Common Cents

Boom or bust

Ralph Murphy

(10/2018) The Dow Jones Industrial Average set a record high of 26,616.71 this past January. It reflected business optimism linked to predictable politics according to market pundits, but did not actually impact asset value or member profits. Stock exchanges draw in less than 1% of a nation’s wealth.

The New York Stock Exchange is the nation’s oldest bourse. It was established in 1792 as a means for investment control. It initially set commission rates for commodity trading of that era amounting to cartel or owner collusion in those markets. By the 20th century it amounted to pegged gambling. It led to almost panicked swings in other markets. Banking legislation is routinely linked to the exchanges, but it has to be decoupled because the bourses aren’t involved in corporate strategy development that generate earnings.

There are various types of stocks such as common shares that are listed on index markets or conventional stock exchanges. Corporate ownership is implied, but that doesn’t seem to reflect the corporate board’s strategies. Private stock as internal control of voting rights or profit control are the veiled inference of the common stock, but are completely different. Common shares seem to have been easily managed or controlled by the various traders and dealers through the late 1990s when mutual funds or combinations of common stock in one portfolio became

ascendant.

These bundles of stock or bond companies provided component stock values that allowed for easier management of an investor’s return. These values were set by the dealers and enforced by price arbitrage or maintenance of a specific price level through cooperative control. Erratic stock values precluded likely business investment planning that was better financed by bonds, retained profits, or bank loans.

By 2008 a system evolved for almost absolute control of all indexes as Exchange Traded Funds or ETFs. It incorporated most all mutual funds, which had contained most of the common stock, and were traded in blocks by dealers in groups of tens of thousands of the listed securities. While implying vast business control- these funds were really just using the underlying businesses as a reference point. They did not involve themselves in business management or its profit’s use and dispersal.

ETFs now control most of the NYSE activity as well as their European bourses in the various exchanges tied to Euronext. While also a controlling interest in Nasdaq, ETFs play an important role in market alignment. It separately lists commodity prices for actual markets that are controlled by tied interests that do reflect corporate payments that are linked to conventional retailers. It emerged in Chicago but is now closer to New York where it has introduced new technology stocks as computer or phone related. It then got a misnomer of a technical market group, but its market concerns are mostly basic production inputs.

Nasdaq listings imply a cartel-like control over grains, various metals, and fossil fuels that are often considered illegal by collusion standards with government in a supporting role. Nasdaq is also represented in Europe by the corporate name Nasdaq OMX and trades on secondary exchanges that it owns that are tied mostly to energy interests. NYSE and Nasdaq are brokered by the International Exchange that is also New York listed. They seem to control the European assets, but the investment levels are relatively low. Japan controls the Far East trade through the Tokyo Stock Exchange and New York controlling interests aren’t as clear there.

Right now, the primary issue is the depth of actual corporate impact on the whole economy as the volume of the money linked to all ETFs is just over $200 billion. That is less than a third the commodity value of one price-listed Nasdaq commodity such as petrol. Watch the price indexes- not the stock index-if the health of a given industry is a concern. They’re rarely displayed as are commodities that are routinely needed for various types of production. Earnings reports linked to the sale of goods and services are used for income analysis. If there is collusion- they seldom admit to such dealings because it is not optimal for a strong producer to join in such coercion. Larger retailers may be forced to price fix in that manner but without an external force to bond them as a governing authority they would surely prefer to compete alone in a well regulated market.

Of key concern when casually monitoring economic activity is that the economy in established regions is relatively predictable as to supply and demand pressures. Wild swings as shown in stock exchange reports are more typical of gambling rather than consumer interests. If there is a sudden issue it’s most likely linked to stored or massed wealth theft or movements and that to banking- not an individual business or sector.

Banking has been increasingly decentralized in recent years because the major New York banks have proved erratic and out of touch with their investors. They have proved too big to manage. Money is transferred not generally simply lost, so even an index drop should be viewed as another’s gain. Legal parameters for business activity should encourage optimal competition with resources moving to areas of optimal supply or demand. That does presume non interference by an external broker and a government that tries to manage corporate strategy and not its market actions. These are difficult to surmount.

Stock indexes manage and reflect less than one percent of the world’s actual monetary activity. They are arbitrary standards that are almost entirely controlled by brokers and have virtually nothing to do with any other aspect of production. If the market drops- it’s just a controlled, internal process within that group. If it’s referred to otherwise there should be further investigation as to the source of the concern. It may not be justified.