Monday, August 24, 2015

Wall Street's Borg Collective

By Stephen Pizzo, News For Real

08/24/2015 -- The world’s stock markets are in a tailspin. Another tailspin. Market crashes, which used to be a once-every-generation affair, now seem to visit us about once every seven or eight years.


Are the world's workers becoming less and less productive? No, just the opposite, they're working harder, for longer and for less money every year.

Are companies less profitable? Nope. Just the opposite there too, for the most part.

So what's up doc?

Blame it on the very technology you're using to read this now. The Internet, and related networking technologies, have changed how money in these markets flow.

In the past investors were like herds of roaming bison, in search for the next green pasture. They were widely dispersed. Separate herds went off in their own directions, following their own instincts, in search for their next buffet. Some did better than others. And, by the time word got out that some other herd had found a bonanza, by the time the others got there the bounty had been pretty much consumed.

Which is why those herds of investors back in the day were considerably less reactionary and more stable than we see today.

Today what we have is a hyper-connected, worldwide investing “blob” that moves as a single herd, able to move en-mass, almost instantly, to exploit a new real, or imagined, opportunity. They are the investment world's version of Star Trek's “Borg Collective.”

So one quarter everyone wants to be in bonds, the next the herd gets a whiff of smoke (a Fed move up on rates,) and the entire herd stampedes, running mindlessly in all directions until it comes to a collective agreement on what they believe the next big opportunity might be. Then they all head to it.

In the short run such behavior creates it's own affirmation. After all, when everyone whats to buy the same thing, at the same time, the price of that thing shoots up. And so the herd is happy and, as long as it stays happy, the price keeps going up.

But, as they say on Wall Street, “trees don't grow to the sky,” so, sooner or later the greater-fool theory breaks down as fewer and fewer buyers are willing to buy at increasingly ridiculous valuations. And then it crashes.

In the past crash in one market segment, while unpleasant, was rarely catastrophic to overall market as there were “other herds” grazing happily there. But no more. Now all the money heads where the Borg Collective has decided to in its collective “wisdom.” And why not? Even those who know what's likely to eventually happen, they also know that, when this mega-herd moves, prices move up. So why not pocket some sure money while it lasts?

Of course that's the trick in this new markets normal; how long to stay with the herd. When to hold-em, and when to fold-em. In the end way too few fold-em while there's still money to made. So most of the collective herd panic all at once when the obvious becomes, well, obvious.

That's it. That's why the market dove a thousand points at its opening this morning. Of course it will go back up again. The collective herd, while in panic mode now, is already on a search for the next market(s) they can pump for all they're worth.

And remember; resistance is futile. Those markets will be assimilated, exploited, gutted.