Watching the market, it appears that the excessive fluctuations are not due to normal buying and selling of stocks but to excessive shorting of stocks and later buying to the cover shorts. Since John Q Public in normally not allowed to do this, it seems that the big boys are being able to reap big profits at the expense of everyone else.
The administration should again restrict short selling, or as a minimum, reinstate the requirement that stocks have to increase in value for three days before it can be shorted. They should also ban naked shorts, along with all the other questionable policies the Feds have put in place in the last few years. Allowing and promoting the major traders to run wild in these areas has been a major contributor to our current problems.
Breaking news and commentaries by Fed officials drive the direction of the market. Unfortunately, traders with portfolios large enough to move the market get this information in advance of the news cycle, and are able to position themselves to make a huge profit, no matter which direction the market is predisposed to go. In normal times this might be acceptable, but right now they are cycling the market alternately up and down every few days and driving the average consistently lower. This is compromising the eventual ability to recover since it causes confidence in the market to disappear.
It would help if administration officials, Paulson et al, would keep their speeches limited to what they are doing and plan to do without rattling off a series of negative concerns that the traders use for direction. It boggles my mind that supposedly intelligent people can’t figure out that what they say can effect the whole economy, especially since promoting the economy is the business that they are in.
Another issue that the Feds seem to not comprehend is that when people drive, they shop. When gas prices get too high, they quit driving. When they quit driving, they quit shopping. When people quit shopping, they get used to their new life style and don’t resume shopping for a long time, even if gas prices go down. Since consumer spending is the largest part of the economy, the economy goes into the cellar. This caused the early 80’s recession and contributed to the current recession, since a noticeable slow down in consumer spending occurred when gas prices were raised above four dollars a gallon with no end in sight. This was already in play before the housing fiasco raised its ugly head.
Let us hope that the new team is familiar with economics 101.
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