Time to Let Stock Market Lose Influence on Policy?

I find it mostly amusing and only occasionally infuriating that any time there’s a shift in any direction politically, the well-trained media cock their collective ears toward Wall Street, breathlessly report the movement the change triggered, and wring their hands in doom and gloom over downturns.

It’s time to drag the stock market down from its lofty perch as a major influencer of U.S. policy and recognize it for what it primarily is: a plaything of the rich largely manipulated by automatic trades triggered by computers at huge institutions. Allowing its numbers to define a broad national reaction to political policy is just plain dumb.

Stock Exchange Indexes Don’t Tell Us Squat About How the Economy is Faring

The stock exchanges — and more particularly their “indexes” — are, we are told, accurate readings of the public’s confidence in the economy. That is pure unadulterated tommyrot. Each company’s share price on any given day is determined by how its current shareholders and active stock players view the company’s performance. That’s it. If you watch and listen carefully, on any given day the index results are different for each sector of the economy. Technology is up and manufacturing is down one day. The next, transportation stocks are hammered but manufacturing makes a big rebound. The overall index fluctuates very little if at all so the media report the market as stable. But that’s a macro view.

And that macro view is governed in large part by huge institutions — mutual funds, labor unions, state government pension funds and others who hold a massive percentage of the stocks sold each day on the market. These shareholders are not making any actual bets on any given company; they are interested in minute-by-minute fluctuations of fractions of a penny because they own gigantic blocks of stock in a given company and can make a small fortune by flipping the stock multiple times over a span of minutes.

The media’s obsession with the daily changes in the indexes is a knee-jerk response to a perception that “people” who invest in the market are hanging on every shift in the numbers. Savvy investors who are not institutions often share one common characteristic: patience. My former stockbroker (I’ve been out of the market for 3 years now) told me, “If you invest in a stock and you live or die by its daily fluctuations, you will not live to enjoy the fruits of your investment. Let things ride unless there’s a really compelling reason to do something.” This from a guy who only made money if I ordered a transaction.

So let’s stop publishing and paying attention to these ridiculous, artificial indexes. (Heck, these days you can even invest in the indexes, which clearly have zero intrinsic value. It’s insane!) If we need a daily indicator of how we’re doing — and I’m not at all sure that’s healthy — let’s find something that works more intelligently and relevantly than what a bunch of institutional computers think is going on in the economy.

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