. You simply give them your money and they use it to make more money for themselves. Arguably, they aren't even keeping your money especially safe, given the risk of bank default.

And so the average citizen has looked around in recent years for a better deal. Thanks to falling real estate values, discount stock brokers, and company 401K plans, the average person waded into the stock market. That allowed the titans of the investment world to grab the little investor by his ankles and shake until his pockets were half empty. How did they do that?

The conspiracy theory is that most of the market-wide gyrations we've seen in recent years are engineered by powerful investors. Stocks run up 10%, and the little investors pile in, buying stocks at high prices from the market movers who are getting out at the top. At that point, the titans of the finance world engineer a 10-20% drop in the market, thus giving the rich another buying opportunity. Repeat.

Here again, the conspiracy doesn't require anyone to hold secret meetings and decide who will do what. All you need for this system to work is for the big guys to be able to execute their trades faster than small investors, which we know is the case, and for the big investors to have faster communication with each other than small investors have with any other investors, which I assume is also the case.  In other words, JPMorgan Chase knows what Goldman Sachs is doing, and vice versa, before CNBC reports it to you.

Some big investors also have the advantage of illegal insider information, and better/faster information about the business world in general, but that's not what I'm talking about here. That sort of information helps forecast legitimate moves in stock prices. I'm talking about the totally artificial gyrations we have seen all summer. I believe those are mostly the result of a system rigged against small investors.

And don't forget the financial advisors and brokers who take commissions from the small investors and benefit from the churn. And don't forget the media that needs to fan small fires into bigger ones to attract eyeballs. The entire system is designed to create small and continuous scares along with the occasional fear of missing out on big moves to the upside.

Let me put this to you another way: If the giants of finance thought they were personally better off with a stock market that didn't gyrate wildly, they would figure out a way to calm it down. Do you doubt that?

Notice also that small investors have moved away from investing in individual companies and toward ETFs and index funds. That means big investors need to manipulate entire markets to scare investors as opposed to manipulating individual companies. That's consistent with what we're seeing.

I think the rich were safe when the average citizen had a clear path to upward mobility. He could get a nice job with a pension, buy a home that appreciated, put some cash in a savings account and wait for compound interest to do its thing. The little guy didn't hate the rich so much when he thought he had a chance of joining the club, or at least moving in that direction. That all changed. Today, there's even a debate about whether it makes financial sense to go to college.

Notice that the rich have cleverly shifted the blame to Congress. The problem, they hope you believe, is all of the danged government spending and taxing! Focus on that hand, not the one that's holding you by the ankle and shaking.

If you want to screw the rich, buy stocks in the broad market indexes and just hold them forever. They hate that.

[Warning: It's a good idea to ignore financial, medical, and legal advice from cartoonists.]
 
Rank Up Rank Down Votes:  +161
  • Print
  • Share
  • Share:

Comments

Sort By:
Aug 25, 2011
"I think the rich were safe when the average citizen had a clear path to upward mobility. He could get a nice job with a pension, buy a home that appreciated, put some cash in a savings account and wait for compound interest to do its thing. The little guy didn't hate the rich so much when he thought he had a chance of joining the club, or at least moving in that direction. That all changed. Today, there's even a debate about whether it makes financial sense to go to college. "

But if that were the case (rich being safe), wouldn't they be safer not creating extra uncertainty in the current climate where you have a president who'd be willing to just take everything over? I mean doesn't traditional theory say that the rich would have the most to lose if the US went communist/socialist?

Yet it seems like they are trying to create a case just for that.

Maybe they have found a way to make sure they are the only ones in the end who'd benefit from that switch. IE they get a personal new branch of congress that only they can vote for in exchange for all those extra taxes they'll have to pay. If that's the case not only should we invest broadly and hold, we should revert more back to the old days were banks gave you an interest rate and your house appreciated at least at the rate of inflation.
 
 
Aug 25, 2011
You have no more ability to screw the rich than an ant has the ability to screw an elephant. The only thing you can do is find a nice, shady spot and enjoy the ride. Just keep buying strong companies at discounted prices (read "The Intelligent Investor") and wait. Ignore daily market fluctuations and turn off the CNBCs of the world. You're the only one with your best interests at heart, so the only research you can trust is your own.
 
 
Aug 25, 2011
"If you want to screw the rich, buy stocks in the broad market indexes and just hold them forever. They hate that."
No, they *love* that! At one time shareholders controlled companies through their votes. But ETFs and broad index funds don't vote their shares, so the board of directors can do anything they want - like voting for ludicrous pay increases.
Screw the rich by buying a few companies and voting out guys that waste your money!
 
