Guest Post: Everything You Know About Markets Is Wrong?

Tyler Durden's picture

Submitted by Eric L. Prentis,

The financial elite—using academe for intellectual cover—want you to believe that markets are efficient, as defined by the Efficient Market Theory (EMT). My research strikes down this hoary old EMT economic dogma, used by duplicitous bankers and hedge fund managers to con US politicians and 99% of Americans.

The Efficient Market Theory (EMT) is a significant foundation theory in economics. Prove the EMT wrong, and economics becomes largely an empty shell. Therefore, the EMT is the most important fundamental issue in economics and for America.

US politicians mistakenly use EMT based economic theories to pass laws favorable to Wall Street. First causing and now worsening the credit crisis. Examples of credit crisis enabling legislation include:

  • Gramm–Leach–Bliley Financial Services Modernization Act of 1999
  • Commodity Futures Modernization Act of 2000
  • Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
  • Jumpstart Our Business Startups (JOBS) Act of 2012

Three tenets define the EMT.

  • The first tenet—that markets are in equilibrium and if unexpected events cause disequilibrium, it is only temporary because markets are self-equilibrating—is disputed in the literature. A stock market always in equilibrium and efficient is impossible because traders have different endowments, beliefs and preferences. In addition, arbitrage costs throw markets out of equilibrium.
  • The second tenet—that stock prices “fully reflect” all information—has long been challenged in the literature, with many inconsistencies reported. Tenet number two goes on to say asset prices properly represent each asset’s intrinsic value, and as a result, prices are always accurate signals for capital allocation. Researchers in behavioral economics find fault with this EMT assumption, because it does not account for human nature and inherent herding behavioral instincts of market participants. EMT theorists—Eugene F. Fama and Burton G. Malkiel—claim assuming market equilibrium is close enough to reality, and that research into EMT tenet two contests only the semi-strong form of efficiency. That is, where earning higher returns than the stock market, with lower risk, is not achievable by knowing all publicly available information. EMT theorists continue to support the EMT and say, “If you want to do better than stock market returns, you have to take on more risk than the stock market.”
  • EMT tenet number three is most important—that is, stock prices move randomly or are uncorrelated with, if not independent of the prior period’s price change. Therefore, earning higher returns than the stock market, with lower risk, is impossible to achieve using only past prices (i.e., technical analysis stock trading rules or stock charts). Empirically prove EMT tenet number three wrong— because it tests the weak form of market efficiency—and the EMT is wrong, period!

EMT theorists specify two methods to test EMT tenet number three. The first method is statistical inference. Calculate serial correlation coefficients of stock price changes. If the serial correlation coefficients are zero or close to zero, this supports assuming serial independence in the price data. Therefore, one can infer that technical analysis stock trading rules cannot work. The second method requires using a technical analysis stock trading rule predictive model that forecasts the future, based solely on past prices—where expected profits are greater and risk lower than they would be under a naïve buy-and-hold policy.

 

Research that supports the EMT makes one-or-all of the following mistakes:

  • Using the wrong data—Systemic market risk and random unsystemic risk make up individual company stock price movements. As much as 50% of a company’s stock price actions are random unsystemic risk variations associated with the internal circumstances within that particular company. The remaining 50% of a company’s stock price movements represent the systemic risk of the overall market. The random unsystemic risk is the chaotic portion of the stock price data—that if removed leaves only the systemic market risk of the overall market, which may then be analyzed. Most EMT research studies day-to-day stock price movements of individual companies, which is mistaken. Granted, this unsystemic and systemic, day-to-day individual company data look random, but it is the wrong data to analyze to determine overall, long-term market trends.
  • Using the wrong method to analyze the data—Most researchers use statistical inference to test tenet number three. However, there is a serious problem with using statistical inference to test whether stock price data are independent. That is, it is difficult to distinguish between a rootless series and one where the systemic quality is faint. Research shows that five-thousand years of data are needed to identify independence in stock price data using statistical inference. However, these data do not exist. Consequently, statistical inference is not the correct method to use to test tenet number three.
  • Jumping to mistaken conclusions based on half-truths—Statistical inference tests using day-to-day individual company data report serial correlation coefficients that are close to zero. This supports assuming serial independence in the price data. Therefore, one can infer that tenet number three is valid. Unfortunately, this proves nothing of the sort. Analyzing the wrong data over an inadequate number of years simply gives a false positive.

