Thursday, January 27, 2011

Whither Goest Thou, oh Stock Market Religion of the US of A?

Here are some interesting tidbits from the Canadian Mcleans magazine article entitled "The Stock Market is for Suckers" by Jason Kirby...
Now there are signs some institutional investors, such as pension funds, are giving up on equities and buying alternative assets like bridges and toll roads instead. No wonder American companies like Facebook are avoiding the hoi polloi of traditional stock markets in favour of raising capital from private, rich investors. “The idea of the stock market was to help businesses raise capital, and to provide people, individuals, with a chance to invest their savings and participate in that growth and have enough money to retire,” says Peter Cohan, president of Peter S. Cohan and Associates, a venture capital and management consulting firm in Marlborough, Mass. “But in the last decade the whole thing seems to have fallen apart.” Where the market once helped investors and companies, now it’s failing both.
And this bit:
Perhaps billionaire Mark Cuban, who made his money off the Internet bubble of the late 1990s and now owns the Dallas Mavericks basketball team, has put it best on his blog and in interviews. “The stock market,” he says, “is for suckers.”
And this:
Were it not for the source and recipients of the email—From: Goldman Sachs, To: Our most outrageously rich clients—it would have read like one of those Nigerian investment scams that slip through spam filters now and then. “When you have a chance I wanted to find a time to discuss a highly confidential and time-sensitive investment opportunity,” the secretive missive began. But this was clearly no shady dispatch from Lagos. What investment bank Goldman Sachs offered by way of the emails, sent out to thousands of its most valuable high-net-worth clients in early January, was the chance for them to buy a piece of the hottest company in America: Facebook.
I don't believe a word of this "the stock market is so over, the future is in pixie dust and fairy wings" stuff. This is simply the age old hype that "investing" is in collectibles and other arcana. Nope. Investing is in the grubby world of business. The world of building, moving, exchanging grungy stuff for money. All the hoopla stuff is just froth and entertainment. But it is fun to read!

The article does raise points that are well worth contemplating:
It’s important to remember why regulators have felt compelled to layer on so many rules. Over the last 40 years there’s been a radical reshaping of the investment world as retail investors rushed into the market. Since the late 1970s American investors have gone from having less than US$100 billion (adjusted for inflation) tied up in equity mutual funds to a staggering US$12.6 trillion in 2007. Where in 1980 fewer than six per cent of households invested, now roughly half do. Analysts have hailed this as the “democratization of finance.” As more people took control of their own retirements, it was generally seen as a good thing for American society. But with last decade’s back-to-back crashes, leaving the market where it was 11 years ago, that also means the pain was democratized, too. Panicked politicians reacted by passing new laws. Now it seems the very rules established to keep regular investors safe may actually shut them out from participating in the growth of many of America’s fastest-growing companies.

But there’s even more to the market dysfunction hurting investors and companies.

In 2004, at the age of 92, the late Sir John Templeton, a pioneer in the world of mutual funds, issued a stark warning to investors. “The stock market is broken,” he said in an interview. He went on to predict the housing bubble would spark the sort of terrible market crash we witnessed four years later. But Templeton saw a bigger problem than just the bubble then emerging. Stock markets are now dangerously short-sighted. “Mass media, especially TV today, is so short-term that few in its audience grasp the lasting damage and corrective impact which will continue to linger from the greatest financial crash in world history,” he said. In the wake of that very crash, short-term thinking is as much a problem as ever before.
But don't throw the baby out with the bath water. Markets are corrupt. They always have been. The answer is not to flee them but to push back against the right wing nuts who yelled "deregulate, deregulate, deregulate". The market is full of thieves. The solution is to put the cop back on the beat. There needs to be a cop on every corner to force the thieves back underground. The political left has to face down the idiocy of the political right and regain the high ground in the government, the market, and the economy. That's the only way that the future will be pulled out of the gutter and put back on a pedestal.

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