 
+6 Rank Up Rank Down
Aug 25, 2011
Scott,

Not long ago industrial establishments were islands unto themselves, divorced from the primary purpose of life or source of livelihood. A family, children, community, nation etc were not driven by industrialisation but by naturalism, religion or plain witch-craft.

Today industrial wealth has become a part of the infrastructure. Its right there in the drawing room, the study, the kitchen, and in some cases in the bedroom too.

Earlier, money was what money could produce - money was made. These days money is what money buys - money is obtained.

Ofcourse, this cannot be generalised globally. There are still many villages in poorer nations like India, Pakistan and Sri Lanka where money is not saved in banks. It is invested in purchase of small machines that are useful to the community like flour machines, farming equipment, tailoring machines, taxis, trucks etc. Each household has something that the rest of the community does not have. There is a good exchange of services. But ironically these people are often counted among under-developed or developing populations.

People are considered developed and smart when they deposit their savings with bankers, traders and merchants.

.
 
 
Aug 25, 2011
Every time stocks are going up, advisors say to buy and hold. Every time stocks are going down, advisors say "it's not your gradnfather's stock market any more. Buy and hold doesn't work."
 
 
+6 Rank Up Rank Down
Aug 25, 2011
I started with the assumption that everything is a conspiracy. Then I realized I don't care and then just worked on ways to exploit the system. Only way to be truely happy.

Interpersonal relationships are the same. Assume you will be screwed over as much as possible then your pleasantly suprised when your not.
 
 
Aug 25, 2011
Somewhere between 60-80% of trading now is automated/electronic or computer software algorithms. They trade in milliseconds, they also stuff hundreds of thousands of quotes (bid/ask) through per each second, and cancel them just as fast. This is what led to the flash crash last year. A lot of the trades go through at price diffrerences of .0001, which is not much, but if you are trading millions of times per minute it all adds up.

These guys are now flash trading ETFs and preferred stocks. This is a recipe for disaster and Mary Schapiro just sits around and ignores it. The exchanges do not care because it is a huge revenue stream for them.

This HFT (High Frequency Trading) and quote stuffing should be banned outright. They say oh, but we are providing liquidity - this is bs. The risks and potential problems far outweigh any liquidity that is provided. These traders provide ZERO value to the market while creating a very very dangerous situation for individual investors, pension/retirement funds, and education savings.
 
 
Aug 25, 2011
Hold up. This whole market being gamed against the small/individual investor is a conspiracy theory?

It's always struck me as a foregone conclusion.

The big investment firms make heaps of cash nowadays on trades that occur faster than a human being can react. They make fractions of pennies on the shares they trade around, but due to sheer volume end up making a killing.
 
 
Aug 25, 2011
"If you want to screw the rich, buy stocks in the broad market indexes and just hold them forever. They hate that."

I read a book by Charles Schwab about 10 years ago that said to do that exact same thing. I guess he's been rich enough for long enough, that he doesn't mind giving out the secret to success.

Good book. I highly recommend it: http://www.amazon.com/Charles-Financial-Independence-Completely-ebook/dp/B000XUBE0C/ref=sr_1_3?ie=UTF8&qid=1314287527&sr=8-3
 
 
Aug 25, 2011
I have been thinking exactly the same thing for some time now. It's glaringly obvious. The maths and assumptions known as the Capital Asset Pricing Model that enables this widespread con job (http://en.wikipedia.org/wiki/Capital_asset_pricing_model) has been pushed down finance student's throats for some time.

I believe it should be compulsory for all people who ever save money to read Ben Graham's classic, The Intelligent Investor.
 
 
Aug 25, 2011
The concept of increasing taxes on the rich to be able to pay for more social programs for the poor is a manner of the government telling the rich what to pay their employees. Instead of the rich paying the employees more, so they're less poor, they have to pay the government who in turn distributes (less) money to them. If the rich paid more directly to the employees, then the employees would have more, the rich would have less, and the government would not be looking to tax them more. So, at the risk of higher taxes because they didn't share more money down the chain, they keep the money.

The amounts we're talking about, while they can be sizable to the poor, are not so sizeable to the rich. In essence, they are !$%*!$%* over the little guys over a small part of the market anyway. They must want to go out and hit the pace car (see Days of Thunder).
 
 
+3 Rank Up Rank Down
Aug 25, 2011
Interesting idea, but do the 'little guys' make up a large enough part of the market to make it worthwhile to screw them over? Probably not.
 
 
 
Get the new Dilbert app!
Old Dilbert Blog