The above question seems so basic on its face.  And the answer appears obvious to everyone- until you start breaking it down.  It’s the large mutual fund managers managing $10T in assets, of course, that move markets.  No, no, wait, it’s the hedge funds with their intricate trades and global bets and the huge amount of leverage they take on.  Hang on, it’s foreign institutions and governments to which our country is indebted.  Wrong again, it’s all of it together…it’s a market that incorporates all of these independent actions by its actors to provides a real-time measurement of behavior. 

But what if this isn’t true?  What if some individual actions matter more and have a larger impact on the market than we believe?  What does that do to the ability of individual investors to fairly compete on this playing field? 

In this Sunday’s New York Times, Ben Stein makes the argument that it is the traders sitting at the large investment banks that move markets.

(Traders) sense an opportunity to trick other traders and poor retail
slobs like you and me, and they generate data and rumor to support
their positions, and to make money.

MORE than that, they trade to
support the way they want the market to go. If they are huge traders
like some of the major hedge funds, they can sell massively and move
the market downward, then suck in other traders who go short, and
create a vacuum of fear that sucks down whatever they are selling.

So when you see the market gyrating wildly downward and hear some
pundit saying it’s because of this or that data or this paradigm or
that ratio, remember…traders move the market any
way they want, any way they think they can make money…

These traders, not economists or securities
analysts, can turn the world upside down, make governments tremble,
give central bankers colitis and ruin the lives of ordinary men and
women saving for their children’s college education or their own
retirement. In America today, it is the traders, not the politicians or
the generals or the corporate bosses, who have the power.

Stein goes on to say he believes there is an implicit conspiracy between these traders and the press where the media reinforces these dire predictions so that traders are in a position to make money on the bad news they are creating.   I don’t believe this is happening in the systemic manner Stein states.

We may live with these inequities when it comes to corporations taking all the tickets to the Super Bowl or front rows to Hannah Montana.  But, when forces beyond the control of individuals have a
large and lasting impact on their investment performance and
well-being, it doesn’t feel right.  Nor is it a true market any longer. 

Related Posts

• Henry Blodget and The New York Times (NYT)