US DEBT CLOCK - BE INFORMED!
PLEASE ALSO SEE THESE INSTRUCTIVE ARTICLES:
PE Values: Investors Do Not Get All The "E"
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This 2X Overpriced Stock Market
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JUMP TO MATH-BASED PEG FORMULA AND DISCUSSION
There are numerous problems with the stock market system. Before going into specific points, I want to make it known that I studied the present stock market system to explain many shortcomings. I do not just come up with a list of complaints and leave it at that as I feel the system needs to be revamped in a dramatic way. I thus devised a system that is resistant to manipulation, self-regulating in terms of saturation, immensely more stable, actually based on investing, and would eliminate probably 95% of stock market related jobs that produce nothing but exist to siphon money off of investors. The plan is provided in my book, "God Gave You a Brain; Use It!". I also include a modified proxy voting system that enables greater voting power to lesser shareholders. You should ask the SEC why they are not moving on these systems since they have them in their possession.
THE PSYCHOLOGY AND PSYCHOSIS NEEDS TO BE PURGED FROM THE CURRENT STOCK MARKET SYSTEM. THE ONLY WAY TO DO IT IS TO CREATE A NEW SYSTEM THAT IS BASED ON ACTUAL INVESTING WITH NO MANIPULATED PRICE MOVEMENTS TO CREATE FRENETIC DECISIONS.
The current stock market system is full of open-ended manipulation, not at all related to actual investing, but more of a game of musical chairs where those controlling the price movements determine when to stop the music and the ordinary person thinking he/she is investing won’t know until minutes later if steering at a stock streamer or perhaps days or weeks later if busy in hid/her life and by then it’d be too late to react. A system that is stable, and manipulation-resistant is long overdue and I devised a system that affords these features.
First let's take a look at a few fallacies that many of you may be familiar with as these are highly specific assertions generated by the Wall Street mob. Some listed are fallacies that a reasonable person would assume but do not hold true for the present stock market system that allows for manipulation.
Fallacy #1: Corporate stock buy-backs are good for the shareholder.
The media hypes the decision of a corporation buying back their own shares as if it is a wonderful act. The stock price gets driven up from a surge of buying in learning of this. But why is it good? As discussed later on regarding market makers, the share price does not have to rise if the corporation buys back its own stock. The shares could carefully be bought back through the use of a specialist to not impact the share price – whenever there is a lull of buying activity, the specialist could send off buy orders and hold off when buying interest resumes. So why would the stock necessarily be worth more? IT IS JUST ONE OF MANY WALL STREET GAMES giving the unsuspecting retail investor a false premise to keep feeding the stock market to enable the wealthiest to get richer. Now, I won’t say that the net effect is zero. Hardly, as the real net effect is NEGATIVE. The reason is quite simple. It does not matter if it was the corporation itself or other buyers who purchased the shares – the market dynamics of each share purchased means that a share got bought and it really doesn’t matter who was involved, EXCEPT in how the shares get used later. It is only from corporate share buy-backs that the highly paid executives are given free to low-cost stock options. These stock options come from the buy-backs. So once the options get exercised, the investors indirectly paid the executives more money and the net effect is a loss of shareholder equity. So, since this hurts the shareholders, why do investors love it so much? The answer is that they’ve been fed a lie and they are so use to the lie that they don't think deeply about what’s really involved.
Fallacy #2: Valuation matters.
The fact here is that stock prices at best only loosely relate to the actual worth of the company in terms of profit, book value, or any of the various other measures. A company could be undervalued (not so often) or be overvalued and not just by a small amount but oftentimes by an incredibly high amount, and not just this but stay high for an extended period of time and this may be for many years! How this happens? There are no internal controls regulating stock prices. So, for example, say stocks are expensive such as was the general case in 1999 but the only way to participate to make easy money without having to work a real job is to pay too much. Things could go well, but eventually the bottom could fall out and if not prepared, big losses could result. Conversely, say you select a stock that has a low price per earnings (PE) value and you feel safe in choosing on this basis. Wall Street could then drive the price even lower. There is just no good knowing as the stock price does not have to reflect the value of the corporation, as illogical as this sounds! Wall Street pundits will make claims that a stock is overvalued (but not usually using such overt language but likely would say something like "we believe it may be fully valued") or undervalued but none of this is safe to act on since the words are spoken for an intended purpose and that purpose is NOT to show the investors where to make money but for the bankers to make money!
Fallacy #3: Don’t fight the Fed (Federal Reserve Bank).
This is an excuse invented by Wall Street to create hysteria and an excuse for a rapid broad market action in one way or another. It’s not like a small bump up or down in overnight lending rates between banks will affect corporations that much but over a period of days to weeks, Wall Street could make the impact resulting in a 10% swing to sucker in investors before Wall Street again makes the decision to change the direction. If they can get the media to drum up sensational stories, they can garnish many more suckers to profit even greater before pulling the rug out from everyone’s feet.
