Who’s Buying?

The stock market just went up and up in 2017.  Too many people, this is proof that the economy is doing better and that everyone is better off.  We are all conditioned to believe that things are going along well if the stock market is going up.

Stock prices go up when more money is put into the stock market than is taken out.  Most of the money moving in is from investors doing normal things, like saving for retirement.  At the same time, most of the outgoing funds being taken out by those who made their profits and now want to actually pay for their retirement.  But these normal inflows and outflows are modified by the other money moving in or out of the markets, and this right now is what makes the market either go up or down.

Since the market has gone up consistently over the last year, the question is what is the source?  The problem for everyone is that it is not what we would call “normal” investors, people who have saved some money and are investing it for the long term.  Instead it is coming from dangerous sources, by people who will imperil everyone else.

One dangerous source is individuals who are borrowing money to buy stocks.  This will backfire the instant that their loan payments are more than they are making from stock gains.  But there are even more dangerous market players involved here.

One such group is corporate executives.  They are having their businesses borrow money to buy their own stock.  This is a great short term play for them, as most CEOs and senior corporate executives get more in stock options than salary.  So if the stock price goes up, they make a windfall.  The basic problem is that their corporation’s stock is not going up because the company is more profitable than it was a year or even a quarter ago.  Instead, the stock price is going up because the company is borrowing money to buy its own stock.  And in the end, this will bankrupt otherwise sound and profitable companies, throwing their employees out of work during a market crash.

But the most dangerous players are Central Banks.  They are buying up stocks with the money that they “create” out of thin air.  As a result, the worth of the currencies of major nations is now strongly dependent on the stock market.  This is a new and highly volatile development.  And is yet another way that the markets are now leveraged to dizzyingly new levels.

What to Do

Too many people think that they may be “missing out” by not participating in the stock market run up.  The opportunity seems to be there, and if you don’t get in, you will miss out.

This is true ONLY if you are lucky enough to get out before the inevitable crash.  If you get in, and then it crashes, you will lose everything you put in.  It takes time for everyone to get in.  Everyone will want OUT at the same time, and that is when you will lose.

We need to get our national banks out of the Stock Market.  Tell your representatives so.

We also need better rules for corporate governance.  But this must come from shareholders.  Unfortunately, too many are wrapped up in the very schemes I’ve just discussed.

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