Too Few Of Us Have Been Saying How Really Unfair It Is, When It Comes To Money And Capital Markets

I wrote this piece as the wrap-up for the previous Week In Review, but I’d like to publish it separately here. Eventually the message will sink into the heads of elected representatives to government. If you think Town Hall meetings over Healthcare are becoming nasty, and they are, I believe there is just as much dissent among the majority of the largest individual taxpayers over the unfair operation and regulation of US capital markets. This, then, is the nub of it.

There is a saying that crisis equals opportunity. I believe that, but only in a transparent world with a level playing field. Increasingly over the past generation or two, the drivers of share prices are manufactured by Interventionist policies that have nothing to do with trading prices with the objective of discovering value and growing one’s portfolio wealth, nor with Humungous Bank & Broker (HB&B) people who manufacture and hype stories to cause more trading than necessary only for their proprietary traders to take advantage of the client order flow and the mistakes that less resourceful traders continuously make.

The capital markets have always been a war zone fought by Bulls and Bears, each believing themselves to be on the right side of the trades. But markets today have changed. All day long, all we independent traders hear about is talk of Big Brother and Humungous Bank & Broker, and of course Goldman Sachs (NYSE:GS), which seems to be dominant in both, today.

We hear such talk because it is based on truth, perhaps not all of it, but enough to cause fair-minded people to sit back and say that things must change. The facts are that it is not the market’s job to support the $USD vs the Euro. It’s also not fair that our orders in the market are processed by traders who use that knowledge to trade against us, and we have no knowledge of their orders, just like we have no knowledge of the government’s orders like they do. It is really not fair that those traders use our capital to trade against us, and we have no access to their capital, so they don’t take the risk we do. Clearly, none of this is fair and yet our elected representatives condone it, and continue to put in place mechanisms to ensure the status quo.

Wouldn’t it be nice if this were baseball, where we could boo and throw their home run balls back onto the field of play to show our disgust, and aim our pitches appropriately after particularly offensive play by their team? But you know even that game would hardly be fair; they’d be using steroids, corked bats and juiced balls to their advantage and their umpires would be tossing us out of the game for trying to do the same.

Nobody ever said life was fair; but then until recently too few of us have been saying how really unfair it is, particularly when it comes to money and capital markets. We need to spread the word that we’re mad as hell and not going to re-elect persons who support the other team, and do nothing to level the playing field.

I’m saying all of this now because in a month or two, I believe, we are going to be hearing screaming from people on our team who have been cleaned out - jobs, homes, pensions, and, next to come, investment portfolios. All it will take is one more crash in the equity market.

To stave that crisis, I think we would have to see much higher commodity prices, whether the $USD falls or not, and more earnings from corporate restructurings. To keep the $USD from falling too far amidst higher commodity prices, there would have to be higher interest rates. That would put more pressure on the REITs, financial lenders, mortgage rates, foreclosures, and generally the economy. That’s the bind the Fed and Administration have gotten into. For the source of that problem of course I look back to Paulson and Bernanke and the people in the Administration who put the muzzle on the SEC chairman in recent years.

The public mindset is changing slowly - admittedly slower than the people in this community want - but nevertheless there is a change underway, I feel. Because money talks, and the Interventionists and bankers have the money, it may take years to change the process, but it is happening. Even though it might be a couple years out, I do see a return to normality.

It’s tiring, it’s boring; but we must keep up the fight for free capital markets and social equity.

Have a great weekend. The weather here in Nassau today is spectacular, so you can find me at the beach in front of Sandals.

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