5/30/2012

Wall Streets betting slips



Many funds have been set up to advise high net worth clients on how to manage and invest their money. Actually the term invest is a misnomer. They should call themselves betting agencies, betting the clients money in the biggest unregulated casino, the New York Stock Exchange. Many funny instruments called options and derivatives and a mix match of these instruments were offered to high net worth sophisticated clients as sophisticated and complex investment products. In common layman parlance, these are just variations of betting slips or gambling offered to rich and daft clients who were either too lazy to know what they were, or too confused to know what these products were.

All the products can easily be explained in the language of the gamblers in the casinos, turf clubs or football betting counters. Strip them of their financial and unfamiliar jargons, they are nothing new that the gamblers in these gambling outlets did not know.

Options is simply placing bets and covering the opposite position. Putting $100 on white may lose everything. So to minimize the risk, depending on the appetite, the gambler could put $80 or $90 on red. And if the risk appetite is lower, put $100 on each to cover both sides. To be 100% safe, put a few chips on 0 and all bets will be covered.

Then there will be bets on big numbers or small numbers. The variation will be to place some on big and some on small and a few chips on single numbers, the so called high risk high return part. To package the bets to look more sophisticated, put some bets in big and small, some in white and red, and some in quarters or doubles to confuse the clients and gave them high sounding names like structured notes.

To raise the level of complexity, put the bets across tables or in different kinds of games. Put some bets in the roulette tables, some in black jacks and some in the poker tables. The latter two can charge higher management fee as a gambler would be needed to ‘manage’ the gambling. And call these bets structured funds to mesmerize the daft sophisticated investors.

Options in many instances are nothing more different than betting in a football game. Win if the score is 3 goals or more in call options. In bear options, win if the team loses by more than 2 goals or a combination of such bets. Create terms like spread, shoulders, butterfly to impress the investors. Butterfly is nothing but betting for a win if the scores are more than 3 for, or more than 3 against. Another variation is that any scores of more than 2 goals for or against will be knocked out.

The whole scheme of thing is betting and betting and betting. It has nothing to do with investment which fundamentally is putting money on a company because it has growth potential and to grow with the company through profits/dividend payouts or higher share prices. This kind of investment strategy is too slow.

Sophisticated daft investors would be better off betting in the turf club or in football matches as the games are simple enough to understand without the fictitious financial jargons that meant nothing. It is better to know what one is dabbling with than to be confused by the funds and their derivative products that are out to confuse by mixing a whole basket of bets. Why take the risk in betting that only the fund managers know what it is all about? If investors have high appetite for risk, go bet horses and football matches that are more transparent.

Of course horses and football matches are exposed to match fixing. So could these highly sophisticated betting slips. They are easier to manipulate by the big funds with their big war chests and sophisticated computers.

Wall Street and its parallel models across the world are just highly deregulated casinos and nothing else. Until it reverts to the original model of stocks and shares for investment, it is going to break the world’s financial system. It is no longer an investment market but a market for gambling. Wall Street should stop conning the world that it is a sophisticated stock market and a financial centre. It is NOT!

The worst part is that the snake oils are tainted to cheat the investors wholesale. The odds are worst than the highly regulated casinos in Las Vegas. With high speed computers plugged into the system to check all the buys and sells of small investors and to formulate a sure win position for the funds, how can the rest of the investors win? It is cheating of the first order. It is a crime that is allowed to commit in the heart of the world’s biggest financial centre. Do they know they are committing a crime? Yes. But with all the congressmen and regulators in cahoot, all paying themselves crazily, who is there to stop the embezzlement and daylight robbery?

2 comments:

Matilah_Singapura said...

No one is forced to bet at the casino or on the stock market.

You bet, you lose, your problem. If you don't know the difference between "investing" and "gambling", also your problem ;-)

I don't have alot of sympathy for fuckers who lose money in the casino or on the market. People go to the market or the casino to make a quick buck. And it is a natural human tendency to scream "unfair" when the losses come as fast as the anticipated, but dashed hopes of a profit.

Got fear?

Got greed?

Chua Chin Leng aka redbean said...

Why would the American govt allowed the casino operators to run the stock exchange, design the games, set the rules and cheat the main street in whatever way it deems fit? A few possible answers.

1. They are so dumb that they did not know what is going on.
2. There were bribed to keep quiet.
3. They are part of the game, robbing and cheating the main street and enjoying the feast.

Above all, they are plain irresponsible and the main street needs to sue them for creating an unfair system and a big scam. Sue the whole board of directors and management of the exchange.