Business View - October 2015 7
Editor’s
Note
I am no financial genius. On the contrary - the only economics course I ever took was way back in high school and most of what I know about eco-
nomic issues I learned from experience – having jobs, owning a home, paying bills and taxes, insuring everything I own against all sorts of misfor-
tunes and disasters, having kids, etc.
Nonetheless, I consider myself a fairly intelligent person, and even though I still can’t figure out how my annuity actually works, I like to think that I
have some real-world, as well as some academic knowledge of the “dismal science.” I read a lot of business articles and columns in various news-
papers and magazines, and, this past spring, I even tried to decipher Thomas Piketty’s Capital in the Twenty-First Century. And of course, as editor of
Business View Magazine, I talk daily to business people from all walks of life and from all sectors of the economic universe.
And lately I’ve noticed something interesting which has tended to reinforce something about our nation’s economy that I have merely surmised
through the years, but now have come to understand as a basic fact of life. Let me explain.
Over the past several weeks, the vast majority of financial news has been devoted to the wild gyrations of the world’s stock markets, with particular
emphasis on events in China and how they relate to the various indices of our own national stock exchanges. Interestingly, though, during that same
period, not one single company president, CEO, CFO, or entrepreneur I talked to mentioned the markets’ extreme fluctuations in any way, shape,
or form. Not one. It’s almost as if there was no real connection between those who do business in America and those who merely spend their days
trading pieces of paper or watching names and numbers scroll by on their myriad banks of computer screens.
In that high school economics class, I was taught to believe that the stock market was supposed to be a leading indicator of the general strength
of the economy, based mostly on the value of the companies that actually make the things that people want to buy. So how come, if the economic
news has been relatively bright for the U.S. lately – second quarter GDP was adjusted upward from 2.3 percent to 3.7 percent growth; the Consumer
Confidence Index has rebounded sharply to 101.5 in August from a reading of 91 in July; and spending on home building and improvements in the
second quarter grew by 7.8 percent on top of a 10.1 percent first quarter gain – stocks have plummeted?
For the answer, I turned to one of America’s most successful businessmen. And here is what Warren Buffet said: “Remember - the stock market is
insane! The short-term market forecasts are poison. They must be kept closed in a safe place away from children and from adults who behave in the
market like children.” Michael Lewis, author of Liar’s Poker and Moneyball echoed the sentiment: “The basic structure of the stock market is insane;
it’s not designed to facilitate the economy – it’s designed to facilitate revenues in the financial sector.”
Insane? Poison? Isn’t that a bit strong? Well, if you think that these two economic solons are exaggerating, here’s a quote from an online news source
referring to what took place on Wall St. after the Federal Reserve Bank decided not to raise interest rates at its recent, September meeting:
“Following the Federal Reserve’s announcement Thursday afternoon that it had decided not to raise its key interest rate, the Dow went through a wild
250-point swing, uncertain whether the decision was good news or bad” (italics mine.) Here’s another quote I found online: “In the last 15 trading
days, the Dow Jones has experienced an unprecedented 13 triple-digit days, which means that stocks have been sharply rising and falling without
any rhyme or reason (italics mine).
So I submit, dear reader, that if Wall St. insiders, themselves, cannot decide whether or not leaving interest rates as they are is good news or bad,
and if stocks have been rising and falling lately with no apparent reason, then sanity is indeed a characteristic that has long disappeared from the
trading floors of these estimable financial institutions, proving once and for all that the stock market, as I have long suspected, is almost completely
divorced from the fundamentals that actually make up our country’s economy.
The people who run American businesses are smart, talented, focused, and down-to-earth realists. I know; I converse with them every day. The
stock market, on the other hand, seems to be mostly driven by herd mentality and occasional panic. Maybe that’s why the folks I talk to seem to be
largely unconcerned with what happens on Wall St. They’re much too busy making things that people want to buy. That’s the real strength of the U.S.
economy – and that’s the part of our economic system that we will continue to cover in this and future editions of our online magazine. Wall St. will
simply have to get along without us. We’re just not into crazy.
Al Krulick
Editor-in-Chief
Business View Magazine