Fallacy #4: Don’t fight the tape aka "the trend is your friend".
This is to encourage people to behave as if they lack an independent brain and go along with the group dynamics, one monkey chasing after another. When you get enough monkeys doing the same thing, you end up with a continual routine until which time the crooks at Wall Street decide it’s time to take profits off of the unsuspecting investors. The retail investor in most cases can’t have any effect on the direction of the market but is controlled by the heavyweights in whatever they do.
The Wall Street engine could decide to drive the price lower and even have pundits putting out negative stories to the media about the corporation of the stock to try to generate selling interest to drive the price lower. Why would this occur? Simple, someone or some group of investors want an even better price and they are the ones who get the best price while others have been flushed out or didn’t get the same opportunity. This is usually less destructive than when Wall Street drives stocks to lofty levels as the fluctuations can be so great and the way market makers can play psychological games with investors by making it appear there is a sudden rush of buying or selling could perform their ill actions to draw in either buyers or sellers at their whim and then push the price in the opposite direction. How could this happen? Simple again, unless there is too great of a rush of buying or selling, the market maker can make the bid and ask prices hang for a while and through their own allowed buying and selling can decrease or increase either the bid or ask to influence an investor’s decision. The market makers can also accelerate either upward or downward stock price movements. This can be dangerous to the market makers if it quickly reverses on them but they can usually control matters as the investing public is so gullible and greedy in fearing they may miss an opportunity of making easy money by seeing how the price movement is going so they try to follow the price action. These actions can be done on intra-day or for many days, weeks, or months and no one will know when the price action will turn around except the Wall Street gang on their whim or upon making the decision to do so based on or coinciding with a major buy or sell order or on some economic news.
Fallacy #5: Buy on the dips.
This may or may not work. The safest way is to put in a stop-loss order and simultaneously (if your stock broker allows) a sell order. Laziness or feeling so assured that a stock has to behave logically based on the state of the corporation or of broader economic environment that investors often will just not place any orders immediately after establishing a position. When buying on dips, the dips could get deeper and deeper and suddenly you might find yourself with so much money in the market, more than you even intended on, and maybe even end up on margin (borrowing from the stock brokerage). Once on margin and the losses get worse it becomes a nightmare that no one should ever have to endure but Wall Street pundits will still say buying on the dips is the way to go - a way to go for them to profit! Certainly an investor may buy on a dip or two but when it appears as though the system is giving you the shaft it's best to close the position and either start over again or get the hell out of the market and leave it to gamers. You may have all your facts in order but Wall Street can make stocks behave illogically and it can never be forced to act logically. It may cause you mental anguish from wondering how could a stock be pumped up or driven down when it is the opposite of all very real indicators. This is the major reason why being in the stock market is a very bad, unfair game. When prices fluctuate even if in the opposite direction of where you know it should go, you can still make money from the price movements but sometimes, the prices are driven down or up so fast and with few chances to make any trades based on fluctuations that an investor may lose great. So, I must repeat, it does not matter how smart an investor is, as long as Wall Street can get the masses of uninformed investors to go with their program, intelligence means nothing and this adds to disconcerting feelings.
Fallacy #6: You are investing if you put money into the stock market.
This one certainly sounds true as why else would anyone be putting money into stocks, to invest, right? Well, that is the intent by many but it is NOT investing. Had it been actual investing the corporations themselves would take your money, invest it as they see fit, and when profiting they return a portion of what they benefited from the money you gave them. This is only partially true for the corporations that offer a dividend and completely false for those that don't. The present system allows the value of stocks to be determined by "investors" but mostly from the Wall Street gang and closely tied, banking and investment institutions. The predominant gains or losses are determined not by the corporation but by others! This would not be so bad except that the true worth of the company, as if was put on the market and sold would always (except in momentary passing) be different than whatever value attributed by the stock price that is determined not by value but rather a disjunctive function of supply and demand and Wall Street players in moving the stock price for their gains, and this process often trumps over an analytical valuation of the corporation.
Fallacy #7: The stock price can't get any lower (or higher).
Yes it can. It goes as low or as high as the major stock players make it go. It does not have to make any sense at all. So is this really investing when the stock prices can be set in such far extremes relative to an analytical assessment of the value of a corporation?
Fallacy #8: Good economic news is good for stocks and negative news is bad for stocks.
This would be classified as what I term "gambler's knowledge" that I mention in my book. We can only guess how Wall Street react. Terrible news can cause the market to jump high as well as great news make the market sink. It really isn't the news though that make these happen but unscrupulous activities in trying to make people fearful in either direction: in pumping prices up to make one feel they are losing out on gains to encourage buying at too high of a price, and in pushing prices lower to feel they will be losing more money if they don't sell fat. Once Wall Street traps the unsuspecting "investors" it can quickly switch the market direction and then they accomplished their goal: they made easy money, and YOU lost money.
