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starbucks4ever (98.68)

A solution to Wall Street woes: make it illegal for stocks to drop

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September 20, 2008 – Comments (4)

The latest blatant manipulation of stock prices was fully expected, but it still stank to high heaven. There are several things that were wrong with it, but most importantly, it was a shameless robbery of stock buyers. There is a loser on one end of every transaction, but until Hankie ordered prices to stop dropping, one could at least argue (provideded he still retained some vestiges of idealism after the latest series of bailouts and government-sponsored takeovers)  that it was fair play for everyone (well, mostly). The victims of this latest round of social planning? The younger generation that is trying to follow the advice of wise men from the Fool and accumulate a stock portfolio that would complement a handout from the crumbling Social Security. Now 10% of their purchasing power is gone within 2 days. If you had a 401K contribution scheduled for this Friday, congratulations! It just bought you 10% less units than it would have under free market conditions. Georgie, Bennie, Hankie, and Co. just made you overpay for the stocks that sellers would be happy to let you have at Wednesday's prices. To call a spade a spade, they just stole one tenth of your contribution. And provided the effect sticks (otherwise, why start the whole thing, right?), this will diminish the purchasing power of all your future contributions as well. Thanks very much, Hankie, may I fund another bailout?

I was surprised when the Russian government displayed the same blend of greed and stupidity that I've come to expect only from right-wing neocon Republicans. The greed part is obvious, they just shut down the exchange so that prices couldn't drop and then committed tens of billions of dollars to support prices. By the way, that was an even worse kind of robbery than what American regulators just did. Next to Putvedev, our own Hankie P. and Bennie B. will look like paragons of fairness and accountability. The Russian government just gave 5 billion dollars to oil companies by forgiving the export duties they were required to pay. Notice that they a) did not ask anything in return, just made a small present to their favorite companies and b) helped companies that were not in trouble, in fact, even with a barrel of Urals costing $90, these were the wealthiest and the most profitable enterprises in Russia. If they're ready to squander their treasury funds when oil prices are that high, it means they are so completely beholden to oil interests that they'll be selling their foreign and domestic policy, state borders and bricks from the Kremlin wall when an oil billionnaire with an empty brokerage account runs to them crying for a handout. But in addition, this was a stupid move. It was stupid because a) this is not the time to launch expensive bailouts, the right time will be when oil costs $10 and b) this is not the right price level either. I actually contemplated buying LUKOY.PK or MBT, but when I looked at valuations, I realized that even with Wednesday's discount, these stocks were not cheap. For example, MBT was more richly valued than TKC, while offering far greater country and currency risks. So I'm wondering if the Russian government interfered at a price level that might prove unsupportable anyway. Until now, their economic policy was not that stupid.

American investors are getting scared of bedbugs? Until yesterday, it was assumed that T-bills exist for people who want to earn some small interest because if your ambitions go no further than 0% interest, your matress can gurantee you that. Yesterday, however, the interest went negative, in other words, investors were paying the government, not vice versa. Another piece of evidence in support of my theory that bonds are the next bubble to pop. When the yields on govenment debt go to zero, how far higher can prices get?

My own score went from +400 to -400 to +800 within one week. Talk about volatility. 

 

4 Comments – Post Your Own

#1) On September 20, 2008 at 3:54 AM, ikkyu2 (99.32) wrote:

Hmm.. Offer to buy a stock for lower than its last trade price, go directly to jail.

Yep, I like it.  That'll fix everything! 

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#2) On September 20, 2008 at 3:54 AM, ikkyu2 (99.32) wrote:

Hmm.. Offer to buy a stock for lower than its last trade price, go directly to jail.

Yep, I like it.  That'll fix everything! 

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#3) On September 20, 2008 at 8:55 AM, dinodelaurentis (72.01) wrote:

i second the motion!

all in favor say "aye".

here's a FYI zloj - in the depression T-bills payed negative intrest also and folks were glad to have money in them.

real world conditions were so volitale that your mattress wasn't safe! the neg intrest was a fee that you paid to have your money secure. safety deposit boxes were opened by the goverment (kinda like today), gold was confiscated, and banks closed all the time.  god forbid if a natural disaster struck or a fire because nobody could afford insurance. if you had substatial enough holdings you could stash the bulk of your estate for -1% and make a living off your hard assests like rental properties and farmland.

ain't that some s#!t?

and when they matured, you still had your most of your money.

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#4) On September 20, 2008 at 11:15 AM, starbucks4ever (98.68) wrote:

dinode,

it did happen once during the Depression, but you're forgetting that we had some Japanese-style deflation then. 

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