WHAT’S WRONG WITH THE MARKET? AND WHAT’S THE ANTIDOTE?

WHAT’S WRONG WITH THE MARKET?

AND WHAT’S THE ANTIDOTE?

“Greed is bad and results in conditions

detrimental to investors” – Jeff Friedberg, 2015

Friedberg Investment Management

“Greed is good” – Gordon Gekko, “Wall

Street”, 1987.

The machines have taken over, generating lots of volume and volatility but providing no liquidity since the driving algorithms are all similar. Benefit to investors? Zero.

Solution – regulators need to levy a transaction tax, perhaps $.001/share, to reduce profitability of HFT.

GREED – HIGH FREQUENCY TRADING


Hedge funds can gang up to force down the value of a company’s stock.

GREED – UNRELENTING SHORT SELLING


Solution – the SEC should reinstitute the uptick rule, which requires that short sales can only be done on an uptick.

GREED – CARRIED INTEREST

Hedge fund managers pay tax at a favorable capital gains rate on fees for managed money even though they have no investment of their own at risk.


Solution – Congress or the IRS needs to change the tax code to disallow this outrageous situation.

GREED – STRUCTURED PRODUCTS

Created by investment banks to pool risky investments along side A-rated securities in packages sold at high fees to retail investors.


This practice nearly crashed the whole financial system when many of the risky securities defaulted in 2008. No individual has been taken to task.

CIRCUMSTANCE – ETFS

ETFs are baskets of stocks which typically have something in common. If some of the stocks in the basket plunge, the whole ETF loses value due to forced selling.


This is perfectly legal and widely accepted. But investors need to be aware that just a few bad apples in the barrel can spoil the whole basket. Example – high yield energy.

OTHER STUFF

GREED – OBAMACARE

Malpractice insurance is very expensive for docs. One of the most obvious improvements to medical care in the US would be tort reform.


Plaintiffs lawyers have a very strong influence on Congresspersons, many of whom are lawyers. Too bad.

GREED – POLITICAL OFFICE

“Power tends to corrupt, and absolute power corrupts absolutely”, Lord Acton, 1887. It is very difficult for a challenger to unseat a sitting congressperson.


Solution – term limits, like 2 terms for the Senate and 5 for the House. Congresspersons could run again after some time out of DC.

MIDDLE CLASS WAGES

In this tepid economy they are stagnating, exacerbating the divergence between the fortunes of the wealthy and the middle class.


Solution – lower FICA, a tax on wages, and raise taxes on gasoline by a similar amount. There is no reason that Social Security needs to be funded by a tax on wages.

CONGRESSIONAL GRIDLOCK

Too many left wing Democrats and right wing Republicans in Congress. Very difficult to reach compromise for any legislation.


Solution – redistricting. Political gerrymandering has made it difficult for moderates of either party to be elected to Congress. Political greed prevents this.

OUTLOOK FOR THE MARKET

Economy

Oil

Profit Margins

Interest Rates

Valuations

Stocks

“It’s not a stock market. It’s a market of stocks”– anonymous

Q & A

Documents

WHAT’S WRONG WITH THE MARKET? AND WHAT’S THE ANTIDOTE?