Fallacy #9: A company's profit or revenues rose because it improved.
Not so fast. This could happen for a myriad of reasons. There could have been orders that were no reflected in the last accounting period, there could have been a bad quarter prior or a year prior to make the comparisons look better but may be less than other times in its history. Perhaps the corporation bought out another company that would likely automatically make the revenues higher and thus makes it tough on the investor to know if there was any improvement excluding the acquisition. The revenues and profit could also increase if there is inflation and/or a favorable currency exchange rate between the country it is based in and those of its trading partners, and recently this could produce sizable increases yet again, makes it hard for the investor to know what the key figures are without these effects. Additionally, corporations like to hide expenses or separate them out in their headline numbers for media consumption and entitle them "special charges". This "special charge" game could happen every reporting period which would make one think these are just part of running a business and should not be treated as anything special.
Fallacy #10: "Buy low, sell high".
While this is essentially what must happen to make money trading stocks (it's not truly investing as I go into details about in my book and elsewhere), however, what normally must take place is "buy high, sell higher". The stock market is often extremely inflated. You take a look at the chart of the DOW from 1920 to 1980 for example and if you continue the trend, it would be about 2000 only by year 2010. The DOW presently 5 times higher than this is in part fueled by the scam perpetrated by government, likely along with Wall Street pushing for the legislation regarding 401-K accounts and the use of IRA accounts to be used to inject money into the stock market. It does not mean the companies are really worth what the stock prices indicate. And so, if you do your research and look at a corporation's financial information and conclude it is overpriced yet you believe the company has great products, you have no choice but to overpay to be in the game else lose out on making money. Sadly this may mean buying at the top and then be a bagholder, in other words, being underwater holding a stock that is worth less than what you paid for. Let's say specifically you see over and over again a stock like AA (Alcoa Aluminum) trading from $10 to 14. If you bought at $10 numerous times and sold at $14, you could be making money time and time again, but upon viewing its financial figures and seeing the huge debt it carries and knowing metals prices are in a bubble, you would prefer buying at $8. So let's say you compromise and then finally buy at $9. One day you see the stock sliding down to $9, and then you exclaim "Wow, I got, it at a rock-bottom price!", but then immediately after, you see it going lower and lower. A week has gone by and you now see the stock trading from about $7.50 to $8.50. And so the lesson here is, buying low and getting your order filled might very well mean something tragic just happened and Wall Street is now valuing the stock lower and will make you pull your hair out or have a heart attack from experiencing this along with the other scams. What would be even worse and does happen is that if trying to wait for a lower price but seeing how everyone shows no care in overpaying for a stock, you decide to finally get in at $10 and then the pattern stops and still ends up trading from $7.50 to $8.50 right after. In addition, if instead of buying at $9 but rather $10 to follow the observed pattern, the shares would be underwater even more! It’s a big game controlled by the money-pushers and so distinct from real investing. I would not recommend overpaying for a stock, but as I saw so much in my 11 years of trading, it would have worked out far better to overpay and hope for an even greater fool to pay higher. This greater fool method works more times than not but I still can't feel good about it and so even I miss out on terrific opportunities. It should be emphasized that whenever trading involves ignorance of valuation, it is not investing.
Fallacy #11: Financial information of companies are accurate.
Despite there being the SEC (Securities Exchange Commission) that is suppose to oversee the stock market in making certain that guidelines are robust and adhered to, the reality is different. Not only this, but the FASB (Financial Accounting Standards Board) would like to impose realistic accounting methods on corporation to reflect what is termed "GAAP" (Generally accepted accounting principles), the organization is usually under political and corporate pressure to relax its rules so that the true health of corporations will not be known and this ordinarily means the debt of corporations is far worse than reported and thus it demonstrates that not only is this a systemic corrupt aspect of the financial market, but it also demonstrates that stock prices are even more over-priced.
Fallacy #12: Pundits say "BUY".