 

What day-to-day stock price movements are for individual companies is the wrong research question. Instead, we want to know what the overall stock market is doing over the long term. The correct way to look at market data follows.

 

Using correct data—Individual company stock price behavior, which includes the randomness of unsystemic risk, is not evaluated. Instead, only systemic market risk is analyzed in my published journal research—please see here and here—by comparing only systemic market risk of two well-diversified S&P 500 Index portfolios. S&P 500 Index portfolio B is for active trading and S&P 500 Index portfolio A is the benchmark portfolio. Focusing only on systemic market risk in the data studied, removes much of the random or chance stock market price behavior of individual companies.

When investing over 1, 2, 3, 4, 5 years or more—day-to-day stock price movements are immaterial to trading success and may be thought of as just daily market chatter. Concentrating on daily price movements of individual company stock or the stock market as a whole is not the correct question. Day-to-day stock price action is volatile. To dampen out this daily chatter and give perspective to what is occurring long-term in the stock market, S&P 500 Index “monthly price data” are used to smooth out stock price volatility.

Monthly price data are important in dampening out day-to-day price movements. However, using last month’s price to predict next month’s price is also not conducive to long-term trend development. To further smooth price variations and focus on systemic stock market risk. Nine and two-month simple moving average (SMA) trend lines are fit to the S&P 500 Index monthly price data for actively managed portfolio B. Smoothing out data volatility, which gives an overall view of the long-term stock market trend. This is the third step in removing much of the random stock market price behavior from the research data.

Focusing only on systemic stock market risk in the monthly data and smoothing stock price volatility using nine and two-month SMA trend lines for the well-diversified S&P 500 Index portfolio B—to lessen random variations—is a major difference between my research and other EMT research in the literature, and a major reason the results are so significant.

My research covers 1871-through-2008, 138 years. All available Standard & Poor’s (S&P) 500 Index data are included in this research study, making it the longest duration and complete in the literature.

 

Using the correct method to analyze the data—Fama’s approved second method for testing the EMT, requires using technical analysis. Fama says to develop and test, over both good and bad economic conditions, a technical analysis stock trading rule predictive model that forecasts the future, based solely on past prices—where expected profits are greater and risk lower than they would be under a naïve buy-and-hold policy.

My empirical research method directly tests stock market price independence of EMT tenet number three, using a new technical analysis stock trading rule predictive model. To test whether expected profits are greater and risk lower than a benchmark naïve buy and hold policy, which Fama calls, “an equally valid scientific method versus statistical inference.”

 

Empirical results—In my US stock market research, the relative maxima and minima stock trading rule S&P 500 Index portfolio B—by $495,360 dollars (i.e., $580,423 - $85,063)—makes +582% more money than buy-and-hold S&P 500 Index portfolio A—and is only 64% as risky over 138 years—from January 1871 through December 31, 2008.

 

The new technical analysis relative maxima and minima stock trading rule predictive model makes substantially more money at significantly less risk than the naïve buy-and-hold policy. EMT theorists say this thorough beating of the US stock market should be impossible to achieve using only technical analysis. Thus, tenet number three and the weak form of the EMT are invalid, making the Efficient Market Theory wrong, period!

 

Discussion

 Neoliberal economic philosophy, starting around 1980 and now mainstream in academe and American politics, promotes laissez-faire economic policies of reducing the size of government, deregulation and privatization of government services. Neoliberal economists base this philosophy on the belief that neoclassical economic theory is correct. That is, that “markets are efficient”—my research shows the EMT is dead wrong.

Gullible US politicians believe that markets are efficient and defer to them. Therefore, US politicians abdicate their responsibility to manage the overall economy, and happily for them, receive Wall Street money. Mistakenly, the primary focus during the 2008 credit crisis is on fixing the financial markets (Wall Street banks) and not the “real economy.” 

