I Eat Bear

Collusion is illegal, everywhere EXCEPT the stock market. That needs to change.

Now, let's define it. A group, that is large enough to affect results.

That is a very encompassing definition.

But, in terms of today's market, I think I can make a pretty clear definition of it. A group, that contains enough stock, to force prices DOWN. They have no interest in stocks as they go higher. They merely want to reap gains from forcing prices down.

Who qualifies? Not the individual investor. They are a victim. Especially long term investors.

The FUNDS, are the culprits. And, who owns the funds? Investment banks largely.

OK, if funds are the problem, are they all bad? No, there must be a good one somewhere, but I am hard pressed to find a good reason for them. They simply do more bad than good, for the economy as a whole. Ok, if you are in one, you MIGHT get some benefit, as they RAPE the rest of the market. Then again, you may not even get that? WHY? Because the fund manager, gets a cut, as does the holder of the fund (the investment company).

It is the VOLUME of stocks that are the issue here. Much less than the type of fund, but the type of fund is important too. The volume of stocks they have, DOES force prices down, when sold en-mass. And they do. And they buy on significantly smaller volumes.

Now, if this happened only occasionally, I might not have a beef. That is NOT the case. This happens almost WEEKLY, and in some cases, more often. Sure, large firms could all make the same actions at the same time,, occassionally. It could NOT happen WEEKLY. Too coincidental. Or, it could be that ONE is just so unfathomly large as to cause this all by itself.
Since Bernny Madoff, I don't discount any possibility. The SEC is a group of BLIND mice,, or more succcinctly, a case of BLIND JUSTICE, as Arlo Guthry once made a spuff on in "Alice's Resteraunt"

If this is to be allowed, at all, it should be strictly governed. I personally believe all funds should be outlawed. But, I do think 401k funds have value for investors too. Not because they are good, but because they offer a forced investment, for those that just don't do it on their own. Then again, the fees for these funds, is rediculous, in almost EVERY case.

But, the fix for this is not so unreasonable either, and it requires only one change to the laws.
If you are going to be a fund, you MUST have a long term investor strategy. That is to say, if a fund owns a stock, it must hold it, for a minimum of two years.

Implement that ONE rule, and you will see the market volatility get reduced, SIGNIFICANTLY.
And, I will be willing to bet, the market will recover, far faster. And, it does something else too.
It gives the individual investor, some chance, to compete with the mammoth size of most funds.

There is little doubt there are other possible solutions, one of which is to limit the amount of any single stock a fund could own. Limiting trades to quarterly has also been considered. The issue with the limits on shares, does depend on the size of the fund, especially if it becomes a percentage. A small percentage, could still make a HUGE volume of a stock, in a very large fund. Limiting frequency of trades would seem to be beneficial, and maybe the quarterly idea has merit. Would a prudent company sell large volumes quarterly, if they knew they had to hold two years on a rebuy?

I don't think we can fix this collusion problem over-night. But, we do need to do something, besides turn a blind eye. Bernie Madoff did it largely as an individual. To ignore the possibility companies would try to control prices, to gain money,,,,, is simply foolish.

Personally, I do not think funds are ETHICAL, and for that reason ALONE, I do not support them. Is it morally right to make money for a few, at the expense of others? And, to give them any kind of an edge, is quite simply an abonomation to every moral law I can think of.

Comments: View Comments |  Tuesday January 13, 2009