Monday, March 16, 2009

Financial Markets Are A Sham - Stewart/Cramer

Readers of this blog will be aware of how much I adore Jim Cramer (not). Hence when news leaked that Jon Stewart was doing a full show with just Cramer, I know it would be merciless on Cramer. As much as I think Cramer is an idiot on markets, I think he does not deserve the full whacking by Stewart. Cramer is first and foremost an entertainer, then a market commentator, he then tries to pick stocks. If you watch his antics, he is more of a momentum trader - if it swings down he will turn very bearish and vice versa, all in a matter of days, I seriously don't know why people will watch him - but because its America, out of 100 million viewers, you will still be a hit if only a fraction of people watches you.

If you click on the link you can watch the entire Daily Show episode. What Jon Stewart tries to do is to be the layperson savior as he lays blame on the financial experts trying to hoodwink the rest of the world. His strongest point was that the financial industry (analysts, mutual funds, commentators, traders, CEOs, investment bankers, etc.) is playing an elaborate game whereby they use the "capital" provided by everyday people to create an elaborate financial game to lull the rest of the world into "investing and trading" the rigged markets. To a large extent, I subscribe to his theory. The financial industry is like a club, once you are part of it, you pick a role and play it according to the monopoly rules of the game - if you play it well, you will be rewarded with supernormal pay, you will be incentivised by moving the "capital" up and down and getting a cut from the movements and volatility. Nobody really cares whether they are creating real value or productivity.

The layperson by buying shares, putting money in unit trusts, subscribing to IPOs are basically giving capital to allow the financial industry practice the shenanigans. The mantra that is always touted to lure investors is that "stocks will be the best investing vehicle over the long term, that it is still the best way to invest your money to ensure that you keep ahead of the pack". As the 80s and 90s were prime examples whereby bull markets dominated the era, that mantra basically was elevated to tablets handed down by God to Moses, nobody questioned its fallibility.

The other mantra is blue chips which is supposed to provide long term steady outperformance - well, blue chips investors really saw their values being wiped out just like the rest, imagine having HSBC, General Electric in your portfolio... There was supposed to be some sort of "unwritten guarantee" but hey, it does not exists.

Life is tough enough, investing is even harder. Bull markets make normal people think they are smarter than they really are. Nobody is smarter than the markets. Once you think you are, you will make your biggest losses. Markets are fluid, we can only try to minimise the damage when its bad, and we hope to make some money when its good. Don't try to beat the markets all the time. Get 6 out of 10 calls right, and you are golden.

p/s photo: Cut Tari


searchlight said...

The other important point that Stewart made was that CNBC is a news organization and they should have been more critical of the comments and predictions made by CEO's. He said that Bear Sterarns was leveraged 35:1 and no one said anything. They just lapped it up. They just kept repeating the mantras. They accepted whatever was said. They were not honest with the public who relied on them to at least point out the holes.

K H said...

I remembered reading comments from analysts in bzness section over the years, and they gave contradicting analysis ...

Why is the KLSE up?
A : Because The US market is bullish.

Why is the KLSE down?
A : When the US sneezes,the whole world blah blah

OTOH, we also hear these .

Why is the KLSE up?
A : The US market is down and the investors sold off their shares there and invest them here.

Why is the KLSE down?

A: The US market is bullish and the investors are selling their shares here to invest in US.

So which is which?