Wall Street touts markets as trustworthy and infallible, but that faith is misplaced. Big market players easily manipulate markets. For example, by changing accounting laws so banks no longer have to mark-to-market, High Frequency Trading (HFT) front running, and multinational companies buying back their common stock shares, along with favorable huckstering of stock positions on CNBC—owned by Comcast and General Electric. In addition, Chairman Bernanke, because of his Quantitative Easing II, takes credit for the Russell 2000 Index of small company stocks reaching an all-time high of 860.37.

The Federal Reserve (Fed) talks of added quantitative easing (QE), but this would mainly help the richest 1% of Americans and hurt the “real economy,” with higher gasoline and food price inflation. Unfortunately, QE only helps overinflate the stock and commodity markets by manipulating prices. Despite Fed programs QE I&II and Operation Twist, America is experiencing the worst economic recovery from a recession, ever! President Obama, if he wants to lose the 2012 election, will let Bernanke electronically print more QE money and make the “real economy” worse than it otherwise would be.

The continuing credit crisis is serious—with the world economy poised for a double-dip recession. The current US government policy of increasing the national debt by $5 trillion dollars over the past four years, keeping insolvent banks from going bankrupt, a Federal Reserve zero interest rate policy (ZIRP), causing malinvestment, and monetizing the national debt (which is what tin-pot dictators do just before they are forced to flee the country) with quantitative easing by the Fed, and austerity for the 99% to repay bad bank loans has not worked—and doing more of the same will not work—and defines insanity.

 

The financial elite are using this “cover-up and pray” policy—hoping that rekindled “animal spirits” will bring the economy back in time to save the status quo. This is impossible because the trust is gone. The same sociopaths control the economy. Instead, the financial elite are just protecting themselves with outlandish pay bonuses, based on cooked books; while the “real economy” flounders with high unemployment, unsustainable budget deficits, a struggling real estate market, and low capital formation, crumbling infrastructure and high gasoline and food price inflation.

 

Conclusion—this is what to do:

  1. Reenact the Glass-Steagall Act. Allowing investment banks to speculate with savers’ money is criminal.
  2. The daisy-chained, unregulated $707 trillion dollar OTC Derivatives market will bring down the world economy, when it goes bust. JP Morgan’s recent huge OTC Derivative trading losses are a prelude to this eventuality, with many more instances to come. Start unwinding the OTC Derivatives market now, before it is too late.
  3. Insolvent banks are a drain on the “real economy.” Force insolvent banks to go bankrupt. TBTF is an irrational policy. Allow capitalism to work for the 1%.
  4. Public and private debt to GDP is about 360%, and 30% of Americans are being hounded by bill collectors for unpaid debts. Americans can no longer service their massive debt loads. Allow debt forgiveness for the 99% and institute austerity for the 1%—they can afford it.
  5. ZIRP is destroying capital formation and savers. Allow interest rates to rise, which will increase consumer demand. The Fed’s manipulation of capital markets causes malinvestment—resulting in crippling long-term penalties for the “real economy.”

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reader2010's picture

They know lies can become reality if they keep repeating them over and over again.  Nicely said but the proposals won't work, since they have passed all the necessary laws and set up FEMA camps for those that demand the real change.  Instead, give up your Empire citizenship and move out. 

Michael's picture

The market will be taken advantage of in whatever state it is in. Quote me on it.

veyron's picture

Except when its a market for ... STDs

Precious's picture

Capitalism is dead.  For Americans, Greenspan killed it and Bernanke buried it.  

Time to move on.  There are no longer any free markets in the developed world.

There are only pigs telling the rest of the animals on the farm what to do.

JOYFUL's picture

..."Capitalism is dead.  For Americans, Greenspan killed it and Bernanke buried it."

Greenspan and the rest of the Koterie of "Objectivist|neo-liberal\neo-con\neo-trot" Khazarian Kooks embalmed "Kapitalism", and then set it loose as the zomby-fied, flesh-eating market manipulatin Monster that roams the Merikan heartland today.

As yu are clearly an aficianado of JRR, please go back and read the parts about the corruption of the Stewards of Gondor and the Kings of Rohan...then yu will better understand the role of the Greenspan and the whisperers*...and who works for whom.

*...'Kolonel House' be in the house when Tolkien set out to document the history of the fallen lands...Kolonel's Special Spices still poison the peeple today, through the ministrations of the usurers and their toadys to-day.

