Joel Bowman

What’s new in the markets? More importantly, what kind of market are we talking about…and why does it matter to you?

We’ll get to that in a second. First, here’s a conventional response to the question, one you’d expect to find in your morning paper or on the evening news:

Stocks in the US were down this morning after yesterday afternoon’s selloff snapped a two-day winning streak for the thirty bluest chip companies. The Dow closed at 13,197 points yesterday, down 44 points for the session, though still up roughly 8% on the year. Investors sold shares across the board in early morning trading today after a weaker than expected durable goods report. All twelve sectors, from Capital Goods to Utilities were down at time of print with Energy and Basic Materials off the most, down 1.7 and 1.8% respectively.

Zzzzzzzzz…..Zzzzzzzzzz….

There. Now what does that tell you? Nothing. A bunch of slack-jawed gibberish best suited to helping your screaming toddler fall asleep of an evening. We almost dozed off just writing it. Not that intellectual fatigue and drone-like data regurgitation are sufficient disincentives to ward off embarrassingly enthusiastic prognostications from the mainstream press, mind you. Here are a couple of actual, real life headlines we chanced upon this morning:

“US Stock Futures Pare Gains After Disappointing Durable Goods” — the WSJ.

“Wall Street opens flat after durables data” — CNBC.

Sheesh. We even saw one daily claiming to know the unknowable in the form of the following headline: “Why the Dow Fell Today.”

We didn’t subject our pre-caffeinated, A.M. state of mind to the omniscient diatribe beneath that offending claimline, but we imagine it contained plenty of candidate material for Chris Mayer’s “You Can’t Make This Stuff Up” file, which he delivers to attendees of our investment symposium in Vancouver each year.

“News is systematically misleading,” observed Chris in a recent Daily Reckoning contribution, “reporting on the highly visible and ignoring the subtle and deeper stories. It is made to grab our attention, not report on the world. And thus, it gives us a false sense of how the world works, masking the truer probabilities of events.”

Chris quoted an essay by Swiss entrepreneur, Rolf Dobelli, unambiguously titled, Avoid News:

“We don’t know why the stock market moves as it moves. Too many factors go into such shifts. Any journalist who writes, ‘The market moved because of X’… is an idiot.”

Which brings us back to our second question of the day; what does “the market” mean to you? Generally, when inch-filling columnists talk about “the market,” they are referring to a bunch of stocks you may or may not own that trade on dubious fundamentals you may or may not care about and that move in ways we almost certainly cannot predict or understand.

“Dow up on ABC,” says one paper. “Euro markets rattled after XYZ” chimes another. But how does this actually affect you? In what way does this news impact your life? Does the movement of this particular market determine what happens on Main Street, or simply reflect the general “sentiment” of automated machines and high-frequency trading desks on Wall Street? And should you care either way?

There are many factors at work here. In yesterday’s issue, for example, Aussie DR editor, Dan Denning, reckoned on the consequences of Ben Bernanke’s deflation phobia. The Fed Head has a fear of declining asset prices, wrote Dan, something he and his credulous acolytes mistakenly define as deflation. (In fact, deflation — as with its ugly stepsister, inflation — is, as Milton Friedman correctly observed, “always and everywhere a monetary phenomenon.” The rise and fall of asset prices are symptoms of inflation and deflation, not causes.)

Spurious definitions notwithstanding, Bernanke believes that by stomping on interest rates, printing truckloads of new money and otherwise fiddling with the levers and pulleys at the Fed, he can discourage and punish savers to the extent that they will be forced to put their money in stocks…thereby buoying the indexes he and his central planner friends point to as measures of the health and vitality of the economy.

For reasons that Dan went into yesterday, this is at least as absurd as it sounds. Artificially manipulated interest rates do not encourage healthy investment…instead, they spawn malinvestment based on compromised information and market distortions.

“It’s a shame he can’t understand that the US rate policy is unsound,” wrote Dan. “And since the rest of the world more or less keys off from US interest rates, an unsound US monetary policy leads to an unsound global monetary policy. By ‘unsound’ we mean a policy that keeps interest rates too low, leads to asset price inflation, and a giant boom in debt.”

Given the many and varied forces — both natural and unnatural — pressuring stocks this way and that, is there any practical benefit in quoting stock averages or, worse still, attributing causal agents to their largely unpredictable trajectories…and then only after the fact? There’s much more to it than that.

For instance, what if shares of Google rise to $1,300 each — a roughly 100% gain — by year’s end? And what if the whole market does likewise, racing to enormous paper gains over the coming months. In a context vacuum, this might appear to be a good thing. You can write the headlines today:

Google Rallies, Leads Market to All Time High! Dow Doubles, Wall Street Hails Hero Bernanke!

But what if the value of money depreciates to such an extent over the same time that it costs $100 to buy a loaf of bread? A single share of Google would then be worth a (baker’s) dozen loaves of bread. The headlines above are at least meaningless and, more to the point, downright deceptive. What things are valued in is at least as important as the number preceding them. One million dollar per ounce gold means nothing if it’s denominated in Zimbabwean dollars…except insofar as it indicates the Zim bucks are worth next to nada.

