Laura Bramble
The "Science" of Wall Street
However, the objectivity and rational decision making of Wall Street pundits, movers, and shakers is just an illusion. In reality, Wall Street is driven by rumor, innuendo, fear, and an optimism created by greed. There are no certainties until after the fact. The rest is nothing more than a well informed guessing game, only sometimes the information is not accurate or is sketchy at best. It's a crap shoot, with winners and losers changing places every day. It's Las Vegas without the blinding lights, sirens, and show girls. Yet we allow this place and its players to tell us whether we really are secure and in good fiscal shape. We allow their whims to determine whether or not we should hope for the future or despair. We place our fiscal self-worth in their hands on a daily basis.
People made a mass shift in their transportation methods based on the price of gas, which was driven by the market. We all watched the trading price of light sweet crude go up to ridiculously high numbers. Foreign governments in oil producing countries tracked their future spending to those high numbers. Yet why did people on the whole not look at why that price was so high and how realistic that price was? If they had, and there were a lot of people in the financial sector trying to get the word out, they would see that the price increase was due heavily in part to the work of speculators. These were people betting on the fact that oil prices would stay high because people could and would pay them and demand would not decrease. They believed we would buy oil at any price, convinced that it would only continue to go up in price. And for a while, they were right... until the bubble caused by irrational optimism spurred by greed burst, bringing oil prices down to a realistic and sustainable range. Is oil ridiculously cheap? No, it is about where it should be given the current world economic state. The anomaly is that the price was able to be hiked to the level it reached by speculators.
There are examples of this all throughout history- the Dutch tulip bulb craze of the 1630's, margin stock purchasing in the 20's, gold and platinum in the late 70's, junk bonds in the 80's, tech stocks craze in the 90's, the housing market and mortgage lending this decade. All were situations where a runaway market fueled itself on unrealistic expectations based on the belief that the conditions which existed at the time could and would go on forever. Forgotten was the fact that the current conditions of the time were based on nothing but conjecture and whim.
Today we are seeing the flip side of that same coin. We have supposedly been in a recession since December of 2007, yet the market continued on reaching record levels by ignoring the reality all around it. Now it steadfastly refuses to look at anything but the negative, choosing to overlook any positive numbers coming out of any venue and keeping on its doom and gloom tack.
A perfect example of this is GE. GE is a blue chip stock which is heavily diversified, meaning it has interests in many different areas. GE Financial is a substantial division in its portfolio and was a strong money maker for them, but it was not their whole operation, only a part. The corporation and its other divisions are still going strong; they have good liquidity and plenty of capital to work with, despite having to swallow some losses from its finance division. They are unlike a lot of the players in the financial services and banking arena in that they do hold interests outside the financial realm. However, despite the fact that they have gone out of their way to publicize their overall health, they have seen their stock take a huge decline over the market average because they have a financial services division. Market speculators have decided to take a dim view of any group that makes money from lending or dealing in financial services, no matter what the true overall economic health of the company is. That line of thinking is as irrational as the belief that the good times will last forever.
I think its time that Wall Street and the financial services industry look at how they do business and examine how they let unsubstantiated beliefs and erroneous information determine how they act. In the rush to be the first one to spot and capitalize on new trends in the market, on the whole they do not take the time or effort to do proper due diligence. This leaves Wall Street operators in the position of looking like day trippers to Atlantic City, sitting and putting in coin after coin on the hope that what they heard and believe will come true, that they will hit the jackpot and make become rich. Until Wall Street wises up, Americans need to take the market with a grain of salt and attach an appropriate amount of authority to its opinions.
Would you take financial advice for a little old lady who spends hours sitting in front of a slot machine, or a guy who hangs out at the track betting on horses who he believes are "sure things"? I didn't think so...
Laura Bramble
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