The sad reality is that the media always pumps stocks. It's probably partly from the misconception that if prices go up, it must be good. The other reason is, there is likely a financial reason why they must pump stocks - from who owns the station and the advertisers who drive their revenue. Imagine if there was balanced talk about stocks as opposed to pumping continuously, the financial institution advertisers might not benefit as much by getting people to separate themselves from their money and so the advertising rates would fall. Investors are left to garnish the truth despite being given a rosy picture of the economy all the time. The fact is, the mainstream news media that cover the financial markets are far from fair and balanced. There is constant purposeful twisting of economic data to suit the stock pumping agenda. One such example is in how the media tries hard to put the weekly unemployment claims that are announced on Thursday mornings in a favorable light when the news is bad. The media states that when the number is less than 450K per week (1.9 million per month), it indicates job growth. Well, the number of 450K use to be 250K, 300K, and 400K, and so they purposely move the number upward to fulfill the objective of pumping up the stock market. Additionally, in the current situation, there are systemic problems with unemployment that are much different than ever before with foreign labor being utilized more as a result of the global economy and thus even the old pivotal number of 250K needs to be revised downward. Furthermore, when the UI claims falls, the media will take this as a good sign and jump for joy but if the economy is ailing or while there is a global economy, this number means far less than the actual monthly jobs data that would show if there were any job gains. Another example is the media hammering into their audience that corporate America is sitting on a pile of cash. Well, apart from the hidden debts of corporations that the FASB is allowing, I found out directly from Standard and Poor’s company that keeps tabs on the nations top 500 corporations and they provided me with the flowery data that in 2005 the debt of this basket of corporation was $3.6 trillion but now, in 2010, the figure they provided me with is $7.25 trillion. See Bankrupt USA. So I ask, where is the cash? Yet another example is the media stating how Germany’s economy is doing so well but never mentioning how deep in debt the country is in. As of December 16, 2010, as noted on World Debt Clock, Germany’s public debt to GDP ratio is at 83% and its external debt to GDP ratio is a whopping 148%! These debt numbers are far from healthy. I spent hours upon hours of posting comments on message boards on the internet to help expose the truth and write to media to urge them to tell the truth. It’s a shame that there is so much corruption going on in life and that there are not enough people pushing for truth.
Fallacy #13: A lower priced stock is cheaper than a higher priced one.
Well there’s no debate about this if looking only at the raw price per share, however, the term “cheaper” implies that it’s a better deal but there is no relationship between stock price and value. To know if a stock price is cheap relative to another, you have to make comparisons, including the p/e ratio, price per book value, current debt, and other financial statistics. Relying only on a price per share tells practically nothing if it’s cheap or expensive. Suppose for example there is a stock priced at $25 and one at $2,500. Most people, and even many who are in the financial sector who should know better would say the $2,500 price per share is more expensive. Now suppose the company with the higher stock price has a lower p/e value, no debt, and great future prospects and the company with a $25 share price has a huge debt and future revenue uncertainty. What then? Would you still say the $25 share price is cheaper? Buying 100 shares at $25 costs the same as buying 1 share at $2,500, so what’s the big difference? This has implications with stock splits, including reverse stock splits – nothing really changes to the value of a stock when there is a split. Either you get fewer shares at a higher price or more shares at a lower price. The only thing effected in stock splits is psychological in that just like how people make a misjudgment on what they consider a cheaper stock.
Fallacy #14: Stock prices go up when there are more buyers than sellers.
Absolutely false. Now, obviously what is meant is that there are more shares being bought than sold and not the actual number of persons. There could be one buyer with 10 times more money than each of 10 different sellers and they could balance themselves out. The fallacious statement refers to the shares being bought or sold. What is overlooked in the statement is that for every share being bought, there is always one share being sold. So how do prices go up or down when there is always a net balance of buying and selling? In a perfect world it is determined by the extent of desire of wanting to buy versus wanting to sell at some price. However, with high frequency trading and other corrupt processes that go on in the financial markets including the role of market makers, actual human desire is replaced with computerized algorithm trading and purposeful manipulation of stock price direction. The statement would be better stated as “The desire to buy outweighs the desire to sell” yet this would still be amenable to a perfect world because of the unfair stock market practices mentioned that is currently allowed by the SEC.
Fallacy #15: Reading stock price charts is useful in determining the future price.
This is absolutely hogwash. As a mathematician, I wish this was actually possible, but for the most part, the future price cannot be predicted based on charts. There would be some seasonal fluctuations in the flux of buying and selling, however, this is dwarfed by the massive amount of institutional trading, unless of course, the major market players decide to produce price swings coinciding with seasons to create retail buying or selling hysteria. There could be a feedback mechanism involved with chart reading when there is a sufficient number of high volume traders who rely on charts. When big market movers want to move a stock price in a certain direction, they can usually do it effortlessly so their actions are more a matter of taking advantage of a POORLY CONSTRUCTED STOCK MARKET SYSTEM to manipulate prices. When such players are allowed to manipulate stock prices, they can choose to follow charts to falsely give credence to chart reading. This would be a self-fulfilling prophecy that a retail investor should be wary since as an outsider, he/she would not know why there may be occasional price movements that could be explained away as an afterthought with charts. The retail investor may notice adherence to a chart and decide to trade based on it but without warning, the big players could choose to deviate from the charts. Of course the unsuspecting retail investors would be too slow to react and then be further separated from their money or be encouraged to chase a higher price at a worse valuation.
Fallacy #16: Leveraged index ETFs/ETNs do what they are suppose to do in tracking the underlying market index at the claimed multiple.
