Page 2 of
2 Prejudice, blame and the US
way By
Julian Delasantellis
economic matters for the general
public, here Stein displays a breathtaking
ignorance of just how financial markets actually
work.
Last Friday, in response to the
worst US employment report in six years, many were
surprised that the US stock markets rallied, the
Dow gaining 93 points. (So far, I have not heard
or read anything about Stein objecting to this
apparent dichotomy.)
Many people are
puzzled when stocks rally on supposed bad news, or
vice versa. These people apparently believe that
the purpose of financial markets traders is to act
as sort of a
tugboat
captain or air traffic
controller for the markets, guiding them into
position until they are in a perfect alignment
with the status of the general economy.
What a lousy way to make money. The
financial trader’s ethic is not to guide the
supertanker into place; it’s to sell short stocks
of the insurance companies who are going to have
to pay for the damage to the businesses on the
shore after the boat crashes. If a financial
trader learns that a 747 filled with gold bullion
bars is off course and about to crash, he’s not
going to go down to the runway with road flares in
an attempt to save it - he’ll go rent every cargo
truck he can get his hands on to carry away the
spilled treasure.
This trader’s dynamic
works in both bull and bear markets, but in bull
markets, nobody seems to object very much. In that
case, the entire 2002-07 bull market was obviously
well justified, self-evidently resultant from the
wise economic stewardship of the Bush
administration, particularly the tax cuts of
2001-03.
Can traders move markets all by
themselves? Of course they can, but only for very
short amounts of time. Intraday fluctuations of US
stock prices are essentially dictated by movements
of stock index futures prices on the Chicago
commodity exchanges, especially the Chicago
Mercantile Exchange’s S&P 500 futures
contract.
At least during the day, this
trading is essentially unregulated; traders,
especially floor traders, regularly enter into
trades with nominal face values many times in
excess of the collateral value they have with the
exchange. This is the dynamic that sets into
motion all those various and sundry "rumors" that
move the markets through the day: a three-point,
15-minute down move in the S&P 500 index
future isn’t going to make you that much money -
unless you just sold a million contracts. That’s
$3 million, earned at the rate of $12 million an
hour. Nice work if you can get it.
But, in
the words of the dour commodity exchange officials
announcing to the Duke brothers (Ralph Bellamy and
Don Ameche) their financial ruination at the
conclusion of 1983’s Trading Places, at the
end of the day, it’s "margin call, gentlemen".
Most traders aren’t allowed to carry these huge
positions overnight, considering the potential
risks of the markets moving radically against them
the next morning. Going home with no net
positions, being "flat", in trader parlance, is
the secret that allows the good ones to sleep
soundly at night.
In that light, you can
see that there must be another dynamic, other than
just wild trader hooliganism, at work here that
explains the continuous selling since early
October.
Stein is right when he observes
the modern-day phenomenon of the huge pools of
capital sloshing around and unbalancing the
world’s markets like unsecured ballast; I made the
same point almost 18 months ago (Hedge funds: Playing dice with the
universe, Asia Times Online, July 6m
2006). But there Stein should look to himself and
his allies rather than to the stars for blame, for
these colossal pools of capital are only the
result of the wave of upper-income-focused tax cut
policies implemented by the capitalist democracies
over the past 30 years. There’s a lot more
investment capital concentrated in a lot fewer
hands these days, and when they all move the same
way, you know it.
It’s easy to look at the
markets’ declines and focus on the sellers. Better
yet, to really understand what’s going on, focus
on the buyers, or, more accurately at present, the
lack of such. Like the dog that didn’t bark in the
Sir Arthur Conan Doyle/Sherlock Holmes story
Silver Blaze, there’s the real story.
Even if you accept the Stein hypothesis
that every day now the world’s equity market
traders are walking into work just itching to
raise Billy Hell with the world economy, the
question then becomes, where is the countervailing
force to stop them? Where are the buyers?
If, as Stein contends, that "traders are
sending stocks down by a fantastically larger
amount than is warranted by a recession or the
losses in subprime", doesn’t it then follow that
other savvy traders should see that the
hyperactive sellers are driving prices below what
the supposedly chipper economic fundamentals
should call for, and bid them back up?
Or
is it the case that a lot of people with the
financial wherewithal to bid the markets back up
are not because with that much of their own money
at stake they know better than to look at the
future prospects of stocks and the economy through
Ben Stein’s ideologically manufactured perennially
deep vermilion-colored glasses?
This
analysis does not posit where stocks will go from
here - maybe up, maybe down. It does say that, at
least for now, the market’s players are looking at
the declines in equity market values since
October, and, knowing what they now know, after
digesting and interpreting all the available
information about the economy and the future
prospects for stock earnings, subprime and the
further darkening credit crises - they’re OK with
stock prices just right about here.
It is
probably just human nature that, when the fates
and fortunes of life turn against us, we seek to
expose the dark alliances of malfeasance so
obviously mindlessly committed to our misfortune.
In the case of Stein, the trader conspiracy seems
to be just one of a multitude of secret insidious
insights that come to him as the demons of his
night - he also believes that the science
education mafia is irrationally preventing the
teaching of intelligent design in America’s
schools. In an upcoming documentary, "Expelled -
No Intelligence Allowed" which Stein narrates, he
posits an unbroken intellectual lineage from
Charles Darwin and evolution to Adolf Hitler and
the Holocaust.
Wouldn’t it be wonderful if
the world so easily accommodated itself to our
preferences, prejudices and perceptions? Sadly,
reality’s harsh dominion seldom allows this.
Still, recent polls indicate that almost 75% of
Americans believe their country is on the wrong
track. Perhaps it was when Americans came to
accept that they only had to believe what they
wanted to believe (the guiding ethic of the
nation's current polarized political combat),
rather than the truth, that the switch onto the
current schedule to nowhere occurred.
Julian Delasantellis is a
management consultant, private investor and
educator in international business in the US state
of Washington. He can be reached at
juliandelasantellis@yahoo.com.
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