TWSceptic's picture

"Capitalism is dead.  For Americans, Greenspan killed it and Bernanke buried it.  "

 

They raped it, tortured it, killed it, urinated on the corpse, buried it, dug it back up, put their hand in the back of the head and made it dance, and then told everyone it's alive!

bagehot99's picture

Markets ARE efficient when a buyer with a commodity to sell offers his good for sale to all comers. The buyers set the price efficiently. Financial markets are not even slightly the same, and they are manipulated mercilessly. They are rigged to benefit large, connected players at the expense of, umm, everybody else. HFT should be illegal. It has NOTHING to do with buying and selling goods on an open market, and everything to do with making big players bigger through technology investments that ordinary Americans cannot make.

JOYFUL's picture

Another mistaken assumption piled onto a massive slag heap of cherished myths...of the Santa Clause variety. There is no firewall between the 'financial' markets and commodity markets, or any other markets/ they're all phony, all rigged, and all belief in the sanctity of any 'markets' is  ideologically driven wishful thinking.

'Markets ARE efficient when a buyer with a commodity to sell offers his good for sale to all comers. The buyers set the price efficiently.'

Umm, sure bud....tho Austrian and Chicago School-boys luv to pretend that there is a way to quantify or explain inherently irrational actions thru their ouji-board subjective analytics...aka "a comprehensive theory for subjective value" -

the only unequivocable fact  in eCONomics  is that any transaction with multiple buyers present has the potential for distortions* of supposed pure trading...the dismal science of economics is especially dismal at accounting for the nature of 'human nature'/ which is a species of activity reflective of the struggle for survival which goes on in all living systems. 

Outside observers of this tendency of Europoids to indulge in cherished myths have developed systems to manipulate and profit from them: the best example of which is "libertarianism" = a wild west style  street lined with false front buildings into which pile dude ranch investors to plunk down their bags of gold dust for a shot of the 'whiskey-like' elixir of the "free" markets....

where 'everybody's a winner'!...\>:except the losers!!!!!!!!!!!!!!!!!

* distortion....a game of serial manipulation of naive investors\shell game onlookers played by sophisticated moneychangers...JPM. Barrick Gold. MFG...and other pillars of Kapitalism. 

edit- all downstrokes gleefully accepted...as further proof of the paucity of power to produce an actual argument that protects yur puppertmasters from the portrait produced!

NidStyles's picture

Your post is all over the fucking place. You lack a  point and your message wasn't clear or concise enough to interpret one from it. 

 

Why do you allow morons like this to stay Tyler?

JOYFUL's picture

Though yu may lack the wit to digest and comprehend the simplest of concepts, and appear to be nothin more than a humorless Camp Fema inductee, there is no reason to suppose that being a moron would cause yu to be eliminated from the mix here Mr Snarly - there's room for everybody under the big tent!

Flying Tiger Comics's picture

Down twinkles. Or indeed Down Syndrome.

GeneMarchbanks's picture

Allow me to help minus the colorful prose and graceful syntax, for I am another kind of poet...

Here it is in elementary formula format for simple digestion:

Economics = Politics

Economics ? Science

The "free" market is entirely subjective, there is no objective definition.

http://theorwellprize.co.uk/wp-content/files_mf/hajoonchang.pdf

Snidley Whipsnae's picture

There is a world of difference between hypothesis and theory.

"Economics ? Science"... I enjoy your posts Gene, but I take exception when people use economics and science in the same sentence... :)

GeneMarchbanks's picture

The 'doesn't equal sign' is not allowed for plebs on these boards. Perhaps a contributor can help me out or a kind soul more clever with a keyboard. I can get this part: = just need a line through it.

