Thursday, December 1, 2011

Telling It Like It Is

I salute Catherine Mann. I heard her yesterday on the PBS Newshour. The subject was a good day on the market because central banks eased bank-to-bank borrowing to help the Europeans. Cathrine Mann is a professor at Brandeis International Business School—and had also served earlier on the Federal Reserve Board of Governors. Here is the comment that caught my attention:

Well, the markets have been—the markets are basically run by algorithmic trading these days or traders. Nobody’s making investments in the stock market thinking they’re getting a long-term investment in the company that they’re buying a stock for.

So all we’re looking at is trading on news. This was big news. And so when the market opened here in the United States, the market just responded to that news in a very positive way. I think, though, that one of the downsides of this additional liquidity being put into the global marketplace is that it provides more ammunition for the traders in the marketplace who want to bet against the central bank—or against the European Central Bank in particular, or want to bet against some of those sovereign governments in Europe that are running some difficulties.

So this excess liquidity or a lot of liquidity does have a downside. And I think that we aren’t thinking exactly how that ammunition is going to be used. We’re thinking it’s going to be used for good, but there’s no guarantee that it’s going to be used for good.

The emphases are mine. Mann tells it like it is. The stock market is an echo chamber where people bet on laughter and on tears. It’s time-horizon is the algorithmic nano-second. It’s not even a proper mirror. It’s a trick-mirror. If you are fat you will look fatter, if anorexic, even thinner. Distorted mirror twisting light back up from a pit of the world deepest gambling hell. But such is the media’s own reflexive worship of Mammon that the market’s treated like an oracle.

As for the valiant efforts of several central banks, they’re applying what feeble tools they happen to have handy, not necessarily tools that work. When our eyesight grows blurry because the cataract is thickening, stopping the car to give the windshield a good wash might help, ever so little, but what’s really indicated is cataract surgery.

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