I've been thinking ...

creepycoug said:

HoustonHusky said:

creepycoug said:

dflea said:

It doesn't look broken to me.

Can't we? fix something that doesn't work?

Like Washington football damnit! ???

Does all the derivative trading and bullshit thwart the real price of a stock? Does it contribute to market destabilization? Does it, in the long run, compromise the public's confidence in the capital markets, which is so important?

Was my poast a beautiful waste of tim?

Where are my philosopher kings? @YellowSnow ???

Problem isn’t the derivatives trading and all that other craziness...problem is simply the Fed. Or specifically the Fed printing $$$ to try and act like benevolent overlords thinking the short term meth hit has no long-term consequences. 12 years and still going of heavy meth use isn’t good on a person...or an economy.

Recessions happen...the idea we need 0 or negative interest rates to prevent them is academic stupid, and the side effect of providing an unlimited spigot of cash to the govt with no consequences is as obviously a bad idea as giving a kid a case of fun dip candy and telling him to only eat one package. It won’t happen, and the kid will be bouncing off the walls afterwards hopped up on sugar doing all sorts of stupid things...kinda like the govt now. This is painfully obvious to everyone but the FS “smartest men and women in the room” academics now running things.

Add to that the side effect on the private sector in funding all sorts of FS projects in hopes of getting a return...any return on their money because interest rates are so low and it’s one big fucking mess.

I remember after the 2008 crash there was one economist who was preaching that the Fed should never, ever let interest rates go under 2% and he was roundly ignored and ridiculed.

And he was right.

Surely, though, there is some negative to all the side-bar activity that doesn't constitute real bona fide investing. Getting at it another way, who will lose if it's no longer possible, and what will they lose?

When Clinton was talked into getting Fannie and Freddie all hopped up on speed, it led to a problem, but at least I could say his heart was in the right place by wanting massive amounts of liquidity in the mortgage financing markets. We? ran away with it and tossed underwriting standards to the wind, and got what we got. One of the fixes to all that was always making the underwriting bank hold onto and service a min. % of the loans they originated. You write it, you eat it.

What's the different here?

These issues pop up and blow up all the time...it’s the size of them that is amplified by artificially low interest rates that result in people being able to leverage up to artificially high magnitudes to try and exploit them.

Extremely simplistic and not quite right way to look at it, but say you can afford to pay $1,000 in interest. At 10% interest means you can borrow $10k. At 5% interest it means you can borrow $20k. At 2.5% it goes to $40k... Think of the corollary...would the Federal debt had gotten this out of hand if interest rates were 4% instead of 1%?

The entire basis of the cutting rates theory is that cutting interest rates from 7% to 6% incentives people to investment more, take more risks, etc and structurally that’s true. The eggheads haven’t figured out yet that thinking that relationship holds with no meaningful side effects is FS as you approach zero.

All excellent, foundational questions. I'd expect nothing less from our deep thinking financial guru/dear leader.

It "seems" like a growing problem that I still struggle to fully understand. I think everyone is inherently uncomfortable with a stock market that can be so uncorrelated with the rest of the macroeconomy. That becomes extremely pronounced when something like the GME saga goes mainstream and shows everyone just how fickle the market can be. And all it takes is a legion of retards gathering on a subreddit. Of course, this kind of manipulation has been going on for as long as capital markets have existed. Jim Cramer and all his hedge fund asshole friends have built their fortunes on peddling nonsense to move prices. Tales of the Dutch East and West Indies Companies bullshitting about each others' cargoes with the aim of moving their stock price are common lore. I'm sure our ancient bartering ancestors relied on similar tactics to badmouth their neighbors' crops in order to generate sales.

So while we are in a period of relatively high P/E ratios with an alleged bubble burst somewhere around the corner, none of this is necessarily unprecedented. The market is still an excellent source of capital for companies, and "the fundamentals" still drive and shape the labor market and therefore the lives of the rest of us. I don't think this "peak irrationality" we're seeing really threatens that. Or maybe it does. Maybe the masses now recognize what a sham short-term stock prices actually are and we're entering a new period of unchecked volatility as consumer confidence waxes and wanes with the frequency of husky recruiting (that analogy worked better when the program wasn't a consistent piece of flaming garbage). EWIWBI.

Sources said:

Would be nice just to start with eliminating high frequency trading and sale of counterfeit shares. Absolutely no economic utility in either. Won't happen though.

Don't disagree...would love to see a nominal tax on stock transactions to blow up the HF trading folks. They donate a ton of money to politicians though so it will never happen.

Still think if it ever does the issue will just pop up in some other form...intelligent crooks are amazingly creative folks.