Thursday, 7 January 2016

Men Without Bowels

As another day ends with the FTSE down close to 2%, James' opinion on the current state of the markets and economy in reply to my last post is worth sharing:

Each day that passes makes me feel more so that the mega rich and powerful are locking down their wealth so that it cannot trickle anywhere; be that down or side-ways.
If that means rigging markets so firms like Nevsky Capital can no longer run their algorithms then so be it.
For firms like Nevsky Capital to make money as they used to will require a change in the entire system to allow price discovery to enter the markets, once again. However, I think the powers that be would rather shed blood than money.
The same with Betfair, which has built a near monopoly and knows it can charge anything because customers have nowhere else to go. As in the financial world, only a regime change can alter Betfair's business model.
It's an odd twilight world that we find ourselves in now. A dominating one-sided broadcasting corporation, newsprint that sings the EU line and avoids tipping the boat (recently that included not reporting horrific goings on in Cologne until it trickled out through alternate media).
I'm short everything except bullion.
For those of us of a certain age, and retirement not too far away, it's certainly not the best time for market uncertainty. The short [stock] seller always seems to me a little like the "don't pass" line bettor at the craps table, who:
is usually the quiet guy or gal who tends to keep to themselves and avoid eye contact with all the other “right-way” shooters.
Most bettors prefer to play the "pass" line bet, so the "don't pass" individual is somewhat despised by the rest of the table (although in my experience, 'despised' is far too strong a word for it, with most reaction being limited to the boo-hiss directed at the pantomime villain).

I don't think the terminology helps here either, with "pass" betting considered "right-way" and "don't pass" betting as "wrong-way", not to mention that "don't" is, by definition, negative!

The "don't pass" bet is actually a better value bet than the pass line, but it's not so popular in casinos. Most people are there to primarily have fun (there are no professional Craps players), and prefer the camaraderie of being part of a group betting against the house over reducing their long-term losses by a small percentage. No one is there for the long-term anyway.

Short sellers in the financial markets are also seen as being negative. Michael Lewis' excellent book The Big Short, (now a film), explains clearly how a small group of people made a fortune out of betting against the US economy. Telling your friends and neighbours that you are betting on them defaulting on their mortgages isn't likely to make you popular, even though it was an excellent bet.

Here is Fred Schwed Jr.'s take on it in 1940:
But how about those short-selling fellows? Now we are getting close to home. At the very moment when we were buying that stock, hopefully and constructively, looking forward and upward toward better things, those fellows, men without bowels, were selling it, and they didn't even have it to sell! They were looking downward and for worse things. They thought it would go down and they helped it to go down. How unnatural! How perverse! How cynical! Why should society tolerate such men any more than those who burn down houses for the insurance? 
"Democracy has not enabled us to challenge the power of elite wealth, entrenched privilege and an economic system that serves those interests almost exclusively"

1 comment:

James said...

I always preferred Dick Dastardly to Penelope Pitstop, an establishment lacky if ever there was one.

I've always been against the crowd. Never one to follow the herd. Never to wear a pair of jeans when all around me did. A long hair when others are close cropped. A skinhead amongst New Romatic bouffants.

You only get one shot at life. I never wait for the ideal bet when there are plenty of lays to be had in the meantime.

The Big Short was a good read. I look forward to watching the film.

Another one to watch is Margin Call. A more apt film for these times rather than the dated (altough still watchable) Wall Street, a film for when making money was easy rather than the leveraged naked short, rigged, insider traded, clusteryouknowwhat we have today.

Sleep well!