“The market,” in any case and as it pertains to most people, is less likely to be the Wall Street Casino variety of leveraged buyouts, inside (the 495 Beltway) trading and high frequency, automated jockeying and, rather, more likely to be the local market…the market for goods and services people buy, sell and trade on a daily basis.

And there are, believe it or not, markets that are springing up — flourishing, even — that exist very much outside the relatively narrow spectrum of activity crawling across the bottom of the CNBC news screen. The vapid neckties appearing on that show, and their like, don’t report on these markets because they aren’t supposed to exist. We’re talking, of course, about what the state dysphemistically refers to as the Black Market.

Now, before discounting this unregulated sector of the economy as a gun running, drug smuggling bastion of hedonistic activity, consider that, as reported in these pages before (here and here), this is an economy that will employ roughly two thirds of the world’s workforce by 2020. (Consider too that the drug- and gun-running businesses are only made profitable/possible by a state that outlaws them or, rather, that monopolizes these markets for its own sick and tragic ends.)

Instead, “System D,” as Robert Neuwirth, author of Stealth of Nations, describes this community of free and unregulated entrepreneurs…

“…is a slang phrase pirated from French-speaking Africa and the Caribbean. The French have a word that they often use to describe particularly effective and motivated people. They call them débrouillards. To say a man is a débrouillard is to tell people how resourceful and ingenious he is. The former French colonies have sculpted this word to their own social and economic reality. They say that inventive, self-starting, entrepreneurial merchants who are doing business on their own, without registering or being regulated by the bureaucracy and, for the most part, without paying taxes, are part of “l’economie de la débrouillardise.” Or, sweetened for street use, “Systeme D.” This essentially translates as the ingenuity economy, the economy of improvisation and self-reliance, the do-it-yourself, or DIY, economy.”

Today, System D is estimated to be worth about $10 trillion, the second largest marketplace in the world. Its companies appear on no exchanges and are, thus, monitored by no index averages…or SEC-like wolves and/or incompetents. Its workers are subject to no oppressive labor laws and are free to contract with whomever they wish and at a price mutually agreed upon. It is dynamic, unrestricted by petty bureaucracy and, as such, is able to adapt at lightning speed to the varied demands of a rapidly and increasingly evolving global environment. It asks permission from no politician and, as you might expect, it is by far the fastest growing economy in the world.

A recent column that appeared on Forbes.com went all the way to synthesizing two aspects of this market that your editor has addressed in these pages before: System D as a market itself and Bitcoin, the bare-knuckeled cyber-cryptocurrency tapped by adherants as the answer to the tyranny of central banking, as a viable currency to carry and facilitate transactions within it. Both topics are relatively new; Bitcoin is barely 3 years old and, although System D has been around since people first began contracting and exchanging goods and ideas — or rather, since people claiming the right to do so began trying to regulate and tax them — Neuwirth’s book, published just last year, is the first real effort at quantifying it.

Expect more on these rapidly developing, highly adaptive markets as debt-laden states around the world struggle to catch their dying breaths and mainstream indexes and markets are increasingly stifled by their burdensome regulations.

The answer to the above question, What is the market?, is simple: It is people. And people are beginning to notice they don’t need arbitrary regulations imposed on them by self-serving lawmakers and central planners in order to trade and interact peacefully with one and other.

Instead, they are coming to realize the power of free and open markets. And they are joining a growing chorus each and every day.

Joel Bowman
for The Daily Reckoning

Joel Bowman

Joel Bowman is a contributor to The Daily Reckoning. After completing his degree in media communications and journalism in his home country of Australia, Joel moved to Baltimore to join the Agora Financial team. His keen interest in travel and macroeconomics first took him to New York where he regularly reported from Wall Street, and he now writes from and lives all over the world.

  • Jean

    Gave up on the market when Lloyds began to fold and all the names went on the rampage using their “concentration” through their money managing institutions, etc, to stay afloat.

  • http://earthsociety.org Philosopher Rex

    Nice article! I find it difficult to believe that ‘System D’ is currently worth 10 trillion dollars. However the way Bernanke is playing ball, it soon will be worth that and much more. Comparatively speaking though, and relative to other markets, it’s going to take a quite a shock before SysD is on par with the fiat traded above-board economy.

  • maxim

    …by the way, the book of Dobelli is nearly completely stolen from N. Taleb…
    What big deal.

  • fritz

    market-a measurable revenue stream controled by mobsterists.
    market-the means whereby the myth of trade as a proper distribution model is perpetuated.

  • Van

    A great article! To quote von Mises:

    “Economics is not about goods and services; it is about human choice and action.”

  • http://www.realbench.net/real_estate_software_overview.php Real Estate Software

    I think that you were right on with this article. The, What motivated you to call this blog “Warren Buffett (Berkshire Hathaway) Stock Portfolio – Update 2011 Q4″, not that the title does not go with the content, I am just wondering. Well put The.

  • http://www.realbench.net/special/real-estate-investor-website-software.php Real Estate Investor Website Software

    Thank you for this blog. It has a lot of great information and some great contributors. You put a nice twist to it. I appreciate you sharing this with the rest of us steve.

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