Tr*mp Slump?

Many are saying that the "problem" that caused the recent slip in stock prices is a tight labor market, leading to rising wages: corporations actually might have to spend more on labor, leaving less for dividends and executive bonuses.  Inflation, of course, will eat up wage increases, just as it's been doing since the 1970s.  Real wages will stay flat.

Have no fear, plutocrats!  You'll have plenty of money from the new tax code to resume your stock buybacks and top-level compensation increases.  There will be inflation and higher interest costs, though, thanks to that same tax legislation.  Adding an economic stimulus to an economy already experiencing steady growth and low unemployment guarantees more inflation.  On the bright side, you'll pay your higher labor costs with cheaper dollars.

The Fed has plenty of room to raise interest rates, of course, and plenty of motivation to do so.  Rates have to be increased significantly, so they can be dropped again as stimulus when the next recession arrives.  Other factors, including the irrelevance of the labor movement and the absence of any real competition among our corporate giants, make a wage-price spiral unlikely.

So what caused the slip in stock prices?  Sorry, but it wasn't Trump — no more than it was Tr*mp who created the bull market.  It's just that those computer algorithms that control a large majority of today's stock trades still are inclined to overreact to factors that human beings just don't notice.  Program trading brought us the bull market, and it's the most likely suspect when things get weird.

You can stop looking for the man behind the curtain, Dorothy — he's gone.

Market Failure

It is becoming increasingly clear there are only three ways to make money in the stock market. The first is to get lucky — which is to say turn up on the winning side of pure chance. The second is to ride a bubble — although those who ride bubbles seldom disembark in time to preserve their gains. The third is to have access to insider information.

It's that third one, recently gaining a bit more notice by the SEC, that deserves a closer look by all the rest of us. Free market ideologues like to believe that the price system provides us with all the information we need; but, when you stop to think about it, the price of a share of stock tells us very little about the true value of a company — nor about what that value might be a year, a month, a week, a day, or even a few nanoseconds in the future. Corporate executives are very adept at disguising weaknesses and exaggerating strengths. It takes time — often quite a bit of time — for truths to become public.

Market systems only can be efficient if there is a free flow of information, and a paucity of information inevitably leads to market failure. There is not now, nor has there ever been, a free flow of information — and in these days of multinational mega-corporations, the problem is worse than ever. Show me a hedge fund manager who is consistently successful and I'll show you a hedge fund manager who either embodies the unlikely fat tail of investment good fortune and soon will crash and burn, or — far more likely — receives information before the rest of us do. (By the way, the longer a "lucky streak" lasts, the less statistically likely it is that the streak is based on luck. True, unlikely things happen all the time — a very few people win two or even three big-money lotteries — but they don't do it nearly every year, year after year.)

The best investors of other people's money (with nifty personal gains when they succeed) like to claim they "study" the companies they recommend. Well, intensive study of public information might shift the odds a little bit — but the really big gains depend less on "study" than on a crib sheet. The rich and powerful, often sitting on the boards of multiple corporations while serving as executives of others, inevitably are going to "talk amongst themselves." Yes, one might call it "idle conversations about items of mutual interest," but insider trading is a much more apt description.

For those who might have wondered about my reference, above, to nanoseconds, let me explain. When a high-speed trading program, based in a supercomputer practically next door to the computers on which modern trading takes place, get information about buy and sell orders a few nanoseconds sooner than computers a few more blocks away, and minutes ahead of mere mortals, those computers are harvesting insider information. They can analyze it and act on it well before it becomes genuinely public.

The SEC has one hell of a job to do. I sincerely hope it's up to it.

Volatility

Up, down, up, down, up.

My usual advice regarding the stock market: ignore it. The bitter truth about the stock market is that is has virtually nothing to do with the real economy of people trying to earn a living so as to keep food on the table and a roof over their heads. The markets may affect the sales of Louis Vuitton accessories and all the crap indispensable for accessorizing those accessories, but sales of rice, beans, and gasoline will stay fairly constant.

Granted, it's hard to ignore the market if you're trying to eke out the final few years of your life of thankless labor on the proceeds of a 401k — but equally needless to say, anything you try to do now will be much too little, much too late.

Forget the "confidence fairy." Forget all the conjecture about the impact of this, that, or the other barf-out of the latest "economic data." It doesn't take an economist to figure out that things are, in a manner of speaking, fucked up — and you don't have to be an economist to recognize that your personal investment in the stock market amounts to chicken shit by comparison with the investments of banks, hedge funds, and similar corporate straw men for the plutocrats.

And, no, it NEVER "trickles down."

So what's with the volatility? Okay, there are assholes out there trading for their own accounts, and some of them must be dumb enough to panic when others seem to be panicky and to buy high in bursts of irrational enthusiasm only to see their investments droop like a certain national leader's limp dick. How much can that explain, though, when a great majority of the buying and selling is institutional, and when most of that institutional buying and selling is program trading?

Who has the best algorithm today? Who is the fewest microseconds distant from today's Biggest Board? I'm just guessing that it's not your retirement fund, so how you're doing amounts, pretty much, to pure chance. Just bear in mind, though, that there's a great deal of money to be made in volatile markets — and that somebody is making it.