Ponzi Would Have Loved This Market

We’re reading more and more stories about money managers and investment gurus committing suicide or disappearing suddenly. People who invested with these managers, some of whom are into their seventies, complain of amounts up to a million or more simply gone.
What proof of the power of the human mind to fool itself. Just because American financial instruments have stayed balanced on thin air for decades, both investor and seasoned manager convinced themselves nothing would ever fall down. In investing, gravity and good sense were repealed. I’m not talking about dishonest people like Madhoff here.
Has anyone stopped to think that the entire American stock market has been essentially nothing more than a Ponzi scheme for years? It certainly has been every since the Dow took off in the 90’s and cracked the ozone barrier somewhere above ten thousand.
How so? Well, first of all look at the figures. The World Trade Center is attacked. The Dow stays around ten thousand and quickly shoots above that. War in Iraq turns sour—the Dow climbs to 14,000. Oil prices zip from a dollar to two dollars and on up to three—the Dow stays around 13,000 or 14,000. The news reports that General Motors is spending through its cash (two or more years ago), and the Dow stays right up there.
Asian Markets collapse in the 90’s—suggesting that, like Japanese pre-war housing they are essentially made of paper. The Dow goes on climbing. What effect did the collapse of the Tech Bubble have on the Dow? Did the early stages of the Housing Bubble bring the Dow down?
Oh, you say, that was just because the market had confidence that American business fundamentals were sound. (Now, who was it that said the same thing last year?)
I’m willing to be told that you have a bridge to sell me that runs to Brooklyn. I’ll even believe you if you tell me that little bottle of pills you’re selling will cure cancer and prevent heart attacks. But, please, don’t try to tell me it was VALUE that kept the American stock market up through what even Greenspan called “an excess of exuberance”!
I’ll tell you what it was. They privatized retirement. Suddenly pensions were no longer invested in the company you worked for. The companies dropped their pensions. The prudence you might have expected from a stodgy old company pension investment plan went by the way. Some of these plans weren’t even funded—limiting the amount of investing going on to zero.
These pensions were not forcing the market ever higher. The market stayed at about the same level (speaking of the Dow) for decades, all through the company/government pension era.
Then the companies began looking at the overhead they had committed themselves to. Even government began talking about handing Social Security funds over to individuals for them to invest on their own. Companies went ahead and did that.
Suddenly, every week, there were, first, hundreds of thousands of well paid employees investing madly in their own IRAs, Roth Ira’s, etc. etc., all going through mutual funds and private accounts. Then millions.
Where else was them to go but into the market? Never mind that Tech (and the World Trade Center) was falling down. Never mind what a rational person might have thought of what the market was doing—there was simply no place else to go with all that cash.
Week after week—no matter what the fundamentals might actually be saying—or warning about—the money poured into Wall Street. It drove it up, up, up. And, unlike Ponzi or Madhoff, these investments didn’t even have to pay immediate returns. Nobody was expecting any money back until they reached age sixty or even later.
So there was no need for the Stock Market to face a day of accounting. (It hasn’t yet—it’s not deemed a crime when a trillion or so dollars vanish on Wall Street.) It just took in more money each week and went higher and higher and higher.
It is just possible that we could be looking at the day when some little kid looks at the stock market and shouts, “But he’s naked!” Maybe someday soon. Then Emperor Dow may have to admit, like Madhoff, that there really weren’t any clothes to put on.
Then the stock market will have to seek its own actual VALUE level. We—and millions of people who hope to retire—don’t even want to think about that.