Saturday, August 2, 2008

Stock Market Con Game

The stock market is the biggest con game on the planet.

As of this week, the stock market (S&P 500) is at the same level it was 10 years ago. That means even cash bank deposits yielding 1% have outperformed the market.

They call it the "secondary market" for a reason, the stock market exists to allow company insiders to sell their shares to the general public. That money you've been plowing into your 401k these past 10 years? That was used to buy shares from insiders who have taken hundreds of billions of dollars out of the market in the past 10 years, while your money has gone nowhere. The common man has been brain washed into a "buy and hold" strategy by Wall Street who need a steady supply of suckers to buy out the insiders. And when I say "insiders" I include those in "buy side" firms such as Hedge Funds who get their information from investment banks long before the public ever hears about it. Reg. FD (Full Disclosure) is a total joke that only washed out a handful of the really bad traders. The fact that hedge funds routinely pay commissions well above what I pay as a measly retail "Active Trader" is all you need to know that the insider trading game is alive and well i.e. inflated commissions are "payment in kind" - thank you very much.

Meet the Country Club
The stock market is just another Ponzi scheme based on cheap and easy growth at all cost. The CEOs of major companies are vastly overpaid and have little or no accountability. After Enron, we were told things would get better, but things have only gotten much worse as Bush & Co. basically neutered the SEC the day they (Bush & Co) took office. Just look at examples such as Charles Prince whose company (Citigroup) lost ~$18 billion which got him fired with a "modest" $42m in severance (see this article from USA Hooray) - poor fella. Similarly at Merrill Lynch, writedowns there have totalled some $19+ billion dollars (to date), as Merrill Lynch just took down another $5 billion in losses this week. Yet last fall, CEO Stan O'Neal was "let go" and given a "mere" $160m in severance for doing such a bad job. These guys are all part of the global country club - this is a cohort of Poser CEOs who made their way to the top not through entrepreneurship or innovation, but strictly through their country club and frat boy connections. George W. is the quintessential example of a guy with zero talent who just bullshitted his way to the top. Every major company in America is now riddled with these pretenders, and this past 8 years has given them the perfect venue in which to succeed at their con game. Their methods are largely all the same, take an existing business and leverage it up to the maximum extent possible, temporarily manipulate the stock price higher based on ephemeral and inflated earnings, cash out, and then walk away, leaving the general public as the bag holder.

If you still have money in the stock market, then I highly recommend you make an honest assessment as to YOUR role in this cash out scheme, and adjust accordingly. Those who would tell you that the stock market outperforms less risky asset classes over the long-term, left out some important details. For example, after the 1929 market peak, the Dow lost 90% of its value in 3 years and then took 25 years to get back to the 1929 peak. If you are planning to retire sometime in the next 10-20 years, ask yourself if you can take that kind of pain. I know I can't. And don't kid yourself that it can't happen again. The current lineup of morons running this show (economy) are the least competent group of policymakers since the founding of the Republic. They are the Country Club Idiocracy and you are their meal ticket.