Editorial
The Invisible Hand Strikes Back
Bloomberg has posted an article entitled "Americans Miss $200 Billion [by] Abandoning Stocks" that is presumably supposed to illustrate the folly of avoiding equities but in my view merely illustrates the difficulty of sustaining this meme.
And make no mistake, it IS a meme.
The idea that one can simply buy and hold equities like family heirlooms was always suspect and is more-so now. That's because people simply cannot internalize the reality of a failing economy and a booming stock market. The cognitive dissonance makes them wary.
Thanks to what we call the Internet Reformation, many people are much savvier about how the market works and the way the economy behaves. Such individuals are not apt to assume that the US recession is over just because the mainstream media proclaims it is so. They are nervous and not easily willing to dump large amounts of cash into the stock market.
Who can blame them?
This doesn't stop Bloomberg from launching articles like this one. The idea of course – the dominant social theme if you will – is that investing is frightening but those with a strong stomach can become wealthy if they just "stay the course." Here's more:
Americans have missed out on almost $200 billion of stock gains as they drained money from the market in the past four years, haunted by the financial crisis ...
Assets in equity mutual, exchange-traded and closed-end funds increased about 85 percent to $5.6 trillion since the bull market began in March 2009, trailing the Standard & Poor's 500 Index's 94 percent advance.
The retreat shows that even the biggest gain since 1998 failed to heal investor confidence after the financial collapse that wiped out $11 trillion in U.S. equity value was followed by record price swings in equities, a market breakdown that briefly erased $862 billion in share value and the slowest recovery from a recession since World War II. Individuals are withdrawing money as political leaders struggle to avert budget cuts that threaten to throw the economy into a new slump.
"Our biggest liability in the stock market has been the total destruction to confidence," James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, which oversees about $325 billion, said in a telephone interview. "There's just so much evidence of this recovery broadening." ...
Individuals have also seen evidence that computerized trading is making stock markets less reliable. An equity rout temporarily sent the Dow down almost 1,000 points on May 6, 2010, causing investors to question the stability of market mechanics and the effectiveness of regulators.
Botched IPOs for Facebook Inc. (FB) and Bats Global Markets Inc. earlier this year led to concern about trading and exchange technology, while Knight Capital Group Inc. nearly went out of business in August after it bombarded U.S. equity exchanges with erroneous orders in the wake of improperly installed software that malfunctioned.
"Whether it's the flash crash, the low-growth economy, unemployment, uncertainty about jobs -- those things just don't engender any desire to risk money," Walter "Bucky" Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama, said in a phone interview. "Investors say: The stock market? I don't have a clue as to how it works anymore."
Those who have organized modern equity markets have no one to blame but themselves. While certain stocks (especially small stocks) may offer legitimate promise, the larger marketplace is seen as unreliable. Too much has been passed off as legitimate that is not.
And many investors have internalized the disconnect between the economy and stock market performance. The Federal Reserve's tremendous money printing has boosted stock prices over the past four years, but this has only illustrated the control that the elites exercise over investment activities.
Facebook was the big story of 2012, but its wretched overpricing and downright weird business model had investors scratching their heads. The suspicion that US intelligence agencies had a hand in both the IPO and the company itself didn't help Facebook's cause.
The Flash Crash received a good bit of attention, making investors aware – as they had never been before – of how quickly stock valuations could change. But it's really quantitative easing that is the outstanding issue – the one that Bloomberg chooses to present without properly explaining the mechanism.
There is generally a great deal of talk about how stock markets and stocks themselves are value-oriented investments. But what is clear to many people is how close the market came to a meltdown in 2007-2008. The system proved a good deal more fragile than people have been led to expect.
Couple that with the Fed's ongoing money-printing that has literally doubled equity values and you get increasing resistance to the whole idea of stock investing. First people are frightened by the breakdown of the system itself and then they are exposed to ongoing – "industrial strength" – monetary manipulation.
What do those in the industry expect? What do elites that have built up the modern stock market believe people will do with their money? People "get it" ... and not in a good way. The Age of Promotion is waning in the setting of a waxing monetary expansion that was aided and abetted by mainstream media misdirection for decades. Too bad.
Once the Great Depression hit, people gradually stopped investing in stocks. Even after World War II, there was no appreciable action in US equities. NYSE officials ended up going on road shows in the 1950s to tout the benefits of stocks and stock-market investing.
