“I have come to believe in the theory of what I would call ‘financial realism,’ or what might more accurately be called ‘trader realism.’ Under this theory, on which I have an imaginary patent, traders can see masses of data any minute of any day. They can find data to support hitting the ‘buy’ button or the ‘sell’ button. They don’t act on the basis of what seems to them the real economic situation, but on what’s in it for them,” Ben Stein writes for The New York Times.
“Just as a tiny example, years ago a close friend, now deceased, was a trader in London for a big financial house,” Stein writes. “As he told it, one day I.B.M. came out with stellar numbers. The boss of the trading floor said, ‘O.K., the guy who’s getting the prize is the one who can make us money selling I.B.M. short.'”
Stein writes, “So the traders grabbed for their phones and started to put out any bad thoughts they could dream up about I.B.M. They called journalists, retailers, anyone. They sold huge amounts of I.B.M. short. Soon, they had I.B.M. on the run, made money on their shorts and went to Langan’s to drink champers.”
Stein writes, “As I see it, this is what traders do all day long — and especially what they’ve been doing since the subprime mess burst upon the scene. They have seized upon a fairly bad situation: a stunning number of defaults and foreclosures in the subprime arena, although just a small part of the total financial picture of the United States. They have then tried — with the collaboration of their advance guards in the press — to make it seem like a total catastrophe so they could make money on their short sales. They sense an opportunity to trick other traders and poor retail slobs like you and me, and they generate data and rumor to support their positions, and to make money.”
“More than that, they trade to support the way they want the market to go. If they are huge traders like some of the major hedge funds, they can sell massively and move the market downward, then suck in other traders who go short, and create a vacuum of fear that sucks down whatever they are selling,” Stein writes. “Note what is happening here: They are not figuring out which way the market will go. They are making the market go the direction they want.”
Full article here.
[Thanks to MacDailyNews Reader “Linux Guy And Mac Prodigal Son” for the heads up.]
MacDailyNews Take: Apple last week reported record revenue, record net quarterly profit, record Mac shipments, record iPod sales, and record iPhone sales. Apple’s revenue grew 35% year-over-year. Apple provided Q2 08 revenue guidance that’s a 29.3% increase over the company’s Q2 07 results. Apple’s share price has dropped approximately 35% in the past 25 days.