Monday, March 14, 2005

STOCKS AND AWW

I was so cheered and gratified by the response to my first little foray into conspiracy blogging (which could best be described as none) about rising oil prices last week, that I've decided to tee up my booga-booga game again. To wit:

It looks like year five of the eight-year Bush/GOP War On The Little Guy is gearing up for its Gettysburg or Iwo Jima or Little Big Horn, depending on which side you take and the eventual outcome of the debate on what to do about Social Security. I am not a trained economist, or anything else for that matter, but the angle that most intrigues me right now, largely because I haven't run across it in the media and therefore like to imagine that I'VE STUMBLED ONTO SOMETHING, is that to the extent that a significant number of people commit to channeling a regular and recurring amount of retirement money into the stock market, they are going to be tinkering with one of the fundamental laws of investment physics: that the price of stocks will rise along with and in proportion to the underlying value of the industries represented. The most rudimentary measure of this is the P/E, or ratio of price (of a share of stock) to earnings (of the company issuing the stock).

Every once in awhile, alas, this principle is temporarily violated by the market, when people in great numbers buy or sell stocks not on the basis of underlying value or sound economics, but out of such irrelevant motivations as greed or fear. As a result, the market as a whole drops or rises excessively and becomes priced markedly more or less than its actual value.

But now there emerges another possible irrelevant reason to buy stocks: because you at some point committed yourself to doing that, on a regular and recurring basis, year after year, no matter what. When enough numbers of citizens begin doing this, the market will automatically, and irrespective of economic conditions, receive an ongoing series of booster shots right in the share price, producing increases in price that are based not just on underlying value but on a kind of federally mandated momentum. It's supply and demand, but with an increasing portion of the demand being institutionalized and unwarranted.

At some point, this difference between the market's actual value and share price value will become great enough as to be viewed by investors as unsustainable. At that point, they will begin selling, some of them taking profits big enough to choke a Bechtel. These won't be all investors, mind you. They will be those investors who (1) were already in the market before this artificial inflation process began (i.e. current heavy riders), and (2) were invested outside the "private accounts" program and therefore are not required by that program's restrictions and penalties to stick it out in a falling stock market (i.e. see previous i.e.).

Would the Bush Administration in specific and the Republican Party in general engineer a nationwide Ponzi scheme to artificially and enormously increase the net worth of themselves and their friends and supporters, otherwise known as the wealthy, at the expense of the general public, otherwise known as the suckers?

Nah. I'm sure I'm just being paranoid.

1 Comments:

Blogger ....J.Michael Robertson said...

When you get serious, I get nervous. I believe it's one of the signs of the Last Days.

March 16, 2005 at 9:53 PM  

Post a Comment

<< Home