Tuesday, March 10, 2009

The "market" in Ben Stein

Ben Stein had a very good article in the NY Times Sunday, on ways to fix the market. I said it was painfully obvious that Ben Stein's solution was correct. (But then again, I've watched Ferris Bueller's Day Of way too many times!)

The entire story is at the link, but the Reader's Digest version is below:

REIN IN A RULE Immediately end the near-universal applicability of the accounting rule formally known as FAS 157.

REVIVE A RULE End “naked short-selling” and bring back the “uptick” rule.

ADD A RULE Don’t allow speculators with no insurable interest to buy credit-default swaps on bonds.

And I suggested another rule.

If the seller of CDS Insurance cannot make the payment when default occurs, the buyer takes the hit.

And then I said, "That's the formula for a gigantic market rally! It would clean up all the gaming of the financial system, and make credit default swaps insurance, instead of just a "prop" bet!"

Today we had that gigantic rally. And we had the whisperings of changing mark-to-market accounting, and the bringing back of the uptick rule.

But I said there was a "market" in Ben Stein. Look what Joe Weisenthal, of Clusterstock (which is really a great site and a must read on the markets) had to say about Ben's ideas:

It's not really breaking news that Ben Stein's NYT column is a joke, but it's still surprising how warmed and ridiculous the ex-game show host's ideas can be...

Seriously, it's as though he went out of his way to suggest the three ideas that have been thoroughly debunked. Each is cosmetic, and none address any of the problems facing the financial system. Maybe he's finally going to throw in the towel.

Beyond his paucity of anything interesting to say -- which consistently embarasses the NYT business section -- there's something insidious about this idea that the only issue here is confidence.

Which side were you on?

I only bring this up, because it may prove difficult, for market participants to change their viewpoints on this market.

You can write something clever and wrong, but bearish, and it will get passed around like reefer at a stoner party. It doesn't matter if it's right; it only matters if it is bearish.

On the other hand, you can write something bullish, and be very right, and you'll lose half your readers.

To me, that shows the pervasiveness of the bearish mindset of the professional investor. (I don't mention mutual fund managers, because they are like Obama's team. They don't read blogs!)

Now I'm sure Mr. Weisenthal's piece on Ben Stein's piece was passed around by these professional bears. But did it do them any good?

At turning points, you need to change.

Yesterday, Buffett, when asked about shortsellers, said that he didn't care if they shorted his stock. He said, it would just bring in more buyers. When he was asked about the prices of WFC or USB he said he "didn't care."

Those who bought credit default swaps and those who shorted Berkshire had an opinion change today.

The stock was up 11,649 dollars!

That's the market we are in.

You can change your mind, or the market will change it for you.

But not before it extracts some pain from your wallet!

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