The Phaserl


Are Stock Markets Acting Rationally?

from The Daily Bell:

U.S. stocks decline as jobs report looms … U.S. stocks ended Thursday’s session modestly lower for a second consecutive day as investors turned cautious ahead of an important employment report due Friday. – MarketWatch

Dominant Social Theme: The market is in a good place.

Free-Market Analysis: Commentators often attribute human-like qualities to stocks and stock markets. The market was “waiting” today, they’ll say, or is “being patient.”

Presumably this helps comfort investors who spook fairly easily, especially when markets are making all-time highs. This market is surely alarming to some because – according to various accounts – it is not trading on “fundamentals” anymore.

Some might argue as well that markets never traded on fundamentals! Markets are highly susceptible to monopoly fiat money flows from central banks. In fact, one might logically suggest that without monopoly money stimulation, markets would not be nearly so profitable nor exciting as they have been in the modern era, nor so dangerous and volatile.

When it comes to what is traded on stock markets – corporate paper of various kinds – we have discovered a similar level of artifice. Corporations themselves are artificial entities created by judicial fiat, intellectual property, corporate personhood and, of course, monopoly fiat currency.

These are the building blocks of the huge entities that trade so profitably on equally vast and laboriously manufactured securities bourses.

When one examines the process closely, (as the Internet has allowed us to do) the illogical and anti-free market nature of modern stock trading soon becomes evident. Nonetheless, this is the system that we have. Some make tremendous amounts of money based on the leverage and liquidity it provides.

Market commentators are not “supposed” to make statements like that, of course. Modern stock markets are supposed to be logical outcomes of a perfected market capitalism. And as we’ve just pointed out, there are always “reasons” why markets act the way they do just to make sure the average investor doesn’t believe there is anything illogical going on.

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