Market Cap vs Manipulation

I went looking for “what is the total market capitalization?” as I wanted to make a little calculation. Just “what does a 1% move in market indexes mean in dollars?”. The purpose being to show that it is not the average home investor moving markets around as we just don’t have enough money in the game.

I ran into an interesting site with a fascinating little chart. I’m going to link to their chart, but even though it makes up most of their posting, it would be nice to “click the link” and give them a click count for the creativity of it.

http://www.ritholtz.com/blog/2010/07/total-market-capitalization-as-of-gdp/

Total NYSE & NASDAQ Market Cap vs GDP

Total NYSE & NASDAQ Market Cap vs GDP

Now, what I find particularly interesting here is that this shows total market cap is about the same as total GDP. Around $15 Trillion.

Now if we have about 100 Million families in the USA, that’s about $150,000 per family. WHEN the market drops by 10% (as it does over just a couple of days sometimes, or in a single day during the Flash Crash) that would be $15,000 of sales by every family in the country.

Now consider that most folks do not own any stock of significance. (90%+ of all assets are owned by a small percentage of the country). So what this says is that somewhere around $30,000 to $90,000 of stock is supposedly being dumped, in just a few days, by the “upper middle class” to “upper class” folks. Don’t know about you, but for me, I’m usually at least a couple of days behind those plunges before I get around to deciding if I ought to sell. (Most “average folks” who are not market fixated seem to look at their statement once a month… or less.)

At any rate, this really needs some more “fleshing out”, but I got pulled off into a different point. (Oh, and realize that Bonds amount to many times the market value of stock. It is a very much larger “capitalization” than that of the stock market. So when pondering who is pushing “value” around with sales, realize you must leave OUT the bonds owned by J.Q.Public…) But I think it’s pretty clear on the face of it that the Average Joe & Jane didn’t all run out together on the same day and dump $30,000 of stock on one day.

The thing that caught my attention was just the approximate identity of the total Market Cap and the National Debt.

A Modest Suggestion For Dimocrats

(As a reminder to those who have more sensitivity than sense: I use “Republicrims” to talk about the least savory of the Republicans, too. I have many Democratic friends and at times have said the guy who had it most right on the economy was John F. Kennedy. “Dimocrats” does not refer to all Democrats, only to the “Most Dim” among them. Folks like Nancy Pelosi and Barney Frank and Little Chuckey Shumer.)

As the Dimocrats have convinced the bulk of the Democrats to follow them into Class Warfare and Class Envy, and as the Dimocrats have, in conjunction with the Repuplicrims, bankrupted the nation and spent all our national wealth: I have a modest suggestion…

Simply take 100% of all corporate stock of listed companies, confiscate it, and hand it to the folks who hold the National Debt.

This would do a couple of things all at once.

First off, a whole lot of folks (and they must be rich folks if they own stocks) will have a very large “tax” bill via the confiscation. I’m sure that will make you feel all warm and fuzzy and happy. Nothing like striking a blow for Class Equality by assuring nobody owns all that stock. At least for a whlie.

Second, it would eliminate the National Debt. That would make all us citizens feel better (even if we didn’t like having our wealth stolen in the first place).

Thirdly, just think how many new, impoverished, Democratic Voters it would create! Nothing like shared poverty to keep you in office, eh?

Finally, with no National Debt hanging over your heads, you could start deficit spending with real Gusto! Oh, what’s that? You say you are doing that already, debt or no? OK, so I guess that one doesn’t count…

Now, the really sweet bit: As this makes a lot of other folks Stock Holders, in a couple of years you can do it all over again! Easy peasy. Hey, they get all the dividends for a couple of years, and they ought to be happy they are not taxed away, well, not in total anyway.

Now this might present a few tiny little problems with places like China, who would suddenly own 1/14 or so of the total stock market, and might also be reluctant to having THAT stock confiscated in a couple of years, but I’m sure you can find a way to make such an extraterritorial wealth grab work. You’ve already done such things a couple of times with making laws that apply to folks outside the U.S. Borders.

Besides, since most voters have below average income and way below average savings of any kind, it’s not like it would piss off the voters. (Yes, the average income is skewed up by high income earners. Not the median household income, the average of incomes… so “most people are below average” income is a correct statement. Think of averaging one millionaire in with 1000 folks making $20,000. The average will be above $20,000. The median will not.)

At our present run rate of deficits ( of about $1.5 Trillion / year) it will likely be at least 5 years before you would need to completely wipe out all capital stock again. I’m sure folks would get used to having the Net National Capital Stock wiped out every election cycle. Heck, you could even call it a Jubilee of sorts. Just have it be that when each president gets sworn in, all the national capital in stock is obliterated and used to offset the national debt. Since we’re eating our seed corn now anyway, might as well make a party out of it.

Of course, after a while folks might catch on and sell any stock they get and stuff the paper they get in the mattress… but I’m sure you can find a way around that “little problem”. Just make it illegal to sell and everything will work out…

In Conclusion

I don’t know if I ought to laugh, cry, or open a bottle of wine.