This is something I fell victim to in the last two years. I always distrusted the stock market for many other reasons but figured I could be safe in "investing" in leveraged ETNs but it was not only dealing with the usual manipulations of the stock market that I had to deal with but in addition, these funds decompose much more rapidly than claimed in their prospectuses! It's amazing these products are allowed by the SEC unless they actually track the claimed indexes in some stated proportion, with a reasonable expense ratio. Whether it's QID, QLD, TZA, TNA or a host of other leveraged ETNs, or VXX (supposedly tracks the volatility of the market but it's a fraud in that it not only does NOT track the volatility which is a measure of fluctuations in the market but goes by a misuse of the word "volatility" in that it tracks the put/call ratio of the S&P500 futures [not volatility in that VXX goes up on increased put options which is unidirectional as far as market volatility goes and does not also go up when there is increased call options relative to put options]),no matter who you may sent complaints to, the SEC, DOJ, or the financial firm making these fraud "investment" vehicles, no one will do anything about it. I bought into VXX and lot a great amount as I was under the impression it was one way to "play the market" based on volatility, as in if the market goes up big or down big, which means the volatility is high, the VXX should be high, but it doesn't work this way at all! In addition, there is a decomposition of VXX and all other ETNs related to the VIX (called the volatility index but it's a misuse of the word "volatility" as well). If you bother graphing TZA with its inverse, TNA, you will see they are not symmetrical, in that both of them decompose as at a rapid rate, on the order of 50-60% on an annual basis! So, just how can you really invest when you have to beat 60%? Well, if you are an aggressive gambler in the stock market it can be done, but it would require incredible day-trading or to a lesser extent, have some success in a conservative way in which I am able to trade in making 100% yearly gains of ordinary stocks through swing trading to in effect garnish possibly 40% yearly gains. If you could be assured of obtaining short shares for these products, it would be a way to get rich as these are all DESIGNED TO GO TO ZERO! The problem is, it's not easy to obtain short shares. When the market is extremely illogical as was the case from September 1, 2010 up until around June 2011 when the market was going in one direction, upward, when the economy was terrible and almost every economic report was negative, rightfully trading a leveraged ETN that was reflective of the actual economy would make it extremely difficult to eke any profit at all, and more than likely, experience massive losses, and would be largely a result of the Federal Reserve meddling in the markets to compound market manipulations. I never would have gotten back in the market after thinking I'd never get back into it after 2008, but since the Federal Reserve Bank crippled me in preventing me from getting any more than trivial bank interest on my money, I figured I'd get into a leveraged ETN product and just make a few thousand, and not to be greedy at all. To think of wanting to make no more than $2K, ended up in losing as much as $70K from both ETN price decomposition and Federal Reserve manipulation, it was a period of extreme stress - but had the market had a few corrections as what normally would occur, a trader could still have a chance with opposing market ETNS based on intra-day price fluctuations, but these rarely occurred during the above stated time period. If you sadly were fooled by the performance of any of the above mentioned ETNs, I strongly suggest spreading the word to others who did the same and file complaints with the SEC and suggest to everyone you know to not just boycott these types of products but also to entirely boycott the stock market until a system like the one I devised gets implemented. You should not have to face market manipulations if it's investing you wish to do. For more information see this publication put out by the FINRA that I only discovered on Nov 1, 2011: Mutual Fund Alert. If the ETNS tracked what they are suppose to do, we wouldn't need such a publication! Pay close examples to the examples of how these ETNS can decompose in value! BOTTOM LINE: EVERY ONE OF THESE ETNs BY DESIGN WILL GO TO ZERO (or properly in a mathematical sense, approaches zero).
Fallacy #17: It’s a level playing field in that all investors are able to buy into IPOs at the offered price.
Except for Google, all IPOs that I am aware of are disseminated to special, wealthy persons so they are able to make fast money. It’s so against any fair practice. Why should the wealthy be given free money? Why not those who have less are given the opportunity to make such easy money?
In year 2000, then San Francisco Mayor, Willie Brown as said to have goten these privileges. At that time there were many hot IPOs where upon the wealthy could multiply their wealth. One such case was VA Linux that soard to 10 times its IPO price on the first day. Imagine being one of the privileged to have gotten the shares at the IPO price!
Recently, Groupon (GRPN), was sold to special privileged people at $20 per shares. Imagine getting 5,000 shares at 20 and flipping for $8 higher. $40K made in one day when others would be lucky to be employed to get this much over the course of a year and actually working for it. There were 35 million shares purchased at the $20 price and then the buy/sell volume in the very first day was 49 million, showing that a good deal of the shares were flipped for easy profit, in the range of $26 to 31. The corrupt financial system claims that the wealthy are chosen for IPOs because of the ASSUMPTION they would hold and not flip the stock for quick profit but the facts do not back up this claim. It would be an extraordinary day if the shares traded more than 5-10% of the total number of shares in one day but for over 100% of the total shares to be traded there surely would be plenty of flipping.
