Leeches on Steroids
Shares were bought and sold for a price. That price was determined by how good the company was, what profit it was making, how much money it had in the bank, what assets it owned and what its plans were for the future in order to sustain itself and or prosper further.
Pretty much like how the personal health, intelligence and wealth of a person, would determine where they live their lives in this world.
So, in the world of the stock market, if all or some of the above increased ie the company profits, assets and or money in the bank, naturally, the share price would increase. If any of the above decreased, naturally the share price would go down.
Money was hard earned and did not come easy in the past, so share trading or participation in the stock market remained predominantly in the domain of the wealthy.
With the growth in world population, the invention of lightning fast technology, the easy availability of credit to leverage, the focus became on the sizzle and not the sausage. Stories spread of huge profits made, not by any company, but by participants in the mere buying and selling of the same share, spread and with plenty of easy credit, the volume of new buyers increased. More buyers for the same product would only naturally increase the price of the product.
Credit, as with anything that came easy, was easy to spend. Buying shares became akin to gambling – where people would ‘Bet’ on the share going either up or down. Along with lightning fast computers, came robot trading or bot trading, as it is known. These robots could trade thousands of shares at ‘a bat of an eyelid’ leaving the normal person, the punter (gambler) no hope.
These robots could also leverage credit and lend and borrow on a promise of a promised promise!!
Many got insanely rich and many companies, not producing anything useful, had entered the game of the stock market. They pooled their collective money and played this betting game. With their huge pools of money, they call it Hedge Funds, they could influence prices and outcomes. For a commission, you could join this club too and benefit financially. These funds would flaunt their gains, so to attract more interested parties all the while pushing company share prices way up and beyond their actual value, into completely unrealistic territory. It was called a Bubble – and we all know that bubbles pop!
With nothing solid to hold up this structure of the ‘stock market’ it all began to fail – big institutions collapsed. The Governments, faced with the unfathomable reality, had no alternative but to give the gamblers all the money to pay for their debts – and they used nice words to describe it – Quantitative Easing or QE otherwise ‘the Emperor would have been left with no clothes on’ and all would have collapsed, sending us back to and beyond the 1930s!
But, can you cure a gambler from his addiction? What do you think they did with the Government money? They leveraged it on Steroids and fed it to the robots!
The Government has given this QE money, three separate times now and the machines printing the money, cannot possibly cope! And with all this, the Gamblers have now even turbocharged and leveraged the kitchen sink!
The Moral of the story is? It is ‘Immoral’.
There is however a valuable lesson, ‘To avoid long term stress by turning a small hole into a crater, it is better to swallow the bitter pill now and learn from your mistakes – cut your losses, turn a fresh page and make a clean start’.
Niresh Parag 2016
©A Mind Field
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