Financial Markets

It happens in every bear market and in every crash. Investors get it wrong. Then regulators get it wrong. They look for scapegoats and find the wrong ones.

What's wrong with a futures market in terrorism? It is not a genuine market creation. A growing recognition of the superiority of markets over planning has created an unviable hybrid: the planned market, one created not by property owners but by the state and for the state. Planned markets bear a close enough resemblance to the real thing to fool even astute observers who are otherwise friends of genuine market forces. 

You buy a stock and the price goes down. Who accepts the liability for losses? The purchaser of stock, of course, who must always bear in mind that stocks are never foreordained to go up or down. As painful as they are, investment losses are necessary to work off the excesses of a bubble, and to re-allocate capital to more promising business ventures.

Whether we look at the very sketchy circumstantial evidence, the fiduciary duty argument, or the proprietary information doctrine argument, none of these arguments can justify the prosecution of Martha Stewart. The prosecution of Martha Stewart and others before her is nothing more than the reflection of the growing anti-capitalistic mentality in our society that Mises warned us about.

Stock prices are rising, but Frank Shostak takes a look beneath the surface. It is quite likely that businesses' ability to generate real wealth has been severely impaired. This in turn precludes the possibility of a sustained economic recovery and thus the emergence of a durable up-trend in stock price indices i.e. new bull market.

While the Federal Reserve-induced stock market bubble has been flattened, despite continuous inflating by Greenspan's troops, the land price bubble continues to expand in Las Vegas. 

One cannot discount the role of politics here. In the end, we could have a well-known person owning a felony record and being sentenced to prison and a once-prosperous company in tatters. We will see some federal prosecutors being feted as though they had just solved the Case of the Century. These are dark times, indeed, for the pursuit of justice in the United States of America.

We should not expect new hedge fund regulation to correct the flaws of existing regulation. If the feds get their way, we might wind up with a kind of derivatives cartel. Hedge funds and their clients may face additional restrictions, justified as measures to prevent market manipulation. The coming rules should be seen for what they really are: government supports for the share prices of shaky companies.

There is no radical disconnect between the interest of consumers (who always want lower prices) and overall economic health. What's good for consumers is good for everyone, writes Lew Rockwell. Thus one can only marvel at the many economists and commentators who try to convince the public that deflation is a very scary thing.

If hedge funds can be regulated or inhibited from selling short, asks Christopher Mayer, what is next? Ban mutual funds that invest in tobacco companies or other sin stocks? Ban investors from betting against a rise in the dollar? Prohibit investors from owning gold? (That's already been done before.)