At the time, the markets were ripe for US stocks. The US dominated the world, which had been mostly destroyed by the war. US industry was ascending and US power was at an all time high. People who invested in stocks were amply rewarded.
That's simply not the case today. US debt is in the tens, even hundreds, of trillions. The dollar itself is increasingly looked upon with suspicion around the world and its reserve status may be in jeopardy.
Perhaps most questionable from an investment standpoint is the money that has already been released by central banks in order to stimulate the economy. Much of this currency remains trapped in bank coffers, but it will circulate eventually.
The circulation of these trillions will cause tremendous price inflation – that will in turn result in significant interest rate hikes. As in the 1970s, these rate hikes will damp the recovery (to put it mildly), and stock prices as well.
I haven't even touched on the so-called fiscal cliff, which I believe will be resolved one way or another without the entirety of its tax-and-spend burden being implemented. But it, too, illustrates just how vulnerable equities are to outside political forces and their potential impact on the economy.
The past five years have shown investors clearly that stocks are NOT the proverbial "sure thing." There are good stocks, of course. There are good investments.
But this Bloomberg article is focusing on the wrong argument. The powers-that-be may wish to encourage stock investing, but reminding people of how far down the markets have traveled, and how extensively they have been manipulated by central bankers is not the way to do it.
The road to recovery for many kinds of equities will be a long and hard one. Even gold and silver stocks will struggle. The problem is that reality has caught up to the promotion. The market itself has struck back.
Of course one can argue, as we do, that the current US stock behavior – and modern downturns – have been in a sense planned by the powers-that-be for a variety of reasons, mostly having to do with impending global governance. But it is also obvious that Money Power seeks a continual "buy in" to the systems it has created and implemented.
This time, people aren't buying. Despite all their power, the elites are still at the mercy of the Invisible Hand and the natural laws that govern us all. It will be nice to watch the Internet Reformation swing the pendulum back in the direction of truth.
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Posted by amanfromMars on 12/29/12 09:29 AM
Is Anonymous, an Invisible Hand Morph in MetaDataBases/Future Information Banks?
And what whenever Autonomy Powers Anonymous Control of Future Information?
How do you deal with Spontaneous Creation with Heavenly Content except Share IT so All is for Free Zero Cost Price ... .. is an Extreme Meme Program at Mission Driver Forward Operating Base Levels/Heights :-)
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Posted by dave jr on 12/29/12 09:36 AM
A healthy financial market grows out of, is dependent on a healthy economy. Not the other way around. Likewise, a sick financial market is the result of a sick economy. Not the other way around. The dog wags the tail. Not the other way around.
The dog is on life support because of heavy government regulation in all areas of production, debased currency and manipulations in foreign exchange rates.
But they know that.
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Posted by bionic mosquito on 12/29/12 10:33 AM
DB: That's because people simply cannot internalize the reality of a failing economy and a booming stock market.
BM: A great insight.
Bloomberg: Americans have missed out on almost $200 billion of stock gains….
BM: A silly notion. Even if Americans stayed invested in the market throughout and captured these electronic digits, what would this have meant? No matter the nominal amount on the balance sheet, not everyone can retire and live off of the productive efforts of others. It takes productive work, not paper gains, to result in goods appearing on the table.
The Fed could easily put this $200 billion into the bank accounts of Americans tomorrow. It doesn't change the fact that too few productive (in positions that would be supported in a free market, producing desired goods and services) cannot support too many non-productive (whether retired, on welfare, working for government, banking, whatever).
It isn't the paper wealth that allows for the purchase of goods and services in the future, it is savings based on true production that allows for the purchase of goods and services in the future. No matter the value of the stock market, and the amount invested therein, too many Americans (as is true for much of the developed world) are living on the dole - government handouts of one form or another -in other words, not producing.
Even if the net worth of Americans was $200 billion larger, it does not change the fact that too few are producing and too many are merely collecting. Denominated in whatever currency you want, with however many zeroes in the number, the formula won't work.
As a not-so-trivial aside, when the present value of unfunded liabilities in the US is estimated to be over $200 trillion, and growing at more than $5 trillion per year, the so-called missing $200 billion would buy Americans about two weeks of this unsustainable lifestyle. What's the point?
The real fallacy is in believing that everyone could retire comfortably in a world where no one has to work to survive and save thanks to government 'safety-nets' and medical benefits.
This is the reality that will come crashing down on many in the West.
