…this guy, who has written about 20 column inches without getting one damn thing even close to right…
According to Felix Salmon, a blogger for Reuters, “the stock market is becoming increasingly irrelevant — a trend that threatens the core principles of American capitalism.”
Wonderfully, completely, hilariously wrong. And stultifyingly stupid. And from someone who is an “expert” — he’s paid to know better. A clear winner here, folks, for our first Stupe de Jour. In fact, for the number of factual errors in one column, and the blunders pertaining thereto, this one might be hard to top for a while. Let’s look.
First of all, Mr. Salmon’s interest was piqued by the Deutsche Bourse’s (Germany’s stock exchange) recent offer to purchase the New York Stock Exchange. Again. according to Solomon:
“And the Germans aren’t buying the New York Stock Exchange for its commoditized, highly competitive and ultra-low-cost stock business, but for its derivative business.”
This is a howler of hilarious proportion. In fact, the NYSE has very, very little derivatives business — that’s the whole point of the takeover. Other exchanges in the US have capitalized on the NYSE’s reluctance to list derivatives to seize this market for themselves — and the Germans propose to use the strength and distribution of the NYSE to build a large derivatives business here in the US — like the one they already operate in Germany, Europe and worldwide.
But back to Salmon’s core assertion: that the stock market is becoming “irrelevant” and that American capitalism is “threatened.” His reasons:
It’s pretty clear that the total number of stocks peaked with the dot-com bubble, and is now on a long-term secular downtrend.
Right. It peaked during the dot.com bubble, when you could go public with a business plan and a pro-forma. “Long-term secular downtrend?” This is using mumbo-jumbo chartists and economists apply to market prices and economic scenarios, applying it to a simple numerical chart, and claiming it makes sense. You may as well look at a fever chart from a malaria patient and project that his temperature will be 220 degrees by Thursday.
But he goes on:
“…given its steep downtrend, [it] will continue to shrink.”
Why? It has been in “downtrends” before, and then it started growing again. Why not this time? Because you said so?
Now this beauty:
“What the market is not doing so well is its core public function: allocating capital efficiently.”
The core public function is “allocating capital efficiently?” When in the name of J. P. Morgan did it ever, ever do that? The stock market does two things, and two things only:
1. Raises capital for companies through initial and secondary public offferings.
2. Maintains an orderly, liquid and efficient market so that investors can buy and sell shares whenever they want to, as cheaply (at the lowest transaction cost) as possible, and in virtually any size.
There is a very damn big difference between what Solomon calls “allocating capital efficiently” and operating an efficient market.
So, what is “allocating capital efficiently?” Why, raising it for the “best companies.” And here, Salmon says, the NYSE has failed — because Apple has not raised any capital since 1981 — “and there’s a good bet it never will again.”
First of all, why does Apple need capital? Answer: it doesn’t — it’s already making more than it can efficiently reinvest in its businesses. Maybe — maybe — that’s why it hasn’t raised any. But what about those that do? Facebook, for example, and Twitter?
Ah, now we come to the real point behind Mr. Salmon’s petulance. These companies, he notes, “are managing to avoid the public markets entirely by raising hundreds of millions and even billions of dollars privately. You and I can’t buy into these companies.”
And that’s not fair! Now I get it. In fact, there’s nothing wrong with the New York Stock Exchange at all; Mr. Salmon is aggrieved because he can’t get in on the private placement action, because “only very select institutions and well-connected individuals can. And companies prefer it that way.”
Sure they prefer it that way. For one thing, they can pick who their investors are, just like most businesses in this country. That means if a stone-dolted moron like Mr. Salmon says “I want to be your partner,” they can just look at him like the pumpkin-off-the-truck that he is and kick him right out the door on his ass. Wouldn’t you?
Second, they don’t have to deal with the battalions of regulators that a public listing entails. Does we need to explain or defend this?
But, according to Mr. Solomon, all this spells doom for the exchanges of this world — or at least, this country. Towards the end of his article, after spinning out a few more dazzling contradictions and bewilderingly wild allegations, he concludes that soon “small investors…will be able to invest in only a relative handful of companies anyway.”
No kidding? Do you really believe this? Or are you just so lost in your own nonsense that you have actually persuaded yourself that this outcome — which would strike most of us as wildly improbable — is really just around the corner? Okay, then, bye bye NYSE with its 5000+ listings. Sure. Soon.
He closes with a few really priceless remarks:
“At risk then, is the shareholder democracy that America forged, slowly, over the past 50 years.” Shareholder democracy? Have you ever actually been to an annual meeting? Shareholders vote with their money: if they like it, they buy it and keep it. If they don’t, they sell it. They don’t show up in Akron on March 11th and vote. You twit.
“”Civilians, rather than plutocrats, controlled corporate America.” Yes. He really wrote that. Until relatively recently, before Facebook and Twitter, those plutocratic tools, “civilians” controlled corporate America. What the hell does he mean? Have the Joint Chiefs somehow managed to infiltrate Wall Street? Does the Navy run Microsoft? Or, by “civilians,” does he mean the man in the street?
Come on, Mr. Salmon. This has gone beyond silly into the realm of the psychedelic. Do you really mean to assert that corporate America was a widely-represented democracy? That boardroom decisions were made by plebiscite? From this statement alone, we can deduce that the air in your office comprises 16% oxygen, 4% other gases, and 80% nitrous oxide.
Okay, enough, we’re exhausted. We knew that the blogosphere lets almost anyone speak their piece, but this guy, who has written about 20 column inches without getting one damn thing even close to right, is a professional. At Reuters. He’s paid to do this.
Let us try a simple rebutttal:
1. The New York Stock Exchange is is no imminent danger of extinction from a lack of listings. The chief danger it faces is from completely automated electronic exchanges that can out-compete it in terms of pricing efficiency, liquidity and transaction cost.
2. We’re not going to run out of stocks to invest in because Facebook wants to stay private for the time being. (Don’t worry. They will go public. When they want to, not when you say so. Get over it.)
3. “Civilians” never ran corporate America.
4. There actually were “plutocrats” in the last 50 years here in America. If you don’t know their names, ask your barber. He will.
5. The stock market does not allocate capital “efficiently.” That is an idealized academic pipe dream. It is, in fact, its inefficiency — the tendency of investors to sell shares for too much or too little — that makes it work at all.
6. The health of a stock exchange is not evidenced by a mad dash for market-derived capital by companies already flush with cash.
7. You have no inherent “right” to buy shares in businesses that have elected to remain privately held, or to share in the rewards of other people’s labor. If this seems somehow unfair to you, try to remember that they are running a business, not hosting a kegger.
That’s about all we can stomach for now. But let us now extend our sincere thanks to Mr. Salmon for serving so admirably as our first Stupe du Jour — you, sir, are a rare and wonderful talent, and one that we may well revisit.
Watch out, Mr. Krugman. We had not thought it possible, but — you have a rival.