Michael's picture

Lawyers For Ron Paul Civil Rights (Voting Rights) Lawsuit FAQ
http://www.youtube.com/watch?v=MPt2nlyfmfc&feature=youtu.be

JOYFUL's picture

in the interests of a "balanced perspective," and having allowed for enuff time to elapse in mourning for the parties respective of the latest and last 'dirty lowdown' to hit the folks still foolin themselves that there is a "political" solution to the "problem" of Merika's hebraic hijack...

hereeeeeeeeeeeeeeeeee's Jonny:

“Ron Paul, like Alan Greenspan, was heavily influenced by the Russian Jewess ‘Ayn Rand’... Ron Paul, the ‘Libertarian’ who wants to erode all the powers of the Federal Government which protect us from the Rothschild model of laissez faire Capitalism, in the name of ‘freedom’. Ron Paul equates personal freedom with ‘economic freedom’, meaning the ‘freedom’ of the Jewish Capitalists to steal our wealth with their monopolies, pollute our environment with their greed, fill our streets with drug dealers, and rob the nation of all our gold and other wealth in the name of creating ‘sound money’. -Christopher Jon Bjerknes

hey, jus sayin, eh? http://youtu.be/65EoK4OelZU Boz Scaggs\Lowdown

LowProfile's picture

Seems like there were a lot of troll accounts made about a year ago being activated lately.

At least they're consistent.

JOYFUL's picture

hey, I hadn't noticed that...yu could be right!

anybody in par-tic-u=lar?

Frein's picture

1) Rand was not a libertarian, she was an objectivist. In fact, she criticized libertarians quite a bit. Both philosophies see personal property as being integral to individual freedom but they are not the same.

2) Government can't give freedon, it can only take it away. Business cannot take away freedom because it can't use force. The government has a monopoly on that.

3) Monopolies are not a result of free markets. A monopoly is a very fragile state for a market and unless supported by government it will eventually crumble. The monopolist has no choice but to keep competing even in the absence of competition or face the threat from new entrants into the market.

4) You're wearing too many tin foil hats and not thinking clearly. If you understood basic economic principles, you'd know this.

Frein's picture

1) Rand was not a libertarian, she was an objectivist. In fact, she criticized libertarians quite a bit. Both philosophies see personal property as being integral to individual freedom but they are not the same.

2) Government can't give freedon, it can only take it away. Business cannot take away freedom because it can't use force. The government has a monopoly on that.

3) Monopolies are not a result of free markets. A monopoly is a very fragile state for a market and unless supported by government it will eventually crumble. The monopolist has no choice but to keep competing even in the absence of competition or face the threat from new entrants into the market.

4) You're wearing too many tin foil hats and not thinking clearly. If you understood basic economic principles, you'd know this.

JOYFUL's picture

... Rand was not a libertarian, she was an objectivist. In fact, she criticized libertarians quite a bit. Both philosophies see personal property as being integral to individual freedom but they are not the same.

I believe that yu have encapulsated the obvious in a manner heretofore not ever quite achieved on ZH. Kongrats. I do not know if there is a prize.

Rand started her peregrination from Trotskyite in Russia to refugee in bourgeois Chicago well before the beginnings of the industrialist-sponsored Mt Perelin gatherings that would lead to the creation of the so-call libertarian philosophy...it therefore STANDS TO REASON(humorless libertarians xcuse the pun>:\)that the very very proprietary, humorless, alphamale Rand was less than enamoured with what she\he saw as a strata of people competing* for her target audience...like her loose contemporary and fellow loonatic L. Ron Hubbard(Scientology TM)Rand wished OBJECTIVISM TM to be unchallenged in the "marketplace" of ideas...and yup...."criticized libertarians quite a bit"....

the rest of yur point by point is so similarly pedestrian, mundane, and stuck in a time warp of pubescent make believe that I simply will not use up the further space here necessary to dispense with it....what I know has no necessary point of reference to yur most dreary 'basic economic principles'...as,

like Cantillon before me, I survey the field of human activity and give precedence to what is observable, not what I need to believe in...no hat, foil or otherwise required...over-educated, under initiated libertarian dupes of the moneypower...foiled agin!...

*is it not endlessly amusing how "kapitalist\"free enterprise"\etc.etc.\pontificators are always aghast at competitive 'threats' to their particular brand of hegemony????  - Sir, yu bear a remarkable resemblance to the dog whom the magnificent magpies Heckle n Jeckle constantly tormented with his own befuddled ex-ist-ent-ial angst...please return here soon for more entertaining vignettes that bring back pleasant memories of my yuth!

