It seems these
days the question for every stock market pundit is “what will make
the common man feel safe again about investing in the stock market?”
Sadly, every government intervening solution they propose completely
misses the mark. The simple answer is: nothing. Do nothing
and people might start investing again. I can’t speak for
all people, but I am certainly a common person. I do
not have a ton of money to invest. I have a small IRA that
now will not get me through 4 months of retirement let alone get
me through my golden years. Yet, through my IRA I was invested
in the stock market, although now it is mostly in cash. (I must
make a small disclosure here. My name is not Joe and I am
not a plumber.)
I admit I am
not a sophisticated investor. I am just an average
person. But this average person sees that the government is
playing favorites and unless you know who are on their “special”
list then you have no way of knowing how to invest. If you
see a housing market slowing, you can make a decision based on that
information, but what do you do when the government decides one
day that the housing market cannot slow: You lose your shirt
because all your investments just fell through the floor.
If any of these
pundits would bother to ask me what it would take for me to reinvest
my money in the stock market I would be happy to tell them.
There is no amount of government intervention that can get me to
“trust” the market again. The reason I do not trust the
market is because of the government intervention.
How can I enter into a contract with any company when the government
can come along and undo that contract or do something that makes
that move foolish? I cannot play in a game where the rules
change hourly. If I short the financial market and the
government can come along and hand one trillion dollars to that
sector I lose my pants. If I buy one pharmaceutical company
thinking that they will do well because they are a stable company
making a good product, I will be in trouble when the competitor
of that company gets a huge check handed to them by the government
because they are too large to fail. If I buy one soft drink,
what happens when the Secretary of the Treasury decides he likes
another brand better and hands them some of my hard-earned cash?
is crazy and volatile right now because the government
is trying to create stability. The worst part is, I do not
think that there is anything that can be done at this point to make
me want to test the waters again. Even if the government magically
took back all the money they handed to a few companies, I couldn't
trust that they would not jump in again.
stock market is all about predicting the future based on what you
think people are apt to do in a given situation. However,
when someone can come in and hand out checks willy-nilly, then all
that predicting is worthless. You can’t know what situation
you are actually in anymore. You may think that extravagant
purchases would go down in a recession, but what if the government
decides that everyone must own a Ferrari? You can bet your
stock in Kia will drop dramatically as soon as the word gets out.
What if I invest in gold and the government decides, again, that
people should not own gold and then confiscates all the gold I have?
Until the government
gets out of the way and lets the free market be free, then investing
in the stock market becomes simply a quest of trying to decide what
the government will do next. Unfortunately, the government
is a lot more irrational than the general populace and its politicians
have agendas we can never know about. I can make a prediction
about human action; I have no idea what the government will do next.
Sadly, I do
not believe the government will ever get out of the stock market.
Historically, politicians are loathe to give up power they managed
to steal. Indeed, it is my hunch that from here on out, whenever
a sector starts to dip below “acceptable” levels, they too will
have their hand out and the government foxes will be only too happy
to guard the sector’s hen house. Since I have no idea what
is considered “acceptable” I cannot predict a thing from here on
out — except that I will not be able to predict a thing from here
have the ability to force the government to steal money from the
people to give to them if they fail, you get businesses that are
incredibly risky. After all, what benefit do you have of being
a carefully well-run company? If you gamble and lose very,
very big you get your money back, if you win, you win very, very
big. If you do not gamble and are careful, you will fall far
behind. Who wants to gamble on companies that have the incentive
to be reckless? Should I now look for the worst-run companies
with terrible, corrupt directors? Even that will not work
unless you know which of those companies has the most political
connections: Apparently Lehman Brothers was not well connected.
You want to
know what it will take to get me back into the stock market? Nothing.
Hamilton [send her mail]
is a retired attorney.