Occupy For A New Idea

(Ed. Note:  Sorry we haven’t written earlier, sometimes work intrudes on the spare time.  We’ll be better about that whole work-life balance thing.)

Around the world, various cities have seen the rising up of a new type of protest:  The Occupy Protest.  Generally peaceful, the Occupy movement is, as best we can tell, a loosely knit grouping of various groups with an aim of raising some ruckus regarding financial inequality globally.  Since these are loosely knit groups, there tends to be side protests regarding globalization, environmental issues, human rights, political restructuring, hockey violence, peanut allergies, democratization of Syria and the repeal of Daylight Savings Time.

This isn’t to say that the wider objectives are not sensible.  The rich are getting richer while the poor and middle-class are heading over the cliff to be dashed on the rocks below.  That is a given, in that we’re building a societal iceberg:  If you’re rich enough, economic woes don’t affect you much.  The rest of us can lose our incomes on the capricious whim of some investment arbitrageur in Belgium that decides our pensions are too expensive for the company, or that our national currency is overvalued. 

We’ve written before about the global economic system.  It’s pooched.  The whole investment industry is built on insider trading, which is technically illegal, but goes on every hour of the market day.  Simple proof?  What is a “whispered” number?  It is a stock analyst and/or corporate chieftain’s informal assessment of how well or how poorly a company will do this quarter, released before the actual legal reporting.  If a stock makes its whispered number (or street number or cred number), then the analyst looks like he or she has the inside track, or the CEO has already seen the books and wants to pump the stock price.

Research In Motion, the Blackberry folks, took a beating over the past week. Their email and messaging system took a Cleveland steamer because someone didn’t test a patch applied to their servers, which made the system puke, worldwide, for three days. What happened to their stock price? 

According to the capitalist theory, if a company does something dumb, their share price should go down to reflect their dumbness. In reality, what happens is that bottom feeder brokers see a company in trouble, (Their products suck today) they buy up a lot of shares in the hopes that when RIM fixes their little problem, the share price would jump a few bucks on good news and the ambulance chasers would make some money.

Simultaneously other folks look at RIM, see a network outage, figure the entire company is teetering on the verge of cratering and sell everything they’ve got in RIM to the ambulance chasers.

That causes “action” in the stock, while another subset of buyers come in to buy any busy stock, the thought being someone knows something, (why else would there be so much action?) and if they have a position in an active company, they might make some money either buying or selling. Then the folks who bet against any trend step in and sell off or buy up.  More action, more speculation on nothing more than graphs and a network outage.

To close the circle, RIM was trading around $22 a share before their network freckled the bowl. They’re now trading at $24 (and were at nearly $26 during the outage) give or take, meaning they were rewarded for being stupid. A complete abnegation of the theory, almost all attributable to stock churn for no good reason other than a perception that on Wednesday, Thursday and Friday of last week, RIM sucked.

Essentially, the whole system is based on rumours, insider knowledge and speculation on speculation, with a fine mist of hedging sprayed on top.  The whole game isn’t set up to invest in businesses and countries:  It’s set up to churn stocks, trading as much as possible, as many times as possible, on the slightest tick of valuation change.  The only folks who make money on this kind of millisecond madness are the stock brokers.  They always get their commission, good news, bad news, rumours, fear-mongering, hemlines, or sun spots.  Funny that…

In the ancient days of a dozen years ago, one bought stocks because one wanted to invest in a company for the long term, knowing that over the expected ups and downs, the business you were investing in would improve, making you money.  Timelines were measured in months and years.  Buying HP, GM or GE meant that you had some reasonable assurance that over the long term you would make some reasonable coin and could retire in relative comfort.

Now, trading is almost fully algorithmically derived, automated and based on millisecond clock ticks.  This is not some pit man signalling he wants to buy 1000 futures on Frozen Concentrated Orange Juice (FCOJ) and another pit man taking the order.  Trading has become well-written sets of computerized trading rules that the Big Boys use to simultaneously buy, hedge and sell their holdings several times a second.      

We have a simple suggestion to reform a lot of the investment industry.  A 24-hour hold on any transaction:  You can’t buy or sell any instrument more than once in any given 24 hour span. 

This puts an instantaneous end to churning stocks by the millisecond, causing prices to wobble erratically.  A company can know, at least for 24 hours, what they’re worth in the opinion of ‘the stock market’ and plan accordingly. 

A second benefit of the 24-hour rule would be that stock brokers would have to actually have knowledge and business acumen making recommendations on tangible facts of a substantive nature.  They can’t churn their bouncing dead cats on whispers and rumours.

As for the Occupy folks?  Agreed, the system is rigged.  Now, put on your thinking toques and come up with an alternative to capitalism that works for the majority of humankind. 

Just remember that in Capitalism, Man exploits Man.  In Socialism, the Reverse is True.