The stock market: or how I learned to stop fearing different and love free markets

A quick note: I've avoided writing this column since the start of the blog. This topic will likely bring heat and controversy. I welcome it. In many ways my own position on this simply isn't thought out enough. It requires more debate; some point and counterpoint to see it developed fully. In that spirit, I present to you what is really my rough opinion.

"Why 99% of savers should avoid the stock market
Over the past several decades, the stock market has become an enormously popular vehicle for retirement savings.
I rest my case." -- Jacob, Early Retirement Extreme

I've long held the view the stock market = wealth = retirement vehicle was flawed. I suppose I would be lying if I said I don't experience any pleasure in watching the DOW drop -- I have nothing to gain or lose whether it goes up or down. However, seeing it drop does make me smile a little inside. My hope is that it would alert others to the inherent issues the stock market has. It's a national game of scandal, taxation, and false information.

Many people may be flabbergasted at this view. Myself being a capitalist (or at least attempting to become one :-) ) should love the idea of trading. And I do! I often still dream of a romanticized view of the 1800's; myself a successful goods trader, perhaps a ship merchant. In my later years having acquired wealth perhaps I'm an early investor/venture capitalist funding trips to faraway places and new ideas. Back in the present, I still like the idea. That's why I'm a trader and will likely remain so. However, I don't trade stocks. Too many people, too much power, and too much politics involved to be a free market. Heck -- just look at this news article for last week. NYSE and NASDAQ are reversing trades! You heard me right. Who wants to trade in an environment where trustees, politicians, regulators, and governments will reverse trades or otherwise try and manipulate price? It's this type of news that almost doesn't shock me. After all,

stocks always go up
put X% of each paycheck into stocks, retire a millionaire

Or so I'm told. The examples of this manipulation and lies are prevalent everywhere. From the mutual fund ads claiming 8% returns, to the CFA in the corner office, to the president himself₁!

As a capitalist I am drawn to free markets. In a free market, I can pit myself against others; I can analyze; I can use my brain. In my quest to find such a market, I found forex₂. It's size and lack of regulation help prevent against long term manipulation -- even at a government level. Right now the Euroland countries are openly crying foul of the fall the euro has taken. It's to no avail. Whatever they desire for the currency, they cannot change it's price over the long term. Just ask George Soros and the Bank of England₃.

The quote that I began this article with is perhaps the short answer to the question: Why not invest in the stock market? Because everyone else is! It's a classic mob question. The only ones making money as part of the mob are what I've termed the mob leaders. In his expanded post, Jacob goes on to talk about when stocks might be a good idea. My thoughts coincide with his -- when you can actually invest in a company, receive dividends, and buy and sell in a fair market it can be a good idea. Unfortunately, it's my view that todays market represents no such thing. And as such I cannot recommend to anyone to play the stock market game.

1. Barrack Obama gives his infamous advice to buy stocks
http://www.bloomberg.com/apps/news?pid=20601110&sid=aBndLi5PmOvc
2. If there are other free markets, please enlighten me. I do not wish to say I believe forex to be the only free market -- merely the one I participate in
3. Soros famously shorted the pound in the summer of 1992, recording a huge profit when the Bank of England was forced to abandon it's artificial rate.
http://www.investopedia.com/ask/answers/08/george-soros-bank-of-england.asp

Slow ride down the Euro

So recently the Euro has been on a downward slide; perhaps spiral is the better term. Given the relative cost of holding short positions, it's been easier for me to open and close manual trades on the way down. It's unclear how long this new trend will last in EUR/USD, but in alot of ways it seems to be only building steam. The news of Europe being potentially bankrupt is just starting to float onto the forefront of news; something which folks like Mish have been pointing out for some time.

In other news, is the Australian dollar next on the list for falling out of favor with traders? Critics point to a still yet to pop housing bubble and the high interest rates in the wake of the endless deflation states of the United States and Japan. For now it seems, the commodity bubble is in full swing and that bodes well for the Aussie. It's rebounded nicely from the spring lows. I'll keep my eyes on the dollar, but if you curious at staying more in tune with AUD, check out Rookie Forex. He's been trading the currency for sometime and has strong longterm views and outlooks towards it.