The Stock Market – Easily Manipulated

P.J. O’Rourke is a funny and creative writer. His fabulous book titled None of My Business attempts to explain how money and the stock market work. To be honest, the book didn’t teach me anything new but it’s humorous and enlightening.

Stock market trading profoundly changed when “regular” Joes and Janes were given access to computers, powerful financial analytical software and the internet. I started dabbling back in the late 80s with the dream of making a bunch of money. After signing up with Charles Schwab, getting their software installed on my Compaq computer and connecting to their server, I was good to go. I worked the software like a video game, buying the stock of businesses I understood such as broadcast and software service companies and realized some gains along the way.

Six months in, I met with my financial guy, old what’s his name at Schwab, and had to face the substantial number of transaction fees I racked up. At that time, each trade cost me $30. My guy asked why I was trading so much and I replied, “It’s fun.”

Something happened yesterday that should make us all a bit nervous, especially those with money in the market. On the same day that Apple reported that all of their product lines were up to the tune of $100 billion in sales, a quake coming from the online chat service named Reddit rocked the investment establishment.

Reddit was founded by Alexis Ohanian, yes, the guy who married Serena Williams. He’s long been a bastion of free speech and “open” information exchange. According to CNBC, “Mr. Ohanian, who resigned from Reddit’s board in June and urged for a Black director to replace him, said the GameStop short-squeeze that was instigated in recent weeks — pushing the video-game retailer’s stock up nearly 2,000% this month alone — shows the disruptive nature of the internet.” How could a company explode that quickly in such a short period of time? Look to the actions of a group of people who, in another time and place, would probably be hackers and protesters.

Most likely weaned on the movie lizard Gordon Gekko who told us that “greed is good,” these amateur traders want to stick it to the man. The New York Times said it best, “Propelled by a mix of greed and boredom, gleefully determined to teach Wall Street a lesson, and turbocharged by an endless flow of get-rich-quick hype and ideas delivered via social media, these investors have piled into trades around several companies, pushing their stock prices to stratospheric levels.” In fact, several GameStop investors became billionaires in one day. WTF?

These scoundrels have run up the value of GameStop, a marginal company, because they have ganged together to control investing and the timeline to reap profits by selling when the stock value crests. It should be against the law.

Then, just when I think I know what I am talking about regarding the stock market, I get an opposite opinion from a friend, “I do not share your view on this, at all. The ‘whiz kids’ of Wall Street are playing the very same game of the ’established investors’ who work their subterfuge in plush corner offices using far more subtle, and perhaps undetectable, ways. The result is exactly the same for each group, wealth acquired by manipulation. The real problem is a lack of control to prevent devious strategies.”

My friend didn’t stop there. “Yes, we have the Securities and Exchange Commission, but I think they’re in bed with the stock market establishment. If that wasn’t the case, I’m sure they could implement a bulletproof mechanism to detect and prevent exploitation. I am more aligned with the whizzers, showing us all that the system is vulnerable to control by a few.  Their transparent behavior is unsettling only because it brings into the light what has been happening in the dark for decades.  It’s a seriously flawed, perhaps corrupt, system.” Well, that certainly does fit into my previous statement that much of the Stock Market is a giant electronic Ponzi scheme.

Are the internet and the way people use mass communication platforms for evil intentions the bigger villains in this story? These rebellious investors are raising their middle fingers at authority, marching to the opening bell while waving flags of disruption and discord. How can we guard against the insane behavior of these Wall Street “whiz kids?” Should we close the internet?

I applauded Facebook when they stopped political advertising the month before the election because it impeded misinformation getting to the public. Most voters had already made up their minds by then, and 81 million people told us they wanted a change. The economy of the United States is not the stock market, but the symbiotic relationship is apparent. People tend to spend the money they make selling stocks. When they use their gains to buy things the whole boat rises with the tide, but the harsh reality is Joe the Plumber doesn’t make more money.

The Next Day

The Securities and Exchange Commission was created after the 1920s stock market crash. It’s supposed to protect investors and the national banking system without thwarting or manipulating the natural market fluctuations. The market is a tool for the people, like the Federal Reserve adjusting interest rates and effecting institutional corrections that become necessary at times. Without knowing the accurate picture of our economy, we are at the mercy of a bunch of day traders at the bar.

Amateur investors chatting up a storm on Reddit and creating stock market waves shift our attention away from legitimate investments into new companies needing dollars to bring their great products to market. Things will calm down when the stock market imposes control over these rouge traders and suspends disruptive trading. After the market took a few minor steps, the Dow Jones went back up; nothing to see here, move along.

It’s time for Elizabeth Warren and people like her who understand how all this works to roll up their sleeves and figure it out. Maybe my friend is right. It could be those assholes on Reddit showed the man behind the curtain is not really controlling anything, but it’s too important to give the wolves more time in the henhouse. Someone has to clean up the feathers. Gee, maybe we could use them to start a pillow business.

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