It's a scam. All these IPOs are for the special privileged people. The common people are not able to get in on these. This is a prime example of the ponzi scheme of the financial markets. Someone gets in first, gets crucial financial information first, sometimes through illegal means, or through market maker and other big financial institution price action manipulation, the common investor is given the shake down in that those in the corrupt financial system constantly skim off profits from the money that the ordinary person thinks is actually being used to invest. The fact is, the common people are only loosely investing, but engaging into a system that is fixed.
WITH SO MUCH MANIPULATION POSSIBLE WITH THE PRESENT STOCK MARKET SYSTEM, YOU HAVE TO ASK YOURSELF WHY THE SEC IS NOT PUSHING THE MANIPULATION-RESISTANT STOCK MARKET SYSTEM I DEVISED (OR ANY OTHER SYSTEM IF THERE EXISTS ONE BETTER THAN THE ONE I DEVELOPED). I do not care if I get credit or not, though a little compensation would be nice for my contribution if implemented, as the major point is the present system is absolutely terrible and in need of a major overhaul.
The media also contributes to the mood of those involved in the stock market and it could be purposely influencing people to get in on it, as if they were sales people, regardless if the risks far outweigh any potential return. There are many stories that put out misleading information. And then you have analysts who make predictions of company profits and even if the profit is terrible, as long as it beats the expectation, or beating a lowered expectation figure, a stock could soar, but sometimes not. Government will put out economic data but does not put such things as growth figures with a relation to the population growth. These three added facets help to ruin the financial markets as well. The media needs to separate the cold hard facts from opinions to not unduly influence the direction of the market. Analysts need to speak more of qualitative aspects of corporations or of the broader economy and use clear qualifiers whenever quantification is done but never speak of expected net income. As far as government putting out data, suppose it pronounces that the GDP growth rate is 0.6% but fails to mention that our population growth rate is 1%? By not doing so the public would not easily see that on a per-capita basis, the growth rate would actually be negative: 0.6%-1%= -0.4%. The unemployment rate is also a purposely flawed statistic in not counting those young persons who recently graduated from school or just happened to come of age to be looking for work, among other things. Lots of data is purposely given a rosy appearance. What is an added insult to people is the usual understatement of monthly figures if it is bad news and then a worse figure is announced as a past revision in order to try to keep the stock market at a higher than sustainable level.
The Federal Reserve, since after Paul Volker, both Alan Greenspan and Ben Bernanke have consistently catered to Wall Street with consistently accommodative interests rates for the stock market of around 2% lower than would provide for a stable economy. Paul Volker aggressively dealt with inflation and there was just a few years of moderate pain from high interest rates, though responsible people who saved got the benefit, and moreover the negative effects of higher interest rates are far less than having interest rates set too low as easy money contributes to market instability. The obviousness of this needs to sink into the present Fed Chairman as he is causing undue destruction of the economy. In spite of what Congress was wanting in getting more to own homes and included minorities and anyone else who was marginally qualified or worse, far from qualified, Greenspan could have played his independent role in accelerating the interest rates soon after 9/11 but he failed. When Bernanke took over he just followed the same routine as did Greenspan and refused to make the necessary leap in interest rates for fear that the stock market would be affected negatively. The stock market is only a subset of the overall economy, and is not really even a place for investments in as much as a legalized gambling institution whereby prices of stocks are typically 2 to 5 times more expensive than their book value, having a price of 2 or more times a fair price per actual earnings ratio, and the reward from so-called "investing" coming mostly from fortunate stock price increases that is determined by those who trade a stock and only feebly correlated to a company's profit. In statistical terms, I'd venture to guess that the correlation of a company's stock price to profit is R=0.3 and stock price per fair value at R=0.2 but if the corporation itself determined all the rewards as in the novel stock market system that I developed, the stock price is no longer a dependent variable and thus an investment would yield exactly the profit, less as in normal circumstances, an amount withheld for reinvestment and to build a solid cash position.
The Federal reserve Chairman, Paul Voelker, knew quite well that corporate America that is held up by a whimsical stock market is not the central component of this country. The everyday people who are self-employed and those who work for small private employers are the backbone of this economy. To cater only to Wall Street and leave the rest of the public in despair would be doing not just the economy injustice but also the social fabric of this nation. The tumultuous times we've had in this country in the past 15 years with inflation that was masked by exuberance that everyone could get wealthy off of someone else was a complete farce and the Federal Reserve did nothing to curb it. The brains behind the economy should be in the FOMC of the Federal Reserve but it was complacent for too many years, at the detriment of the country. One thing did result as likely an intended consequence of the overly accommodative monetary policy, and that is the divide between the rich and poor is at the highest in history. Now, does that make everyone feel good about how The Federal reserve Chairmen of the last 23 years are putting the interests of the wealthy over that of middle America?
