Wednesday, October 10, 2012

Is the stock market a dinosaur?

Yes, yes and yes.  I was reading an article about a recent incursion into the US stock market.  And it occurred to me that the stock market has, for years just been Las Vegas for rich people.  With High Frequency Trading coming on the scene over the last several years, it has turned the stock market into a ticking time bomb.

It is quite possible, and most likely occurring daily, that automated programs could/have been written on the scale that directly effects our economy.  Think about that for a minute.  Some random, single person, on the Internet, that has access to the on-line trading system has the potential to affect and impact the economy of an entire country.   Just like the recording industry, the stock markets of the world are realizing the impact of taking out of date systems and marrying them with technology.

Even if you take technology out of the picture, the stock market is a dinosaur.  The stock market was intended as a place where companies could raise capital to expand their business, what it actually does is hurt business.  I will tell you a story of a company that I once worked for.  The company was privately held, about 2000 employees or so, worldwide footprint, up and coming.  Then they went public.

What happened afterwards was a long spiral downward of moral killing layoffs and decisions made by the executives which hurt the company, but helped the stock price.  After going public, we had one of the best years ever, sold more product and made more revenue than ever.  We had shipped the best product we had ever shipped, things were looking great.  Then the layoffs came.  We were all scratching our heads, wait a minute, what just happened?

What happened was Marketing.  The way it works is,  a few wonks from marketing get together.  They project what they think the company will make, over the next quarter and next year, in other words, they pull numbers out of their arse.  The rub here is that, the Marketing people projected that we would make more than we actually did.  When the revenue numbers came in and they were less than the projections, it drove the stock price down.  In order to bring the stock price back up, the company has to reduce their expenses to bring the stock back up, which in turn results in people losing their jobs.

At the end of the day, good qualified people are losing their jobs because marketing people want to play poker with computer programs in a rigged game, which is also referred to as "The Stock Market".

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