Set forth below is the text of a comment that I recently posted to the discussion thread for another blog entry at this site:
I think the prices of homes in Purceville are pretend values. You are living in a cotton candy house. As such, you will soon be living in a van down by the river. Since I said it, it must be true.
In the housing market, sellers make the case for why the price should be high and buyers make the case for why the price should be low. For a transaction to be completed, there has to be a meeting of minds somewhere in the middle. So both the buyer and seller have an incentive to hear out the other guy. So the market is able to function.
It doesn’t work that way in the stock market. Not today. Many people put aside a portion of each paycheck for the purchase of stocks. Those people are buyers and will be for many years to come. They should be rooting for price drops. If prices dropped, they could buy more stocks for the same amount of money and retire much sooner. But when is the last time you heard someone rooting for stock prices to drop? It doesn’t happen. Sellers root for high prices and buyers root for high prices. There is no tension between the two sides. So there is no way for the market to arrive at the right price. The stock market is dysfunctional.
Now, the stock market gets the price right EVENTUALLY. It has to do that. That’s the core job of any market — to get the price right. But, once large numbers of investors come to follow a Buy-and-Hold strategy, it becomes impossible for the market to perform its core job. Prices go up and they do not come down for a long time. Until eventually the market just crashes them. That’s how the market overcomes the irrational unwillingness of investors to engage in market timing. It crashes prices. And we all suffer.
If we permitted honest posting, the stock market could function like other markets. Investors could become informed of the downside of buying stocks when they are insanely overpriced. So they would go to a lower stock allocation when prices got out of control. That would bring prices down to a reasonable level. You would still have steady gains of 6.5 percent real per year because those gains are supported by the economic realities. But you would not have crashes and the economic crises that follow from them. Because the market would be able to do its job of keeping prices where they should be. Permitting investors to know what the peer-reviewed research says is a critical part of having a functioning market. Investors cannot make rational choices unless they have access to good information.
That tension between people who believe that prices should be higher and people who believe that prices should be lower is what makes markets work. Take that tension away by directing threats of physical violence and acts of extortion at those who make the case for lower prices and you can no longer trust the market to get the price right. The market WANTS to get the price right. That’s why as a society we adopted laws against threats of physical violence and against acts of extortion. But the Buy-and-Holders do not follow those laws. And most of us do not insist on enforcement of them because we have a Get Rich Quick impulse within us that makes us sympathetic to the message advanced by the Buy-and-Holders (timing is not required!).
Timing is ALWAYS required. Timing is what makes the market work when it works. Taking away market timing from the stock market is like taking away brakes from a fast car. It guarantees a crash somewhere down the road a piece. Not good.
My sincere take.
Rob
“In the housing market, sellers make the case for why the price should be high and buyers make the case for why the price should be low. For a transaction to be completed, there has to be a meeting of minds somewhere in the middle. So both the buyer and seller have an incentive to hear out the other guy. So the market is able to function.”
That sounds just like the stock market. People make a case for when they want to sell and people make a case for when they want to buy. Why should someone with a failed retirement be telling a successful person what to do?
It’s not even a tiny bit like the stock market. If someone engages in fraud in the real estate market, they are exposed and people do not buy houses from that person. I pointed out the error in the retirement study posted at John Greaney’s web site 19 years ago (it lacks an adjustment for the valuation level that applies on the day the retirement begins) but it has not been corrected to this day, Huh? what the f?
A market in which errors in retirement studies are not corrected is not a functioning market. Such a market is not capable of getting prices right, which is the core job of any market.
My sincere take.
Rob
All you have to do is take all your proof of fraud and give it to a federal prosecutor. Why haven’t you done that yet if you really believe what you say?
I have brought it to tens of thousands of people. A good number have acknowledged that this is total and complete corruption. It doesn’t follow that they want to get involved. The Buy-and-Holders far outnumber the Valuation-Informed Indexers. Not too many people want to see their loved ones threatened or to see their careers destroyed. It’s no fun to have you Goon coming after you.
Federal prosecutors are humans too. They have the same Get Rich Quick/Buty-and-Hold impulse residing within them that all the rest of us have. Will a price crash of 50 percent or more cause some federal prosecutors to open their minds to consideration of the last 40 years of peer-reviewed research in this field? I believe that it will. But we are going to have to wait a bit to find out for sure.
My best and warmest wishes to you.
Rob
” A good number have acknowledged that this is total and complete corruption.”
Who else has called this fraud?
You are also saying that the Federal prosecutors are also corrupted as they look the other way on the fraud. Got it.
All human beings have a measure of corruption within them. Yes, that includes me.
There was a time not too long ago when people with black skin could not rent apartments to the same extent as people with white skin. Was every person who lived in that society corrupt? To some degree, yes. To some degree, no. If every person of the time was 100 percent corrupt, things never would have changed.
We all have corruption within us. And we all also have something within us that makes us want to overcome corruption. That’s why was have seen hundreds of people put their necks on the line and express a desire that honest posting re the last 40 years of peer-reviewed research in this field be permitted.
My best wishes to you.
Rob
This is nothing like racial issues. You made the claim about people believing your point about fraud. Specifically, who believes your story? What proof do you have that Federal prosecutors are looking the other way on fraud?
I pointed out the error in the Greaney retirement study on the morning of May 13, 2002. It’s been 19 years.
There’s not one person who has spent any time looking at the study who concluded that it contains an adjustment for the valuation level that applies on the day the retirement begins. I don’t believe at this point in the proceedings that Greaney himself truly believes that he included a valuation adjustment in the study.
I naturally wish you all good things.
Rob