I saw early on how America was going to be in deep trouble and so I have been writing to the Federal reserve since year 2001. It's unfortunate that those in power do not listen and then devastation occurs. I am certain many can relate to this since most who have some thinking ability were told sometime in their employment history by their manager to do something that made no sense yet voicing an opinion would be futile and then as known full well, the ridiculous order by management proved to be a failure. I am just one person among many who easily spot things that do not make sense. I tried to help this country free of charge to do my civic duty and moreover, spiritual duty in using whatever gift I have by trying to persuade the Federal Reserve that their policy of interest rates being held down so long will be creating asset bubbles that would later turn into a recession. Recently, I've been having to try to get the Federal Reserve out of meddling in the stock market and further quantitative easing that will simply exacerbate our economic woes.
A few excerpts of my letters sent to the Federal Reserve through the years can be accessed here: Letters Sent to the Federal Reserve Bank
The Federal Reserve is giving "investors" a reason to keep stock prices too high as has been the case for a long time. What's wrong with the stock market going down 30-40% from current levels and then only making small gains from there? Stable markets make for less risk and most all can be winners, but this messed up market system encourages stocks to get so far out of reasonable valuation that they are primed to fall and if many are primed at the same time you end up with a tidal wave. I suppose this is the way capitalists prefer it to be? THIS IS THE FALLACY that RAPIDLY RISING OR EXCESSIVELY HIGH STOCK PRICES ARE GOOD! With no internal control or external relational comparison to prevent market over-saturation, you then have an unstable stock market that could cause widespread devastation. Stock prices need not vary and I go into this in my book disclosing my novel stock market system. However, while there are varying stock prices, a stable market would have small rises and falls and definitely not rapidly rising prices that the Unites States Government thinks is good for the public. I've scanned the valuation of many major publicly traded stocks as of May 2010 and the valuations are still ridiculously high. We're in a recession with clearly NO END in sight and as resources of metals, food, chemicals and energy are cutting into profits and causing plenty of inflation, future estimates really need to be cut further and then one would see the future PE values are still excessively high. We need a good clean out and then some dampening measures to keep stock prices from fluctuating so much, but of course Wallstreet thrives on that. To properly invest, stock prices and/or dividends would be directly and proportionately related to profit but that's obviously not the case.
As noted in my book, rising stock prices are set, or more properly grudgingly accepted by those who claim to be investors. Stock prices move by surges of buying or selling, help facilitated by market makers and large brokerage firms making huge block trades who buy or sell at any given time or by help covering up their game by doing so when there is news on the specific company or broader economy, and it may actually be in opposing direction to what's rational to help confuse people to make bad stock trades. After which time the huge block buys or sells have scared others into following their trade, they can work with money makers to complete their round-trip trades by methodically selling or buying shares to not dramatically change the stock price. In just 5 minutes' time, a stock could go up or down 50% and the same number of shares were owned before and afterward thus also partly determining the value of the corporation regardless of the actual profits. The media also helps fuel market manipulators as stories are chosen normally to pump up stocks. The media also gives people the notion that merger and acquisitions is actually good for the economy yet it is only partly if it is from efficiency that would later be offset by reduced inflation or lower cost of living but this second part is often not what happens and just those involved in the consolidation were able to profit handsomely at the detriment of other people's money. Furthermore, the media brainwashes people into thinking that a corporate stock buy-back of shares is absolutely wonderful yet this is done to then give the shares to management, primarily, thus causing shareholder equity to fall – how this is perceived as good to the shareholders is amazing, but the media has most everyone thinking it is.
MATH-BASED PEG FORMULA AND DISCUSSION
I worked out a mathematically based price per earnings growth ratio that can be applied much more universally than the popular malfunctional PEG ratio. I worked out the formula with close attention of how growth affects the PE and is not mathematically flawed like the PEG that others use. I am appalled that the present formula is even used when there is no real mathematical basis behind it. Investors are being misled by the presently used formula.
The derivation of the proposed mathematically consistent model is available to all who request it.
The formula is simple, yet not so simplistic and erroneous like the presently used "PEG" ratio. Explicitly it is: (P/(E(1+G)^2))/12. Interpreting the results is also simple, a value of 1 would indicate fair value, less than 1 being undervalued, and greater than 1 being overvalued. The factor of 12 serves as a fair PE value and not the historic average value of 14 for the S&P500 that includes years of the markets being extremely overpriced. This is also consistent with the "PE value" for real estate whereby if buying real estate for investment purposes, you would want the price to be no more than 10 to 12 times the yearly rent. The formula is based on a successive dampening of the growth rate as by the time it is in the public eye, the acceleration of profit ought to decline and I chose a number just higher than the inverse of the golden ratio, that being the natural log of 2 as a slight bias in favor of those who like to make market bubbles but I am satisfied with even this as at least it is somewhere around what might be expected as far as forward earnings. Of course no simplistic or even complicated model would be able to accurately gauge a future stock price and so for this reason, simplicity is warranted as there would be no added value in anything but. It turns out that an approximation of modeling around these factors yields the formula as shown above.