Totentänzerlied's picture

Dressing up your grade-school rhetoric with mind-numbing stylistic abortions of English composition does not excuse you from anything, e.g. intentional near-incomprehensibility. You have told us nothing we did not already know, in particular, we knew you had nothing say, but required many words to say it.

On the scale of trolling, which runs from 0 ("would not be trolled by again") to 10 ("would be trolled by again"), you receive a 1 for name-dropping Cantillon. Your basic research into the subject matter is appreciated, the total lack of comprehension is discounted ex gratia.

JOYFUL's picture

Sir yu do me great favor by demonstrating the very point I was making....at yur[collective humorless libertarian]expense....the outrage of the very proprietary, property obsessed brooding n boring libertarian hack is exposed with the mere mention of my major man Richard Cantillon...whose work is not under copyright to the Mises Institute, to yurself, or to any other dupes of the moneypower...

fuss n fume all yu want Mr Wanker, the obsession with grading is merely more evidence of the grade school arrested intellectual development of the mindset yu represent...

libertarians have been used to being attacked n mocked by the max fischer type minions of the MSM here forever, but appear to be slack-jawed n apoplexic as realization begins to dawn upon them that their self professed status as the faux foes of 'the state' is being exposed for the preening n witless lie that it be!....and that a serious challenge to their lazy ascendancy here has been mounted!

To the banner, scions of Durrutti! Down with the phony foes of statism!

stocktivity's picture

"The daisy-chained, unregulated $707 trillion dollar OTC Derivatives market will bring down the world economy, when it goes bust. JP Morgan’s recent huge OTC Derivative trading losses are a prelude to this eventuality, with many more instances to come. Start unwinding the OTC Derivatives market now, before it is too late."

Ok ...let's unwind $707 TRILLION. I'll take $25 (sorry....can't stop laughing)

Snidley Whipsnae's picture

OTC Derivatives Market = unprecedented quantity of bets by trading desks, none of which can cover the losses they stand to incur... fortunately, most of their bets are with each other so the possibility remains that they may all fail together... Simply wishful thinking on my part but would it not be an act to behold? ... The ten biggest slime ball banksters going down together?

neversink's picture


On yur solutions:

1. Reenact the Glass-Steagall Act. I agree. How many politicians say the biggest mistake was revoking the Glass-Stagall Act?? All of them. How many politicians have offered legislation to reenact the G-S Act???? Not one!!!!!! What does this tell you?

4. On allowing debt forgivenes for the 99%. The government should have paid off everyone's mortgage -right or wrong - in the first place, rather than bailing out the banks. If everyone's mortgage had been paid off, then the banks would have gotten their money back from the loans, toxic assets would have gone away, people would have had money to spend, and there would have been no QE or twist!!!!! But No, the people of this country are not too big to fail.... only the banks and AIG. 

johansen's picture

Allow debt forgiveness for the 99%...and the committee of 300 will start WWIII

uno's picture

I expect O to promise student loan debt forgiveness in Sept/Oct timeframe, not that he would follow through (why should that be the first).  Debt forgiveness will be used to get groups fighting each other, politicians love to promise and never deliver.

Freewheelin Franklin's picture

Yeah. Just like he said he promised he would stop the raids on medical marijuana clinics.

 

Suckerz.

XitSam's picture

Yeah. Just like he promised to immediately close Guantanamo.

Suckerz.

Bob's picture

And he'd be marching with labor if it came under attack.  LOL. 

reader2010's picture

I thought they have already started that right after 9/11. 

10mm's picture

There gonna do it anyway.Bombs away.

Bringin It's picture

If wishes were horses

Pigs would ride.

Bill D. Cat's picture

Markets are efficient and governments are getting smaller .......

 

... these are not the droids you are looking for ( theatrical arm dismissal for effect ) .

lailapa's picture

World War III - The first private war in history

Those who won all battles shall lose the war.
Bilderberg Group and the crimes against humanity.

http://eamb-ydrohoos.blogspot.gr/2012/02/world-war-iii.html

Martial's picture

"Start unwinding the OTC Derivatives market now, before it is too late."

 

The derivatives market is DESIGNED for endgame

disabledvet's picture

I agree with this. The point of the derivatives market is to protect us from risk not create it. Some (for want of outrageous pay?) beg to differ? Anywho if the risk is "merely the entire Continent of Europe" I'm sure the only problem is with something called "efficient market theory."

