“The last month or two we are seeing what feels like unprecedented volatility within our markets,” Jay Somaney writes for Forbes. “Apple hit a low of $92 per share on Monday and closed yesterday at $109.69. Using fully diluted share count of 5.77 billion (June 30, 2015 b/s), the company’s market cap went from a low of $530.8 billion at the low on Monday to $632.9 billion at the close of regular market trade last night. Change in market cap from the lows to yesterday close is 19.3% swing in 3 days. At the lows, Apple would have given back 14 months worth of gains.”
“We are looking at unprecedented amount (change in market capitalizations amounting to tens of billions in a mere three days) of needless volatility within global markets thanks to the misguided policies of our Federal Reserve, disparate and diametrically opposing statements from the various Fed heads, and the complete lack of acknowledgement that the world’s financial markets are tied primarily to our markets,” Somaney writes. “The U.S. is the dog that wags the global tail, no matter how much the various Federal Reserve members deny that fact or play it down, or in some cases ignore it altogether.”
“Like it or not, you just cannot have the central bank of the world’s most powerful country with the biggest economic influence in terms of GDP, consumption, income etc. decide to be a maverick on interest rates, especially when inflation (the main boogeyman) is nowhere in sight here at home. In addition, given the fact that the real employment rate is far lower than the one reported and [with] the absolute collapse in commodities ensuring that it will be a while before inflationary conditions will warrant a rate hike here at home, the rate hike mantra by our Fed just does not compute,” Somaney writes. “The one and only problem is the U.S. Federal Reserve’s crusade to prematurely raise rates and none other.”
Read more in the full article here.
MacDailyNews Take: Needless volatility can be very profitable.
Sure. In MDN Land, Apple executives never make mistakes.
The extreme volatility we’ve seen in the last 10 days has little to do with Fed rates which are, in relative terms, a long term effect.
The volatility is caused by the simple fact that Wall Street is a gambling house with the value of the stocks and other financial instruments being traded having virtually no direct connection to the financial health of the underlying institutions. This is further exaggerated by the fact that the U.S. tax structure makes no differentiation between someone (or some institution) that holds a financial instrument (stock or whatever) for 364 days and makes a profit or holds that same instrument for 10 milliseconds and makes a profit.
Allowing people or institutions to buy and sell instruments on a second by second basis when there has been no change in the underlying organizations with no taxation differentiation from those that hold for many months only enhances market volatility. It fully supports a situation where stock and financial instrument pricing is nearly 100% based upon perception and emotional contagion rather than the fundamentals of the organizations upon which they are **supposedly** based.
If you want to stop market volatility you have to do two things:
Tie taxation to two different things: a low rate to profits that are based upon the company itself and a much higher rate for the speculation profits that have nothing to do with the company,
and
Have a higher tax rate for those that trade (and profit) on less than a day (or week) basis.
The first ties the taxation on profits to the underlying value of the company (something completely missing from stock for many, many years).
The second allows the fast traders (even the millisecond traders) to exist, but taxes them higher limiting the number of trades they do because under this method their profits would have to be significantly higher to cover the costs of the taxes thus they only trade for big movements. (And, if you don’t think large numbers of trades on tiny movements don’t cascade into bigger movements, you’re delusional.)
Will such a change in the U.S. regulations and taxation laws ever happen? I’d give the probability as somewhere between one divided by infinity and zero.
Volatility doesn’t need to be stopped. As an investor I want volatility. If I am long stock I want the stock price to go up. That’s volatility. If I am short stock I want the price to go down, that’s volatility. The worst situation would be if there were no price movement. Volatility provides opportunity.
The capital markets best use is as a way to hedge your real world earnings, not as a gambling casino to enable you to amass a fortune by speculation. Get a real job!
Great post @Shadowself.
I put the probability at 0 divided by 0. Cookie monster would be sad.
Well yes but the article is not just about the US. The rest of the world is suffering because of the cost of borrowing money on the international market which is hobbled to the US dollar.
A case of “I’m alright Jack and the rest of you can go to hell in a hand cart” even though it affects US long term prospects for sustainable recovery.
What??! The cost of borrowing money is at historic lows. What are you saying?
Yep, the Fed has a habit of overreacting to a non-existent inflation risk, with the end result of slowing and delaying the economic recovery.
I’m going to play the contrarian here because this guy Jay Somaney could not be more wrong in his analysis. Either some of you aren’t old enough or you have forgotten the horrific inflation of the late ’70s that wiped away countless billions in wealth across the US. The Fed is absolutely right to be watching for possible inflationary pressures that might be building. Right now commodity prices are low but that could change very quickly. When that happens inflation is going to hit hard and it will hurt like a mother-f***er!
What y’all are missing is that low interest rates encourage the kind of reckless risk taking in the financial markets that we have seen in the last few years. Low interest rates and easy money is how we got into trouble back in 2008. Perhaps money isn’t so easy for home buyers but it’s still very easy for businesses and the financial markets. Because of low interest rates an enormous amount of money has flowed into the market and now people are concerned that their bets may not pay off as they had expected. As evidence I cite the astronomical PE ratios of many companies (AAPL being the exception). Something has got to give. What we are seeing with the current volatility is all the money out there chasing diminishing returns and desperate to find something good to invest in. Where do you think all that money is going to end up? It ain’t going into bonds. Answer: Commodities.
“Maverick with interest rates” – LOL! All of the world’s central banks have been flooding the banking systems with liquidity to hide the bad/criminal actors that should have been liquidated long ago. One result of the ridiculous situation we have now is a lot of money flowing into equities because investors find the yield on bonds and deposits is too low for any meaningful returns. This is not how the capital markets are supposed to work, and the bleating cries from people like Somaney underline the distortions and contortions that prop up their Big Lie.
Where does Forbes get all these guys?! First comment shows a great understanding of problem and offers a possible solution. The article’s author shows neither.
Wall Street takes itself very seriously. Media slavishly accepts the importance of these con artists. Anyone who stands back and reviews the antics of Wall Street over time has absolutely no doubt of the origin of the universal Chicken Little Fable.
Ah yes the Private Federal Reserve.
I want to know when the contract is up so the next private company can take over printing money for 8¢ on the dollar and then charge interest on that loan.
Please pretty please let me give it a go?