The Naked Truth About Capital Markets

5/15/2010

Here is the naked truth: capital markets are designed to reallocate money from dumb people to smart people. If that weren’t true, smart people wouldn’t play. Smart people don’t play unless they have a probability of winning. For example, smart people don’t tend to play the lottery. (If you have ever wondered why the PowerBall winner is always a nitwit and flat broke again in three years, now you know.) Although the first sentence of this article is for shock value, the naked truth is actually quite comforting.

The weekly ICI number for long-term domestic mutual fund flows is out, and not surprisingly, retail investors were bailing out in droves from the stock market even before the massive flash crash of May 6. In fact, in the week ended May 5, retail investors had pulled a massive $2.235 billion out of the market, after the S&P had dropped a mere 5% or so from the prior week. Retail domestic flows into stocks year to date are negative by $1.5 billion. Tells you all you need to know about who is buying this "market".

In a feat that would seem to defy the odds, Goldman Sachs, JPMorgan Chase and Bank of America this week each said its trading desk made money every day of the first quarter. Goldman said its daily net trading revenue topped $100 million 35 times last quarter out of 63 trading days. JPMorgan and Bank of America disclosed similar eye-popping stats. Citigroup, too, recorded a profit on each trading day, Bloomberg News reported, citing unnamed people who knew the results. If a too-big-to-fail bank’s traders were able to make money every day of a quarter, were they really trading in any normal sense of the word?

European commission's spring forecasts put UK budget deficit this year at 12% of GDP – the highest in the European Union and worse than Treasury estimates. The commission warned as it predicted the British budget deficit would swell this year to become the biggest in the European Union, overtaking even Greece.

Stack of Stuff:

The Naked Truth About Capital Markets

Retail Investors Flee From Market

Rigged-Market Theory Scores a Perfect Quarter

UK budget deficit 'to surpass Greece's as worst in EU'

Market Timing Is Good

Bodies In Motion

CSI Pasadena: Relative Strength Identity Theft

A Recipe for Success

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