Democratizing Markets Against the Backdrop of a Fed Gone Wild
The biggest news on Wall Street is the arrival of a decentralized activist group of traders stalking the short sellers and roiling the markets.
Despite the hype, the flood of retail investors into the market seeking to make a point, a statement, or a buck, is not new. What is new, and far more dangerous than individuals risking their own money in the market, is the Federal Reserve’s policy of maintaining low-interest rates.
This distorts prices, misallocates capital, and punishes savers. The Fed is the ultimate foe of the little guy who pays his bills, lives by the rules, and just wants to be left alone. The reckoning for the Fed’s creation of “zombie markets” will be enormous.
Bringing a big dose of democracy to stock markets, and shaking trading houses to their foundations is largely a good thing. It’s happened before, and it’s happening now. What arises from the rubble is usually a better, more rational market. This kind of disruption, though, has limits in the heavily regulated financial market.
Maybe that’s why the enthusiasm for alternatives to the current tools and market regulations — like cryptocurrency — continues to grow.
But there, as everywhere, the same iron-clad rule of investing and trading applies: your investment’s value will fluctuate. There is the possibility it could go to zero. And unlike the big Wall Street banks, the individual investor is not “too big to fail.”
Image Credit: By AgnosticPreachersKid (Own work) [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons