Hi there! Welcome to
I’m So Glad My Suffering Amuses You! I’m Dave-El and your lovin’ gives me
thrills but lovin’ don’t pay my bills.
So for a few days now, the stock market has been a thing
what with mangled margins, inverted indices, falling finances, plunging prices
and other alliterative allusions to a free falling financial thing that begins
with “F”.
Like everything else in life, I don’t pretend to understand
the stock market. I have stocks. I think. I have money invested in something or
another. I get statements from my bank’s investment division which contains
lots and lots of numbers and words like “capital gains” and “return on
investment” and “abandon hope all ye who enter here”. I don’t understand any of
it. Am I making money? Am I losing money? Is my money caught on a
merry-go-round, just going around in circles? If so, is it on one of the cool
horses or sitting in one of those lame seats? Is my money having fun? Can I
have fun with my money?
What I do know about the stock market is how much pain and
worry is self-inflicted.
Many years ago, I worked for a company that made
manufactured housing. The company had
been in business 50 years and was doing rather well. In fact, it began being
traded on the New York Stock Exchange. Being a publicly traded company has its
perks. All those people investing money in your company means you have money to
do things with like improve products and services which in turn will result in
better sales which in turn provides a nice return for the company and those
that invested in it. The problems start when the line that defines the meaning
of success keeps getting moved out further and further. Earning a profit,
making more money than you spend, is not enough. You have to make MORE money
than you did the year before.
Consider this: Your
business is making a high quality in demand product: laminated ducks. You can
charge a little more for it because your buyers think its worth it. So raising
prices will raise money earned and increase profits. Perhaps you’ve only just
begun to tap into the market for laminated ducks; more people to sell to means
more profits. Maybe you improve the process for making laminated ducks which
works better than the old way but costs less money. Boom! More profits!
But this is not sustainable, at least not forever. Whatever
goes up must come down. The higher you go, the further you fall. A rolling
stone gathers no moss.
OK, I’m not sure what that last one has to do with anything.
But…
At some point, you’re going to reach a breaking point with
your consumers on the price for laminated ducks. Eventually you will tap out any new markets
to sell laminated ducks to. Sooner or later, there are only so many costs that
can be cut to make laminated ducks without making them of a lesser quality
which is why you can charge the prices you do. Inevitably, the ride upwards has
to end.
One day the bad news hits Wall Street: Laminated Ducks
International earned a profit which was 5% higher than the year before. Why is
this bad news? Because the market was expecting a 10% increase in profits. Yes,
you made a profit and it was 5% higher than the profit made last year but Laminated Ducks International is so well and
truly fucked because your company did not earn ENOUGH profit. So the stock
prices goes down and in the boardrooms of LDI, panic sets in while old white
men in suits try to figure out how to get the money train back up to full
steam.
That happened to the housing company I worked for. We had a
decent product that sold at a good price and every year we did better than the
year before. Until we didn’t. And then the panic set in. This company decided
the best way to boost profits was to increase our market. To do that, our
financing arm began approving more and more borderline applications. The good
news is sales did go up and the stock price went up. But those bad loans began
to bite the company in the ass with increasing defaults and a glut of
repossessed homes in a market that already had too much enough new
product. Sales went down again and this
time there was no bouncing back. This company no longer exists after being in
business for over half a century. If we didn’t have stockholders to answer to
demanding increasing profits year to year to year, the company could’ve rode
out the first downturn. But no, the pressure was on to not just deliver big but
deliver bigger and bigger.
But the stock market is a weird beast. One night as I was
driving home during the last year of my employment with the home builder, I was
listening to a local business report. A local company had made a profit but the
stock price went down because the profit was not high enough. Meanwhile, the
stock price for my employer had gone up because the company had lost less money
than had been anticipated. Yes, Wall Street liked us because we sucked less
than expected. Yay, team!
The lesson is obvious to me: you have to take the bad with
the good which is OK as long as there’s more good stuff than bad. But as I’ve
said, I don’t understand the stock market where it seems everyone thinks an
upward direction is an endless ride and any downward direction is nothing less
than total calamity. Stockbrokers are like dogs left at home all day. Every day
the dog owners come back and everyday dogs seem very surprised by that. “OMG!
OMG! It’s the human person who brings the food and throws the bouncing ball thing!
I thought the human person was gone forever! Wait! The human person is leaving?
Where the human person go? Oh no! The human person is gone forever! OMG! OMG! The
human person is back! Oh joy! Is there food?”
Back in 2008, long after I left my job in the manufactured
housing industry and wound up here at my current employer, the big financial
meltdown occurred. The troubles with borderline or outright bad loans had
spread from the manufactured housing sector to all of housing. It was a major
blow to the economy and I remember hearing economists say, “We didn’t see this
coming.” Which is bullshit. Either you’re lousy economists or you’re just willfully
blind. There are only so many people in the world who can afford to buy a home;
eventually you will have to sell fewer homes, give the market time to bolster back
up. If you try to shore up the gravy train by expanding the market to people
who cannot afford to buy a home, you’re only going to make the situation worse.
And it was very bad indeed when the housing market bubble burst, nearly taking
down the global economy with it.
We can see these things coming. We at least know they’re coming
because they always do. It’s a cycle.
That’s all I have today. Before I go, remember to be good to
one another and can I interest you in a laminated duck?
Dave-El
I’m So Glad My Suffering Amuses You
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