Stockbrokers. Do we need them?

The ‘poor stockbroker’!

A review of the Irish and UK stock market June 08. Compliments of P Murray.

Perhaps we should feel sorry for the ‘poor’ stockbroker – maybe we should put them on suicide watch – what other profession has written so many guidelines, recommendations and briefings that have been so spectacularly wrong over the past 12 months.
A doctor would be struck off, a banker fired, an estate agent bankrupt but such is their resilience that they continue unashamed and unabashed to write more briefing notes even as we speak.
Amazingly there are no anecdotal tales of stockbrokers going bust - how can this be? – do they do not read or act on their own notes?!

But just like the property market or the decline of the dollar, their demise, although slow, is in the very seeds they are sowing. Through their encouragement of market volatility through various devises including my pet hate - short selling- the market they represent is disappearing before their eyes. The hen that laid so many eggs is being eaten for a short term gain.
The credibility of the stock market as an efficient medium of capital is melting before our very eyes. Why should a Bank stock vary by 6% in a day or a food company vary by 5%? There is no information in the market that would suggest an adjustment to value. We have dozens of accountants and internal auditors within these companies worried over pennies – and rightly so – but why should they bother when brokers are moving the value of their companies tens or hundred millions. There is a total disconnect between the business and the shareholder.

Anecdotally the smart money has left the stock exchange years ago and is mostly invested in private equity funds. So are only the idiots left investing in the stock market?

It gives us no comfort that we are not alone. We cannot see the woods for the ‘hedges’.
We are surrounded by hedge funds. The classical theory is that they add liquidity to the market. My response is bull. I have a simpler economic theory – it is called a zero sum game – if hedge funds are making billions due to their activity in the stock market then it is at someone’s expense – yes indeed – yours and mine.

And keeping with my zero sum game theory if you keep draining a reservoir eventually it goes dry – and what we are watching is the collapse of capitalism as we know it. Well managed and funded companies are trading of multiples of three and four. The stock market is making a laughing stock of business. The solution has to be to take them private – which they would if the banking system was not currently dysfunctional and suffering from the same stock market constraints.

Looking further ahead – say 10 years – and it may even be closer – perhaps 5 years – the issues will be air, water food and energy. Interestingly many of the companies in this area are not listed. In twenty years time people will ask about the stock market and we will point them to where the Natural History Museum will house historic stock market reports – now collectors items – and the blenched white bones of investors who kept marching across the desert - ever hopeful.
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