DOW 17,000. HAVE WE BEEN WRONG???

DOW 17,000. HAVE WE BEEN WRONG???

 

You know that I’m going to say, “of course not” but I think it bears repeating exactly why.

First of all, this is not a matter of being “right” or “wrong”. This is a matter of being “appropriate” or inappropriate.”   Your neighbor is taking penicillin for an infection.  Is it wrong that you are not taking penicillin?  No, it is just inappropriate for you to take it if you don’t have a reason to do so.   Someone wins the Indy 500 every year; we know that ahead of time.  So is it wrong for you to take the family station wagon to the track and compete with the pros?  No, it is inappropriate.

Even if we had known ahead of time that the DOW would reach 17,000 it would not have been appropriate for small investors to have been in the market because they could not have afforded to lose everything on the way to 17,000 in one of the many real and possible crashes.

We make decisions about what is appropriate or inappropriate for ourselves and our families all the time.  So why is this one so hard to accept?   Because it USED TO BE appropriate for small investors to be in stocks. We thought that if we diversified it would control risk. That was before we knew that insider traders, dark pools, high frequency traders, etc. etc. had rigged the market in their favor.   So now, even if you are willing to risk losing money, your chances of winning are slim to none.

But the issue of DOW 17000 is really a pimple on an elephant compared to the real risk to the financial world of the derivative market. This didn’t used to be the case either. Do you read or hear anything about it?  No, most people and advisors do not understand it and if they do, they don’t want you to know about it.

The worldwide stock market has $50 trillion dollars at risk every day. The derivative market is $680 trillion dollars of unregulated trades (not traded over a regulated exchange) at risk every day.   Which do you think we should be more concerned about? Which do you think took down the financial markets in 2008 requiring the governments of the world to rescue their banks and brokerage houses??

Which do you think will cause the next crash that no one will see coming because no one knows what goes on inside that market???

I return to the question of being wrong about the stock market. The DOW can reach 20,000 and without a complete regulatory overhaul that outlaws the derivative market, it will be inappropriate for the small investor to invest anything they cannot afford to lose in stocks.   For most us, that means $0.00.

 

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