Big Board Floored

The Big Board is not so big anymore.

A decade ago, it accounted for 80% of stock trades.  Today, it accounts for 20%.  There are also far fewer publicly traded companies in the U.S. – 5,000+ today, compared with 8,000+ in the 1990s.  The NYSE lists about 2,800 of them.

To trade directly on the NYSE, you used to have to buy a “seat.”  In the 1990s, seats sold for as much as $4 million.  Today, you can buy a license to trade on the NYSE for $40,000.

Regardless, when “the leading stock exchange in the world“ shuts down, even for just a few hours, it’s big news.

The NYSE shut down for three-and-a-half hours on Wednesday, which was unprecedented.  Little information has been shared, but the NYSE has blamed the shutdown on a technical glitch.  Call us skeptical, but the odds of a computer glitch shutting down the NYSE, grounding United Continental Holdings planes and bringing down The Wall Street Journal’s website all on the same day are pretty small. Labor Force_1_0

Thanks to Edward Snowden and irresponsible practices by the U.S. Office of Personnel and Management, people who are not our friends now have access to a wealth of information about us.  We’d rather not think about what will happen if Chinese or Iranian hackers disrupt our electrical grid, but it’s something that should concern all of us.  Its impact not only on your investments, but on our national security, would be devastating. 

Things That Make No Sense

The shutdown got us thinking about what would happen if all exchanges were to shut down – and not just for three-and-a-half hours, but maybe three-and-a-half months.

With a summer shutdown, we would have time to reflect on many of today’s most perplexing issues.  The summer may not be long enough to make sense of them, but it would be a good start.  Consider a few examples of questions we would like to have answered.  We want to know …

Why some people are cheering as Greece reneges on paying billions in loans … It used to be a given that if you borrowed money, you paid it back.  In today’s increasingly socialist-tilting world, you borrow money, don’t pay it back and accuse those who made the mistake of lending you money of being bullies.  Funny, but it looks as though Greece is being the bully here.

Why some think the rest of Europe should lend Greece billions more – and write down its current debtThe New York Times, whose writers will remind you that it is the world’s greatest newspaper, suggests that Germany should write down Greece’s debt, since Germany had its debt cut in half after World War II.

If Greece went to war, somehow we missed it.  Regardless, forgiving Greece’s debt makes about as much sense as forgiving student loan debt in the U.S. and saddling responsible taxpayers with the bill.  If Greece debt is written down, what about Italian debt or Spanish debt?  Maybe the U.S. should just forget about paying off the $19 trillion it owes.

Why people are still cheerleading the U.S. economy … The Labor Force Participation Rate is a good figure to think about when you hear the Federal Reserve Board or some economic pundit talk about the recovering U.S. economy.

As Zerohedge notes, “In what was an ‘unambiguously’ unpleasant June jobs payrolls report, with both April and May jobs revised lower, the fact that the number of Americans not in the labor force soared once again, this time by a whopping 640,000 or the most since April 2014 to a record 93.6 million, with the result being a participation rate of 62.6 or where it was in September 1977, will merely catalyze even more upside to the so called ‘market’ which continues to reflect nothing but central bank liquidity, and thus – the accelerating deterioration of the broader economy.”

Why everyone acts as though Fed policy can made a difference … If six years of zero interest rate policy (ZIRP) and quantitative easing haven’t rescued the U.S. economy, who thinks another quarter or two of ZIRP will make a difference?

Why investors think the Fed can keep the stock market at record highs forever … That U.S. markets were flat over the first half of 2015 is a sign that even the Fed can’t manipulate markets indefinitely.

The current swoon in China’s stock market began when the Shanghai market fell more than 2% on President Xi Jinping’s birthday – a day when Chinese investors expect big market gains.

“In most countries, no one thinks there is a link between a leader’s birthday and the market,” The Wall Street Journal reported.  “That such a theory prevails in China reflects the widespread belief that Beijing’s authoritarian government can produce any economic outcome it wants.  Now trust in China’s ability to command and control the economy is faltering.”

That’s a lesson that we hope the Fed, as well as American investors, will heed.

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