I was interested yesterday to see pundit Ben Stein on the Sunday talkies, confirming one of my suspicions about last week's market gyrations. He may have burst upon the scene as Ferris Bueller's boring teacher ( "? anyone? ? Bueller?), but he's long since established a reputation as a solid conservative economics commentator. I've also read Michael Lewis' Flash Boys, so I know a dangerous little bit about high-speed trading and the huge advantages of being milli-seconds faster in the digital stock trading marketplace.
In Stein's view, last week's crash was not precipitated by China's economic tribulations, or the Fed's plans regarding interest rates, or any other actual, fundamental factor related to the world economy. Those may be matters of longer term concern, but here they were just make-weights. Instead, Stein claims that last Monday's thousand-point plummet was caused by more sinister factors -- the Fed and China providing colorable excuses for the major players to program "Sell!" orders into their processes ? trades that were made at the top of the market. They were enough to set-off a massive tumble, as panicky commoners divested as soon as they could, but not soon enough.
Then what happened? After an adequately precipitous fall in the morning (a thousand points is a good, round number), the "Buy" orders returned in the afternoon. Thus, the Big Boys replenished their accounts for roughly 7% less on-average in the Dow, and watched as the index rocketed back up to near pre made-up-crisis levels. Now, 7% may not seem like much, unless you make it with next-to-no-risk, and in a matter of a few days. In dollar terms, that's a mere $2 Trillion, with a "T," that disappeared into the coffers of the institutional traders.
As always for those who choose to play in that casino, ordinary gamblers who stood 'pat' didn't lose much, other than the time they may have frittered on media frets that all these gyrations were somehow real. In the long run after all, the serfs can avoid starvation, as long as they adequately stock the ample larder of their liege. Their plodding returns are real, based on actual economic performance differentials and sound business management.
Only very occasionally, as in the bubble-driven crisis of 2008, is such a crash 'real' ? albeit precipitated by the banksters' non-value-adding default-swap machinations. And even then, the domestic market and economy have rebounded remarkably from that plunge (thanks, Obama).
But if Stein is right, the finance titans caused and profited handsomely from last week's events ? and for what? Was any value added? No, it was pure speculation, a lucky roll of the dice ? except these dice were loaded for the hedge funds and other high rollers who alone can buy-and-sell at warp speed.
Now, as I said above, I know only a little of what there is to be known about this stuff; I prefer my investments to be more tangible, where I have at least the illusion that I'm in some semblance of control. But if ol' Ben and I are right, here was an example in which a metric (well, you know)-trillion dollars was transferred from ordinary investors to the crusty uppers ? almost overnight, and without merit. And if we're right, why do we the sheeple consent to being continually fleeced?
So, ye readers who know much more about this stuff than I: are Ben and I right, or just paranoid (or both)? If the former, why is nobody writing about it ? resorting instead to those bogus, long-term macro-economic explanations of a blindingly short-term phenomenon? Is it obvious, in a welcome-to-the-party kind of way? And if not, what is it?
Anyone ? Bueller?