Market Commentary for the week of November 9, 2009

The financial markets pretend to be all things to all the people. For its supporters, it is a playground of opportunity, arbitrage, and capital gains. For its detractors it is a labyrinth of greed, stealth and mistrust. In reality, the playing field is a little of both but, on balance, more the former than the latter.

Why, then, is the generic Wall Street perceived so poorly and generally so misrepresented?

As originally conceived, the “street” is a global exchange of capital. One man’s loss might be another’s gain. One person’s opportunity to make money is correlated to the risks he is willing to bear. The exchange is not an egalitarian zero-sum game. There are losers and winners to the ultimate degree. Anyone can play.

Fairness.
The problem arises when the perception of risk seems to be stacked against anyone but the untrustworthy, the miscreants who manipulate risk-taking into a rigged game only for a chosen few. No matter the regulators or oversight committees, compared to its original intent, the markets have taken on a geo-political context that seems to suck the life, and the opportunity to succeed, from anyone who gets in.

Critics of my thesis might respond by saying that a “new paradigm” of technology and transparency widens the playing field, making opportunity that much more affordable to the masses. Such perversions of fairness don’t exist, or are, at worst, the price of admission.

Of course, either scenario is an exaggeration of the real truth. No such gap between good and evil exists, and besides “my portfolio is up for the year,” they might exclaim.

I would posit that the solo-flying investor is the problem. If he’s in it for his own advantage, he’s not playing the game with the right intent.

Investing is not like a modern day Monopoly game, where he who accumulates the most wins, unless he with the most invests those gains back into the market for a common good. The principle of globalism (and transparency) requires a borderless playing field, not a hoarding of the wealth. Bailout money and Federal stimulus that fails to reach its intended market is money not well spent.

Greed.
I contend, also, that the promise of profits is a misrepresentation of the exchange of capital. There are no guarantees or representations of profit assurances. But the absence of reward takes all the fun out of the exercise and dissuades the unfortunate from even engaging.

Admittedly, it is pointless, and naïve, to expect equanimity in the distribution of capital gains. A little envy and jealousy towards those who “win” is a healthy motivation. But how long can the markets survive squeezing out those who play fairly while rewarding the unscrupulous?

Many thought it would have been wiser to let banks and auto companies fail from their ineptitude. They played the game and lost. Why do they deserve special dispensation? Are the regulators there to regulate…or to reward failure? That’s a good question.

The next leg of any economic renaissance must be couched in a healthy debate not only about profit and loss, but about right and wrong.

Otherwise we are destined to convolute even further the intent of this game we all enjoy playing.