Reply from The Daily Bell
"The real fallacy is in believing that everyone could retire comfortably in a world where no one has to work to survive and save thanks to government 'safety-nets' and medical benefits. This is the reality that will come crashing down on many in the West."
... 'Nuff said ...
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Posted by Ol' Grey Ghost on 12/29/12 11:18 AM
It won't heal if you keep picking at it...
Click to view link
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Posted by Don from the Republic of Lakotah on 12/29/12 11:43 AM
The most interesting aspect of this story (to me) occurs during a Bill Sardi analysis that says, "Individual investors in stocks only represent 15% of the trade." Apparently Bloomberg wants to promote greedy stock buying to this 15% so that insiders can take profits before an aging bull market plays out.
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Posted by Bobby7 on 12/29/12 12:23 PM
YO Tony,
Everyone knows about the affects of the Financial meltdown of the past few years, but WHY is it that NO ONE points the finger at the SCUM that created the MELTDOWN?
ROTHSCHILD - SOROS & CO are the SCUM that need to be eliminated from this planet, if we are EVER going to have a chance of success!
People like Obama & CO must also be eliminated!
Reply from The Daily Bell
Careful please Bobby7, we do NOT advocate violence here at The DB. Transformation through education, yes. Violence, no.
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Posted by seer on 12/29/12 12:26 PM
The entire economy is a "confidence" game. For the economy to grow, people Must consume more and more. An economy based on continuous debt expansion, consumer expansion and money expansion is doomed in a world with finite resources. The coming stagflation will result in less consumption of services and probably some resources. The interest rates will remain low as the government cannot afford more interest payments. "Perhaps most questionable from an investment standpoint is the money that has already been released by central banks in order to stimulate the economy. Much of this currency remains trapped in bank coffers, but it will circulate eventually." ??? This also should mention the 4-5 trillion US dollars sitting on the side lines in Corporations. Why expand when you are basically selling fewer items than you produce? Normalcy Bias affects everyone to some degree and none truly believes the sky will fall in the next 24 hours (except a small minority who fall for things like 12/21/12.) The elite will be slow to abandon the system that serves them and will do all they can to keep the game going as long as possible.
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Posted by dave jr on 12/29/12 12:30 PM
"It won't heal if you keep picking at it... "
It won't heal while the thorn causes it to fester.
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Posted by dave jr on 12/29/12 12:38 PM
"The elite will be slow to abandon the system that serves them and will do all they can to keep the game going as long as possible".
Obviously, but in case you let go of the system, they already have a new game. WE would like to know what that is. I personally will not support a social credit system.
Reply from The Daily Bell
Very good, Dave Jr., Seer does indeed post here to promote a National Socialist economy ...
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Posted by earnst on 12/29/12 12:49 PM
Officially the US debt is $16,000,000,000.00, the Fed gave $16,000,000,000.00 to banks to stop the bleeding in the collapse. This is not simply unwise it is criminal yet knowing this we seem powerless to do anything about it. Let them eat stock.
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Posted by goodrum on 12/29/12 01:52 PM
It reminds me of the stories I was feed while growing up... like, buying a home is a good investment. What I found after buying that home was; it was a money pit. All the repairs, updates and maintenance costs. Then the mortgage and insurance payments. On top of that, the constant increasing of property taxes coupled with zoning laws and housing codes changes... that was enough for me to finally say enough. This was not a great investment.
All told after years of money flowing out the door I divested myself of this 'good' investment. The meager gain from the sale was not nearly enough compensation for all the time, money spent and stress incurred during the "pride of ownership" crap I was promised years before.
Lesson learned... only buy things that will put money into your pocket, not the things that you have to continually take money out of your pocket to maintain! So now I only purchase income producing assets and use the moneys these assets through off for housing and of course toys...
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Posted by Don from the Republic of Lakotah on 12/29/12 02:20 PM
"The elite will be slow to abandon the system that serves them and will do all they can to keep the game going as long as possible."
The elite are powerless to stop the invisible hand of America's libertarian zeitgeist. (Laughing at the Tina Brown crowd for my unauthorized use of the z-word.) The greatest thing about awakening from American Dream Time is watching the invisible hand do it's thing, day and night, with or without my blessing. An invisible hand that rolls along far more terribly than an elite zombie meme.
Prediction: both of the elite's dominate political parties will agree to do nothing about this week's fiscal cliff.