John_Coltrane's picture

I'll believe your thesis dear author if you can tell me one thing:  What is the correct price for a gallon of milk? 

Can't do it can ya?  That's why markets are necessary despite their flaws.  QED

"Laissez Faire Capitalism is worst economic system except for all the others" 

Eric L. Prentis's picture

Markets are not efficient, as defined by the EMT and are easily manipulated by the big players. Please see my published journal research— here and here.

 

Politicians managing the overall economy should not think markets are sacrosanct.

disabledvet's picture

EMT is just a way to EXPLAIN market moves moron. Not THE way. Focus your hocus pocus with another truly gullible set. Wall Street itself comes to mind.

BigJim's picture

 Markets are not efficient, as defined by the EMT and are easily manipulated by the big players. Please see my published journal research— here and here.

Politicians managing the overall economy should not think markets are sacrosanct.

Markets may not be efficient. But they're a damn sight more efficient than bureaucrats attempting to set prices for political reasons.

Virtually all the manipulation we're seeing now is a result of government-induced distortions in the price of money - ie, a fiat currency and a cartel of financial institutions that can create almost unlimited quantities of it through leverage. This is because of the regulatory framework, not despite it.

You need to understand the monetary system, Mr. Prentis. Until you do, you're like the architect who tries to analyse why a building falls down.... without having any knowledge of the underlying quickmud.

Zero Govt's picture

Eric L.P.

i like the idea of elected representatives though when you actually study the actual process (you should try one day) you realise they're mostly just other peoples (corporate) puppets which is a bit of a bugger regards democracy don't you think?

my other problem is not knowing what another person can do for me better than i can myself. What does your local politician represent for you that you couldn't do for yourself?

My view is Govt is not a representation of the people but an ingrained intrenched self-interested beauracracy intent at expanding its own office with power over the people and by thieving their money. Govt is all about Govt, it hasn't the feintest clue who you are, doesn't give a monkies what you want and if you asked it would give you a form and tell you to get lost.

then there's another problemo, giving politicians the High Horse to "manage the economy". Don't know if you've switched on Reality TV anytime in the past 4 years but every Govt in Europe is bankrupt, nearly every town, State and the US national Govt itself is up Financial Creek without a paddle. Spent themselves into oblivion old boy, no financial discipline or commercial wisdom whatsoever: ignoramus spendaholicus (that's Greek for politician)

So how do you expect these economically illiterate, pea-brained, sloppy windbags to "manage" the commercially disciplined, clever sharp cookies in the private sector when the bloated brats of the public sector is such a f'ing shambles???

Lastly if the free market is not "sacrosanct" can you give a single example in the millions available over the Centuries of where a clueless Govt or piss-headed politician has improved on the free market, any market?

I'm all ears...

PS. I agree with you on EMT regards stocks etc. The stock market has a completely different pricing mechanism to a free market, and it's nothing to do with 'efficiency'"

Overfed's picture

The correct price for a gallon of milk is 2.25 grams of silver.

Uber Vandal's picture

In regards to the correct price for a gallon of milk, regulations strike again:

http://www.referenceforbusiness.com/industries/Agriculture-Forestry-Fish...

However, the government continued to set minimum prices for milk, based on the farm's distance from Eau Claire, Wisconsin, which is in the heart of dairy country. Theoretically, the price was based on how much shipping milk from Eau Claire would cost if supplies were not available locally. Milk for drinking was worth between one and two cents more per gallon for every 100 miles from Eau Claire. Under this policy, farmers in Texas were paid more for milk than Wisconsin dairy farmers. And processors had to pay at minimum a regional price set by government guidelines. Milk has been the only commodity for which the agriculture secretary can dictate the minimum price to be paid a farmer.

Also, California cows ARE NOT happy cows.

Sophist Economicus's picture

Wow!   What a disjointed article.    From EMT to stock prices to economic policy to poor bumbling politicians to Glass-Steagall to the 99% to FED bashing

And HE PROVED EMT wrong in the article too!

Genius, shear genius.   Glad I was here

LOL