The following chart was constructed around year 2005:
Define investing – providing money for hopeful or guaranteed gain. How is the stock market a vehicle for investing? The stock market is a listing of corporations that has its price of stock shares originally estimated for sale by a financial institution that may vary according to demand and is not based on a rigid valuation – the first ones to buy what is called an “IPO”, ie an initial public offering are privileged persons who are assumed to pledge not selling the shares in the short term, the shares will subsequently be purchased at often widely varying prices, often much higher than the IPO price to allow those privileged first buyers a quick profit, and soon afterward until the corporation is no longer listed from being taken over, going private or bankruptcy, the share price will be based NOT on the actual value of the corporation but by a price that is determined by SENTIMENT and heavily influenced by stock market makers (those middlemen who meet buyers with sellers and who are allowed to buy and sell shares with practically only implied guidelines but just as large financial institutions also influence the price from pump and dump schemes, the market makers can do as well to make for volatile prices that can generate higher commissions through stirring up interest. So when a person buys shares of a corporation, the price of selling is hoped to rise but there is no guarantee for it at all but often it will occur by the fact that it is a game from other people hoping for the same thing ...the corporation doesn't set the price as it is the only entity that can attribute a rightful price, other than those possessing good analytical abilities but the price may be much different than what reason would indicate...and so, again, how is it investing when giving a corporation money when the share price is set by a community that has many people who make decisions of buying and selling that possess inadequate analytical abilities to set a meaningful price (or by a sector of the community, specifically those who can heavily influence the price to purposely inflate or deflate the share price for selfish reasons)? It is thus simply not investing at all as it becomes a game of hoping other people will value the shares higher, NOT a matter of the corporation making good decisions to offer a return on principle that would be based on either the corporation setting a share price or in providing a dividend.
From experiencing so much frustration with how the financial system operates, I made numerous posts on stock message boards from September 17, 2010 to October 12, 2010. It is about 40 pages of rants to try to get people to see the game going on in the stock market. Some of the posts can be viewed at:
Stock Message Board Posts
As you see, investing should NOT be so difficult and there should definitely be not so much of a fight to demand fairness. Our financial system needs a major overhaul but the status quo is still maintained and there are just trivial band-aid fixes that occur and only after catastrophes occur.
Letter sent TO Senator Ron Wyden on 10-19-2010:
"Please ask Ron Wyden to inquire into the Federal Reserve to ask why they are acting like a proxy to the people of this country by manipulating the stock market. The manipulation is too much to handle. I lost $40K already not knowing until a couple weeks ago why the markets keep going up on bad news and just like I mentioned on the phone, the Fed has a POMO program where they feel they can ruin the capital markets in making them overpriced if they want. Short-sellers, who rightfully chose to short-sell because of no good alternative being stock prices are too high, got mowed over by the Fed's actions. Now that stock prices are extremely high, whoever buys at these high prices are set to lose lots of money. DO YOU SEE HOW THIS IS NOT GOOD IN HAVING AN ARTIFICIALLY PROPPED UP MARKET?
This is very crucial to the health of our nation. The stock market could have just gone down further in 2009 to have a smaller amount of losses but now the losses will become much higher. As I noted in many of my stock message board posts, if you extend the graph of the DOW from 1920 to 1980 onto the year 2010, it would only be 2000! There are other measures as well, but the main thing is the Federal Reserve is behind the biggest monetary scam played on a nation in all of history and it must be stopped and unwound if we are to have a fair marketplace.
Look here as luckily one person decided to not fear writing about what's going on: http://finance.yahoo.com/news/Look-Closer-Its-a-Giant-House-etfguide-398477779.html?x=0&.v=1
Perhaps after this, Ron Wyden could champion my new stock market system that is resistant to manipulation. I gave it to the SEC a couple months ago along with my modified proxy voting system but evidently they prefer a system rife with problems. I'd hope that Ron Wyden cares for this country and not allow the Fed to wipe away other people's savings like it did to me. I have been asking the Federal Reserve to compensate me but they have not replied back. Please ask the Federal Reserve for damages inflicted upon me that they did that has nothing to do with the mandate of the Federal Reserve. Maintaining stable prices does not mean making market bubbles whether it be in the stock market, or allowing the housing bubble a few years ago that they cared not to do anything about, nor in them trying to maintain the housing prices higher than sustainable relative to wages (I use a factor of 3 as a guide to say whether the housing market is overpriced when dividing the median home prices by median salaries...even in Southern Oregon that ratio is 6 which indicates home prices are two times too high but again, The Federal Reserve does not care about this).
I will be posting this letter on one of my web pages so all will know that I asked this of Ron Wyden."