Wednesday, December 7, 2011

Vested Interests

It's tough being a bear.  First of all people assume bulls and bears are equal.  They are not.  Stocks are a bull's game.  Based on inflation alone, stocks will want to go up just because dollars are worth less in the long run.  This is not the battlefield of olde where two equal armies face off against each other.  This is Vietnam with our heroic American GIs as the bulls and sneaky Communist Charlies as the cowardly bears conducting guerilla warfare. Most successful bears I know disguise themselves as bulls 300 days of the year.  Only when the bulls look tired and vulnerable do the bears show their claws and start fucking shit up.  Biggest profits to the downside come in short spans of time.  Even in the darkest days of 2008, most of the ferocious drops came in three weeks.  The same magnitude in gains took months and years to make.  Or if you want something more cliche: stocks take the stairs up and elevator down.

With that said, I don't think the market will ever drop that much again.  The worst we will get is this seizure inducing wide volatile ranges.   I have no fundamental reason to believe so, but I think there's two major forces at play.

1. Dearth of volume.  Retail buyers just aren't interested in the market anymore   Only players left are the bots, opportunistic shorts (who cover on any retarded rumor coming out of Europe), and institutions, which I will get to in a second.
2. Zero interest rates have forced institutions into equities whether they want to or not.  Everybody wants return on capital.  Real estate has been in the shitter, 10 year treasuries are yielding 2% with inflation at 3%+.  No thanks.  So whether you want to or not, at least a portion of your liquid wealth is in stocks (or commodities), indirectly through institutions.

So if I were the powers that be which is hellbent on preserving stability, the last thing I need is another bona fide stock market crash.  I will do everything in my power to make sure people's paper wealth do not disappear.  Frankly, this is the last pillar of the American Dream; house ownership is dead, so is pulling ourselves up by our bootsraps.  We are now a nation of bailouts and socialized losses.  The only thing left is our precious savings and investments, most of which are perceived to be safely stewarded by iconic financial institutions, whether it's a mutual fund, hedge fund, insurance company portfolio, private equity, or amalgam of government pension plans.  It's how the middle class become upper class, by investing wisely.  So what would happen when all that wealth was shepherded into the stock market and then it goes poof?

My Jam of the Day: