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In the last several weeks, the questions about Wall
Street and the stock markets have become much more declarative. No longer are
they phrased as if those who ask want answers yet, when spoken, the
statements often implore the listener to offer something, some comfort,
sympathy, empathy, anything.
When did questions like “What do you suppose
the market will do today?” and “how high/low can it go?” or
“when do you think the Fed will cut rates?” change to hopeful
comments such as “the market is having another off
day”. It is said with such a wishful tone that you are often
forced to offer a word of solace or a glimmer of hope. Unfortunately, those
of us who know better can only offer the equivalent of the much dreaded
“I told you so”. No one wants to hear that! That sort of remark,
addressed to the 90% of the population who own 10% of the stocks is as
off-handed as it sounds yet, for those 90% of us who own 10% of the stocks,
it is nonetheless comforting. Perhaps it could be more aptly phrased to
suggest another look at an old investment adage: “those that stayed on
the Hindenburg survived”. To those of you that have no idea
why everyone looks and sounds so concerned of late about the stock market,
the housing market, etc. etc., here is a simple glossary to help with the
buzzwords. This is by no means a complete guide to the wizardry of words that
Wall Street strives to become but instead, it is more of a look at the smoke
and mirrors magic of finance.
Alliteration: This is not
wholly a Wall Street invention yet it is used so often you think it might
have been. Consider: mortgage meltdown, credit crunch, stock slump (or surge)
and Ben Bernanke (see fickle Fed)
Credit: This is something that is
needed in order for businesses to operate and consumers to spend beyond their
means and in turn, keep businesses running and borrowing in an endless debt
death dive (also see alliteration).
Economy: Pronounced by the President just the other day
as good and pointing the figure at easy money, something his appointee Ben
Bernanke has tried to rectify since his predecessor, Alan Greenspan left him
with a Japanese style interest rate which made borrowing so easy in the first
place. The President, who spearheaded this consumptive race in a post 9/11
world prompted people to spend as if there were no tomorrow. This sort of
action needs to be accommodated with the availability of cheap money.
Federal Reserve Bank, The: Often referred to as simply
the Fed, this august group of bankers willingly made money cheap and
affordable and put plenty of it circulation. The consumer was set
loose.
Fickle Fed: What the Fed giveth, the
Fed can taketh away. Even though Ben
Bernanke, the Fed chairman tried to ease the potential importance of the
approaching credit storm by muttering comments about inflation, and targets,
and not really appearing too worried offered an about face on Friday by
opening the discount window. Numerous news reports are suggesting that this
is an admission of guilt for the Fed, reporting that they may not have known
what they were doing. But that isn’t necessarily correct. The key to what
they did lies in who approaches that discount window. Those that do are in
the deepest trouble. Now markets may advance on the news, but until the queue
at that window stretches around the block, the importance of that move will
not be fully appreciated by Wall Street or the Fed.
Hedge
funds: The shadowy and largely unregulated sibling of the
mutual fund – the investment of choice in most of our 401(k) plans will
eventually get the full blame for this market volatility. Hedge fund managers
have a taste for risk. They will be faulted because as the French bank BNP
Paribas described on their website, “we don’t know what we
own!” To which hedge funds might reply: “Oui, oui. But of course.
That is why we fight regulation!”
Inflation: Part of a set
of triplets that many of us, no matter how much we hear about it on and in
the news do not understand it except when we go to the grocery store –
which the Fed doesn’t count because prices are too volatile to be
included in the index they consider the best measure of inflation. Inflation
or the one the Fed always talks about has more to do with the balance of
workers to jobs and pay. This, they believe will keep prices in line and keep
the economy humming along. Less often talked about siblings are deflation and
stagflation mothered by fear of recession. (See wall of worry.)
Liquidity:
Money, money, money at a low rate that allows investors – not you and
me mind you – to keep borrowing to keep the economy that President says
is doing fine, from failing. This is different from the change in your
pocket.
Mortgage
Meltdown: Just when you
thought people were better educated about the potential of loss and much as
the potential for gain, we find out that the lure of real estate is too much
to avoid. There would be no problem if the banks, those great institutions of
credit would have been less concerned about making loans and more about
collecting them. As the borrowers they lent to became riskier bets,
investors, looking to scratch a few more percentage points from the markets,
encouraged them to keep the cycle going. Homeowners lose. Investors lose (see
hedge funds). Banks simply line up at the discount window (see Fickle Fed).
Recession:
see wall of worry.
Wall of
Worry: Located in the mythical
land of Common Sense, this wall is where investors seek solace for the
unnecessary risks they have taken. Many of them have failed to listen to the
market forces choosing instead to listen to risk reward scenarios. At this
wall they worry but only until the dust settles. When it does, these
investors might be faced with a recession and possibly one with global
consequences. Make your reservations now; the worry may spread pretty darn
fast. Much quicker than a simple apology or the opening of the discount
window can stop.
Paul Petillo
www.BlueCollarDollar.com
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