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Posted by Ol' Grey Ghost on 12/29/12 02:20 PM
@ dave jr
"It won't heal while the thorn causes it to fester."
Hmmm... I was using the childish practice of picking at scabs as a metaphor for government interference in an economy but if the mechanism of injury is still within the wound, it won't heal either. Different metaphors, same meaning.
When I'm asked by curious people for my estimate of when the U.S. economy will recover I always answer, "In about five years."
"Oh," they respond, "so things will be better in 2017 or 2018?"
"No," I reply, "it will be five years after the majority of the American people realize that government interference 'is the problem and not the solution' and actually do something about it. We have to reach the Zero Hour first before we start counting down."
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Posted by dave jr on 12/29/12 02:22 PM
goodrum,
I am only in my third house, and if you would allow for the income tax break on home mortgare interest, I can honestly say that I have been paid to occupy two houses so far. But those were just lumber. What I have now is a home. I am invested (no debt) in natural resource. It wasn't easy to find, especially in the hot period of the 90's. And now, the deals are everywhere, if you know the difference between value and price. And I'm not even into real-estate. Good luck.
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Posted by 1776 on 12/29/12 02:29 PM
Ron Paul Lecture - "The Great Enabler: The Rise of the Federal Reserve and the Growth of Government"
Click to view link
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Posted by 1776 on 12/29/12 03:20 PM
Walter E Williams - The Free Market Is Not Allowed To Work
Click to view link
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Posted by Abu Aardvark on 12/29/12 03:35 PM
Bobby7 on 12/29/12 12:23 PM wrote: "ROTHSCHILD - SOROS & CO are the SCUM that need to be eliminated from this planet, if we are EVER going to have a chance of success! People like Obama & CO must also be eliminated!"
-------------------------
Players and 'isms' are replaceable, and 'eliminating' people is wrong and self-defeating. Let the parasites live, leave them on their own devices, and 'eliminate' their most important tool - THE STATE - instead.
Leave the state in place and you'll end up with a new set of parasites in short order.
'The danger is not that a particular class is unfit to govern. Every class is unfit to govern.'
(Lord Acton)
In case you'd like to contemplate this ...
"Anatomy of the State" by Murray N. Rothbard
Click to view link
See also (quite new, by the way):
"Obsessed by Megalomania" - Interview with Hans-Hermann Hoppe
Click to view link
"Are Libertarians A Bunch of "Do Nothing" Complainers?" by Chris Rossini
Click to view link
Happy New Year!
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Posted by CelticFire69 on 12/29/12 04:17 PM
Even with a legitimate stock market, which we don't have, many of those "invested" are now cashing out (baby boomers) for retirement. Wall Street and the financial planners way oversold a position and now it is tanking other than fed funny money being thrown at it.
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Posted by Lem on 12/29/12 06:19 PM
Stocks are a bad investment? Wouldn't that include US dollars... which are, in reality, paper certificates which represents the stock of the USA, Inc.? In 1929, the US dollar WAS gold. So logically, stocks crashed relative to gold since the US dollar, which was backed by gold, could not be QE'd into existence back then. Stocks went crazy up during the Weimar inflation and during the peso crisis in Argentina last decade. Those holding cash and especially bonds will be crushed in any inflation. Those holding equities, will see some appreciation as US dollars are printed up quicker than any stock certificates (as the right companies will maintain book value of their assets). It's all relative. The US dollar is a variable denominator and thus a poor measure of value, it is a rubber yardstick. If you're gonna be in stocks, we go for the dividend paying stocks with a decent record of dividend increases year over year (paying much more than US bonds, a sucker's play). Plenty of blue chips fit that. We go for the dividends not capital appreciation. If we do not need income, we go balls deep in gold ad silver.
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Posted by taxesbyanyothername on 12/29/12 07:09 PM
People are not investing in their own companies, so their money has to go somewhere. Government bonds have been the main place to park this money but since there are so many for sale the price has remained low. The cash parked in banks is not the only reason price inflation has been as reasonable as it has been. If looked at correctly the rise in stock prices over the last few years is simply price inflation caused by the fact that people and corporations have to put their money somewhere, and they are too worried to invest in new plant and employees. Even without any more money creation, prices would go skyhigh, if stocks went for their actual worth, and bonds went for their true worth of nothing. Silver would go for more than gold does now. The invisible hand is being restrained by the establishment blindfold. And it isn't even tied on, the fools are holding it up themselves.
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