Market Commentary, Continued

CNBC’s morning show Wednesday, May 30, 2012, hosted an interview with a man claiming to be in the market as an expert for 43 years. His specific expertise centered on venture capital and investing. His stated concern: the turbulence in the market coupled with the low interest rates makes investing a negative proposition. Never has he seen such a coupling in his career. He worries that there is no way out of this hole. 

I’ll hold my comments for a bit. Just before the 43-year expert was interviewed, Rick Santorelli reported from the options exchange in Chicago and commented on low interest rates. He continued to claim the Federal Reserve is artificially manipulating interest rates to low levels and holding them there. Rick has sounded this alarm many times over the past two years. His comments were a perfect set up for the 43-year veteran venture capitalist. 

In their minds at least, a conspiracy is evidently present in the markets and messing them up. How convenient for them! 

Interest rate markets are low and depressed for one reason: too much money is idle; no one wants to borrow it, at least the ones banks and venture capitalists feel are worthy of managing the risks so their losses are low and controlled. 

This is the open and free market. The market that capitalists and conservatives dream for. It is an open market begging for people to take risks in, and be served by, so that new and better products and services emerge. It doesn’t work very well when the bankers are risk averse. 

In 1999 the White House and Congress agreed (good Lord, how was that possible?!!)  to repeal the Glass-Steagall Act. That removed a number of banking and investment regulations that restricted banking, insurance and investment brokers from comingling or crossing over their industry boundaries. Prior to the 1929 Great Depression and market crash, such practices were allowed and widely understood to have led directly to the financial chaos that followed. 

So, with Glass-Steagall out of the way, the insurance-banking-investment industries began massive mergers and partnered business activities. What happened? The stock market tanked; banks collapsed; insurance companies scrambled to cover the risks they insured, and Congress had to figure out how to save the investment banking firms considered too big to fail or the entire economy would sink into oblivion. Insurance companies (remember AIG?) and retail banks failed. They were bailed out with nearly a trillion dollars federal program. Investment banks and large insurers were also bailed out with special stock options.  

As the economy continued to adjust to the situation and sink, major corporations began to fail and they too were propped up by way of a federal stimulus package. 

No one wanted the government to do this. But no one had a better idea, unless you accept a few egotists in the political realm who spoke boldly of letting the whole thing collapse so we could rebuild a better system. Of course they didn’t understand the system so did not have a program to propose! 

The free market in America is a myth in most instances. Base markets are controlled so that failure does not wipe us all out. And it would if private greed were allowed to run rampant. That’s why there are regulations and oversight functions performed by federal regulators and private industry watchdogs. Those are valuable services performed. They bring rationality to the market and stem baser instincts of greedy individuals.  

Still greed does rule the day often. People manipulate markets so they can make a marginal profit on trades. They do this continually. Some days they win big; other days they lose. Countervailing forces emerge from time to time to frustrate their aims and rationality returns to otherwise heated markets. 

So, Rick Santorelli is debunked. His opinion is just that. Not an analytically rich argument, just one based on emotion and blame. Someone has to be at fault; right? No Rick, if the market is king, no one is at fault; if the market is not king, then someone may very well be manipulating and it ain’t the regulators. They couldn’t agree to work together if the sky were indeed falling! Nor Congress for that matter. They rarely agree except to disagree.

No the inmates of the asylum are in charge here. The Dow Industrials, the Wall Street Journal, the CNBC and FOX news organizations all have a stake in riling public sentiment so they can do what they want. And that spells manipulation. Raise fears. Make a little thing seem huge. Spell doom in anyway they can. So market values are shaken and ripe for price games. Sound familiar? The oil, gold, silver and other rare commodity markets have been marked for fair game for over 100 years. Nothing is as old as this game. 

And the 43-year venture capitalist? He is ready for retirement. He doesn’t seem to understand the new technology, the new trends, the dying of obsolete corporations and products and services as new ones replace them. This is the movement of the market. This is the trend line of every economy since the beginning of time. The new replaces the old. The old values are overshadowed by new values. Obsolescence is a true presence in the market. Always has been. He who guesses correctly, and on time, makes money. He who doesn’t guess right, or has poor timing, loses his shirt. This has been going on for an eternity. 

We live in challenging times. We need true risk capitalists today! We need people who can and will dare to manage risks intelligently. Their work makes new things happen. If they win they do so in huge ways personally. Look at Steve Jobs. Look at Mark Zuckerberg, and Bill Gates. They guessed right. They worked hard. They took risks. They made tons of money. But they also transformed our nation’s culture and business environments. 

Please, the desk anchors on the business channels need a reality check. So do their reporters and so called ‘on-the-scene experts.” And their guests. Else they appear to be Chicken Littles claiming false sightings of fallen skies. The joke is on them now. May they find a productive way to save themselves!   

Meanwhile we can only hope that media moguls will replace these panderers to special interests with people who really do care about facts and truth and dare to report those elements as they appear. Now that’s a public service to wish for! 

June 2, 2012