it seems that Wall Street has managed to get us thinking in terms of investor sentiment rather than economic fundamentals.

This is part of a larger pattern powered by Wall Street to get us thinking what they want us to think rather than asking simple, basic questions. And they continue to enjoy the misplaced trust of millions of investors and fund managers while they invent new ways for all of us, including our government, to lose money that ends up in the pockets of the Wall Street giants.

This is not an indictment of all of Wall Street which serves a necessary purpose in a capitalist system.

For those confused about what to do with their investments for retirement, there are no good choices. When Alan Greenspan was chairman of the Federal Reserve he referred to the stock market being a repository of irrational exuberance.

In 2016 the stock market was already overpriced if you look at fundamental elements of stock valuations like price-earnings ratio and book value. Once upon a time, stocks were mostly valued at a multiple of their CURRENT earnings per share.  If a company was experiencing growth it would get a higher multiple than a company whose earnings were flat or had moderate growth.

Then Wall Street figured out that the public could be easily duped into thinking stocks were more valuable than their fundamentals by simply switching (a) the basis for the multiple and (b) changing accounting standards.

Today the P/E ratio is mostly based upon future earnings which means projected earnings which in turn means whatever management says they want it to be. This dovetails nicely with advent of “Unaccountable Accounting” (the title of a book by Abraham Briloff in the 1960’s) in which certain transactions, defined again by management, could be reported either as “off balance sheet” or as a one time write-off separate from regular reports of earnings.

In turn this dovetailed nicely with the permission for securities brokerage firms to incorporate and go public which forever shifted risk from management to shareholders. This gave management the license to take risks with impunity and benefit from short-term gains even when the long-term result could be bankruptcy. (see 2008 financial crash).

So the stock market indexes took off like a rocket in both valuation and volume of trading. Stock prices, untethered by fundamental securities analysis, went wild. In simple language, individual investors and even institutional investors fail to ask themselves now a basic question: if the company they are researching is earning $1 per share, are you really ready to wait 50-80 years or more for it to earn back the $80 you just paid for a share of it?

In the 1990’s Wall Street referred to the bubble as “the new economy.” There is no new economy. At the end of the day, week, month or year, do I have more or less money than I had when I started? But under the Wall Street  labels and PR campaigns we have been deflected from asking such questions.

The most recent example of this was the increase in the stock indexes from early 2017 or the beginning of 2020. An 80% increase during a time when GDP increased only 9%. If we ever returned to basics the stock market would have a correction of more than 50% from current levels; but it seems that Wall Street has managed to get us thinking in terms of investor sentiment rather than economic fundamentals.

So I don’t know what is next for stock market. We just had a steep contraction of the economy but the stock market went up, which is another example of, I think, “irrational exuberance.” Or in plain words “this is nuts.”

4 Responses

  1. Magicians from WS figured out how to multiply $1,000 by 0 (zero) and get $1,000,000

    How can non-performing debt create up to $50% return to investors? Dead cow can produce more milk than a live cow?

    Investors must be held liable, too, at least for negligence

    As long as WS find people who want to get rich fast with their Ponzi scheme, they will sell “securities” which are not backed by anything except thin air.

  2. THANKS NEIL, I had just been thinking the other way almost a comprise, listening to you, I may not have gotten a free house, because I was swarmed with a bunch of other distracting lawsuits associated to keep me distracted. but with this page I managed to stay in the house for over 10 years and they had to give me 50K to leave. but the judicial mentality “free house” was a slander term they would label you with to overshadow the criminal acts they involved themselves in. simple, as a part of a fraud someone used auto debit from my bank account to make payments on another house, one underwater, mine was not. this becames an issue (these being police informants too so police involved) I did acquire a letter from Countrywide that they were going to apply these near 10 k to my account and then, they did not. that letter was stolen by that police informant , but seen by an accountant. nevertheless, in 2015 BOA settled with the DOJ for 15 billion on a number of classed frauds, mine being one of them, the DOJ lawyer was Tony West (now with pepsico) well, the fight got local pressure and the BOA didn’t follow the ruling and since the case was brought by me under title 15 in fed court, but many of the fraud actions had not occured yet, well overtly, as BOA’s lawyers do, placed the subsequent acts into the case and then claimed res judicata, which didn’t apply, years of arguing in side rooms and affidavits from my accountants they chose to not argue that day in court, but slap litigation wore me down, ever the illegal taking of my child in a star chamber proceeding, yes I said that right, had one case, the state brought another, and ran it parallel to the other never noticing me of an hearing dates, and of course the usual perjury that seem to be ingrained in so many cases many shared here. Nobody ever said the court were fair, but supposed to be, nobody ever said that we have reached our constitutional goal of the constitutional protections afforded by our founding fathers, but what we do have here is a mass of fraud by our government that we are losing the constitution isn’t being inhered to by those sworn to uphold it. At least on these pages we can sharpen and add to our fight. God help us all.

  3. Who is ” behind the curtain ” ? People keep saying / referring to Wall Street – but WS is made up of thousands of people and likely hundreds of computers programmed by some of those same people. Surely,
    many of those people know very well their actions are ethically flawed and often downright illegal both from a financial standpoint and not
    infrequently just plain criminal.
    So, thanks to ” fake news ” we put in office billionaires and yes men and yes women and some even with tarnished backgrounds. Then these people appoint their cronies and pals and significant others.
    People with 7 + figure incomes ( S. Mnuchin, et al ) have no clue of the effects of their actions on people these days, millions who have lost jobs, housing, health coverage, and sadly even their lives or the lives of
    family members – ethics be d—ed, We will get ours even if millions in
    our wake are destroyed in the process.
    And TRUST. . . it has been completely removed from the equation.

  4. Yep… I agree entirely. It seems to me Wall Street (not everyone… but the entirety these days) is trying to become the “New Religion” and is a religion, at it’s base, based on suicide.

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