Essentially what this little metric says is that the U.S. Federal Government alone and not counting all the local and State debt, has consumed the entire wealth of all publicly traded companies. Every last scrap of it. Realize that many of the tickers traded on the NYSE and NASDAQ are not even in the USA; so even some of the foreign wealth has been consumed.

It is also pretty clear (on the original point I’d set out to investigate) that the swings in the stock market are not driven by “selling pressure” from the average Public Investor. It is driven by high frequency traders, hedge funds, institutional investors, and brokerages (including some of the market makers). Oh, and even some major Whales with $10 Billion portfolios to swing around.

SPY 5 yr W vs TLT TIP FXY VVWs 17 May 2012

SPY 5 yr W vs TLT TIP FXY VVWs 17 May 2012

Click for a larger more readable chart.

On this chart, you can see how SPY has “rounded over” recently. We took a dip that could be traded, then stepped out at the SMA stack, and now we’ve got a drop underway. That’s trader behaviour. Most folks (i.e. the investors of the world ) didn’t just suddenly decide to dump their stocks in unison. No, some large traders are pushing the markets around. Notice that at the bottom of the crash the market was down about 50%. Think the average Joe and Jane had 7.5 $Trillion to dump in a year? Nah, me neither.

How can I know that? Well, first off, the “little guys” are not all coordinating such that they would all act in a couple of days. Second, they just don’t have the monetary horsepower to do that moving. Finally, the Whales of the world could just blow away the little guys if they tried. A Soros or a Buffett with $40 or $50 Billion can offset 10 Million folks moving $5,000 each.

So I find it silly when the Talking Heads come on the Financial TV Shows and make statements about how folks suddenly decided to sell after being influenced by some bit of news or some event. It’s not the public making the buys and sells in size that move markets. It is institutions, hedge funds, and a few Whales. Oh, and some computer programs. Something like 75% of all trades on any one day are from computer trading orders.

So since the stock market has been turned into a giant casino anyway, why not just “raid the place” and announce that you are “Shocked! Shocked I say!” to find gambling has been going on. At least we’d be free of the national debt…

(As a sidebar to anyone who has a broken sarcasm detector: Yes, this is humor and sarcasm. Yes, I know that it would cause all sorts of banks and insurance companies to collapse if this were done as they own stock too. No, I’m not actually advocating this action. Just using it as a vehicle to point out how horrific our National Debt is. And finally, yes, we are in a downturn and it likely has much more to go. The time to cover shorts and buy back in will be when we get volume and volatility spikes like under the prior drops.)

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money, Humor, Political Current Events and tagged , , , , , , . Bookmark the permalink.

9 Responses to Market Cap vs Manipulation

  1. Pascvaks says:

    The ideal form of slavery is when the slaves think they are free.

  2. adolfogiurfa says:

    Wait! That market does not reflect the US economy. Where is it Apple for example?, as for this one it reflects global economy not the local economy.

  3. adolfogiurfa says:

    The US economy is bleeding off through a line connected to WS.

  4. adolfogiurfa says:

    Any complex system, as a complex computer program, if composed of too many variables to control, may turn chaotic and unmanageable. Things seem pretty well until some undetected “bug” begins to cause havoc, then the only way out is: \DELETE *.* :-)

  5. adolfogiurfa says:

    Or worse….: \FORMAT E:\ARTH

  6. Mark Miller says:

    Mark Cuban’s article, “What Business Is Wall Street In?” seems to be relevant here.

  7. p.g.sharrow says:

    @Adolfo: Chaos is self regulating if you leave it be. Any attempt to management of chaos leads to disaster. Only a fool will attempt to manage chaos. Early success is possible, for a short time, but CHAOS always wins. pg

  8. Pascvaks says:

    Is Rome Burning? Yet?

    I’m sorry, wrong incarnation…

    Is NYC Burning? Yet?

    PS: If you come back often enough you get to watch the Hollywood remakes, in Color, and 3D.

  9. pouncer says:

    I was about 9 when Bobby Kennedy was running for president. He made a speech in my home state of Kansas. Something about (what was then called) the GNP. The details, I always have to look up. The gist of it always stuck with me. The GNP includes the cost of the locks on our doors and the salaries of prison guards, but not the value of a child’s education, or play, or the wisdom and joy of being in a family… Had I more respect for Kennedys in general I’d look up the exact words. I don’t so I won’t.

    But the point remains. The value of my wife’s unpaid time homeschooling our kids to a higher standard than reachable by the paid professionals in the tax-supported school system doesn’t show up in the stats. The imputed value of having a roof over my head and a decimal-place fraction of an acre in my own name on which to plant peaches and sweet potatoes doesn’t change much with the rise and fall of economic indicators. The value of several thousand used books accumulated from library culls and garage sales and available to check against the latest version from WikiPedia and Winston Smith is literally inestimable.

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