Speculators, Gamblers, Investors, and Slaves

“Dishonest money dwindles away, but he who gathers money little by little makes it grow.” – Proverbs 13:11

Just a “quick” note today about investing, gambling, and those darned speculators. It seems that the evil speculator has reared his head again and is causing high gas prices … if Obama’s stump speech is to be believed. (Of course, gas prices seem to be trending down a bit, so maybe the speculators have thrown in the towel.)

The argument is disingenuous at best, but it makes good political sense. Speculators are simply buying a position (in this case in a commodity future) in the belief that the value of that position will be greater tomorrow than it is today. No, they’re not “investing” in the sense of placing capital in a business to further its growth.  I say it is disingenuous because speculation is exactly what goes on in the stock market every day, and is blatantly encouraged by the Obama central bank of Ben Bernanke. That is, Bernanke is pushing liquidity on the market telling everyone that it is risky to hold dollars (because he’ll devalue them) so they must … wait for it … speculate in some other risky asset like equities to avoid getting wiped out. So if the high stock prices of late have all come from speculation (in this case speculation that Bernanke will destroy all those who try to save and be prudent), is it  not plausible that the same mechanism has driven commodity prices? Good for the goose … good for the gander.

Now, the speculation mindset is pervasive and corrupting. I caught an article over at yahoo describing “3 signs you’re gambling, not investing” – in which the author (clearly an investment manager) claims that picking individual stocks, timing the market (i.e, responding to a belief in future fluctuations), and looking at mutual fund histories all equate to gambling. His suggestion is to simply throw money broadly at the market and rebalance if asset classes perform differently. Boy, if that doesn’t sound like speculation, then I don’t know what is.

It used to be the case that people bought equities based on a belief that this or that company was well run, had a good business model, and that ownership was a profitable venture. No more. Now it is all speculation about what Ben Bernanke will do and whether being in or out of the market is the right approach (and investment managers say “all in, all the time” – because that’s how they get paid).

This is no different than gambling. If one believes he has better insight into the probability of team A beating team B, or asset class A outperforming asset class B, then he makes a bet. That’s the way it works. And without “sound money” – that’s what we’re left with.

I’m not here to decry gambling or speculation, not at all. I’m merely pointing out that those who rail against speculation are on some crazy high-horse trip and need to get a grip. It’s all speculation. When we try to save, we get wiped out. When we try to invest for retirement, we’re told we have to invest broadly in mutual funds (driving up equity prices for the already super rich). When we try to invest for our future by buying a piece of a local enterprise we face every tax obstacle imaginable. When we try to buy individual equities because we like the company we’re told that we’re gambling. When we try to actually invest (lend money on the bond market to a company) we get rolled by government bailouts and see our investments handed to the politically-connected class (auto-bailouts, anyone?).

“Slaves are made in such ways” – William Wallace, Braveheart


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