Just kidding. It’s really just sm77 shooting from the hip. Now, perhaps it’s not fair to critique someone who professes to be a “simplistic, peasant, lay-woman.” But it’s still fun. Sm77:
For example, if there’s a rumor that corn farmers are scared that next years crops aren’t going to be as plentiful as last year, suddenly you see corn stock (pun intended) plummet and by the end of the day thousands of workers are laid off. All based on speculation. There’s no gradual or incremental adjustment to curtail the possible loss of corn, no riding out the storm, none of those things. Actions are taken swiftly and severely in a matter of hours. You punch in at 8 am, rumor gets released at 9:30am, stockbrokers go bezerk on the trading floor by 10:00am and you walk out with a pink slip by 5:00pm. Who suffers? You and me. Who started the rumor? No one will ever know (because no one is held accountable anymore), maybe a sugar ethanol lobbyist firm, who knows? Then the fear/hope peddling cycle goes wash, rinse, repeat.
Now, I thought this was funny because obviously sm77 doesn’t know what she’s talking about. She clearly was cribbing from Cramer’s video-taped admittance of manipulating AAPL stock with rumors and options fomenting when he ran a hedge fund, but her example is hilarious.
The funny part is that of course there are lessons to be learned for regulators about the manipulation of markets by actors with sufficient capital and knowledge of trading mechanisms. However, sm77’s example of “corn stock” (ticker: ADM?) plummeting and turning an unsourced rumor about crop yields into thousands of layoffs in a matter of hours is hilarious.
She writes “There’s no gradual or incremental adjustment to curtail the possible loss of corn, no riding out the storm, none of those things.” What does this mean? At first I thought she was saying the markets react to aggressively to rumors. Fine, make that argument. If markets are inefficiently pricing assets by relying on non-credible rumors, then there should be plenty of opportunities for sm77 to profit by exploiting these inefficiencies. Next time corn stock’s plummet without cause, sm77 should BUY, hold it until the market realizes the overselling, and she’ll see a handsome profit. Then she can stop writing the unemployment chronicles. That would be a very easily exploitable market inefficiency.
Next, I realized that she hadn’t thought through that much. She was instead arguing that traders should hold assets above prices they deem fair, because falling shareholder value destroys companies. If these traders actually believe the present value of ADM stock is worth much less today because of future prospects of crop yields, they should suck it up and bid at yesterday’s price, because to bid the stock down would unfairly harm the employees at that company.
Of course, sm77 doesn’t seem to grasp that in arguing traders “ride out the storm” she is arguing explicitly for an inefficient market. Now, I wouldn’t mind that, because it would present lots of opportunities to profit. And wherever that opportunity exists, market participants will seek to exploit it. And they will, driving prices exactly where they would have been in the first place. The only difference being that those original, “ethical,” traders lost their shirts and got out of the business.
She then moves on to 6 questions that are so stupid, they’re not even wrong. Her second question is:
Why is it that Wall Street trading goes up when positive words are spewed by the President and the Cabinet, or it goes waaaay down when negative words are said, like “stimulus package?”
This demonstrates no comprehension of the arguments about how quickly or efficiently capital market prices reflect information. Perhaps sm77 should do less writing about markets and more reading.
Of course, none of this ignorance, acknowledged or otherwise, prevents sm77 from giving Larry Summers advice and advocating the abolition of central banks. Afterall, she’s a PUMA. Opinions first. Facts twisted to support them later.