I have a confession to make. It is official - I just made more money this year trading a single stock than I made either teaching or selling homes or doing any of the other things that I have been trained to “do” or “produce.” Given the fact that I am a card-carrying “progressive” this is a sad state of affairs indeed - particularly since the sum I made trading Apple stock on dips and peaks was hardly impressive. For “playing the game - I do not apologize. In times like this we have to do what works..and like I said - since I didn’t have much money to trade with in the first place - no markets were shaken to the core by my actions.
My financial worries aside - this leads to a bigger issue that has far more serious implications for the American economy and Main Street America.
We need to take a hard look at who is making money and how they are making it. Many now tout the virtues of the American “service economy.” They theory being that we have “evolved” from our manufacturing base into a higher level service economy. If you believe that, I’ve got a bridge in Brooklyn to sell…..
Alexander Hamilton understood the value of manufacturing - why can’t we?
In his new book “Rebooting America” Thom Hartman points to one of our founding fathers - Alexander Hamilton correctly observed that real wealth doesn’t exist unless someone produces something. For example - the raw materials that go into making an iPad are not worth much - but the iPad itself is worth over $500. A better analogy for Hamilton’s time would be barrels of raw wool from sheep vs. a fully tailored wool suit. Growth occurs in the manufacturing as raw goods are converted into products of greater value. The whole is worth more than the sum of its parts.
For example: if I take something out in trade…for example - I promote a restaurant on my website in exchange for a couple of free high-end meals - money is circulating - but where is any real wealth being created? The answer is obviously “no.” My advertising may help that one restaurant - at the expense of others in the area. I get to eat better than I usually do for couple of days - but I don’t have to buy groceries at the supermarket during that time. No net gain. If I trade Apple stock - selling on the spikes and buying on the dips - I can make money - but the person who bought that stock near record highs and sold it when it was at its 52 week lows lost out. My gain was their loss - so once again - no net gain.
Someone is getting rich in America - the question is how?
So as Americans - we have to ask the question: how is money being made in America? The money is being made mostly by the top 1-5% and that wealth is accruing mostly through stock trades. They are moving money around like pieces on a chess board. Like my trade in Apple stock - people can make money that way - lots of money if you’ve got enough of it… however, this accumulation of wealth is not what one would call “productive.” It is not the type of wealth that will “trickle down” to the masses in the form of jobs here in the United States.
A term often used rather loosely in the industry is “hot money.” the top 1-5% have all this money that they wish to “grow” and it runs in and out of investments chasing profits. Such major movements of money around the world can do great harm. They can create speculative bubbles. They can even crash national economies as traders move vast sums rapidly from one nation to another seeking better rates. Just look at housing in 2006-2007 and gas and electric in 2001. For those with short memories - remember Enron and the California energy “crisis”? And while you are at it - look at how the Euro is being crushed as investors move massive amounts of money out.
Whatever happened to investing in businesses or on the fundamentals?
My GOD! That is soooo 1970s. Back in the dark ages those with cash used to invest money in their businesses which included manufacturing. This type of investment was nourishing for the economy as a whole because it put people to work! These people “bought stuff” which put more people to work. Sadly, if American investors and business people are putting anyone to work- those people are in China and India not the US. We had things like tariffs that made investing in the US more profitable than off-shoring industries en masse.
As for investing in companies - high capital gains taxes for moving money around fast prevented speculative bubbles and quick trades. Certainly there were short sellers and traders, but they weren’t moving money in and out of equities on split second algorithms. The investment whether it be betting for or against success of a company was based on the fundamental soundness of that company - not on raking in a few fast dollars. With capital gains at a low 15% - the incentive to invest on fundamentals is thwarted in favor of quick profits. This creates a casino market that basically moves sideways over a large trading range. A small investors 401k hasn’t got a chance in such an environment. Higher taxes on trades would also push investors out of chasing fast profits and more towards growing businesses that would let the entire economy grow.
A few people are getting rich at the expense of everyone else:
That’s not question or even a theory…it is simply a statement. The economy has been pretty successfully bifurcated… Its a winner take all affair where the investor class creates a casino-like atmosphere on Wall Street. Nothing is being created with this money - and the effect of giant moves on algorithms make investing synonymous with shooting craps for the vast majority of Americans. The house always wins and the average American is the sucker that gets stuck with the bill.
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