The new book, Flash Boys by Michael Lewis, is just the latest chink in the armor of US financial markets. It causes concern for two reasons. Americans have a virulent love of conspiracy theories and the germinal essence of every brand is belief and trust. Our ability to identify with and own a brand in our living fiber is directly related to our belief that we know the brand well enough to predict its behavior.
When we create a brand to grow market share, we work very hard to identify belief systems that already exist in the specific market. We know from experience that, when users embrace a brand, they make the internal emotional jump from the brand to themselves. Powerful brands are part of the self-identification that users project on that brand. We literally see ourselves in the brands we love. The stronger that self-identification is, the greater the brand loyalty (the more you will pay to own it and the greater your willingness is to inconvenience yourself to own it).
Considering that, the US stock market is in trouble.
It’s not that the Lewis’s book is such a revelation. I have blogged before how ridiculous the stock market is and how it is in fact just a gamblers’ game.
In the hearts of investors, there is the hidden belief that they are not investing in the purest sense. Rather, they are gambling as surely as if they sat at the roulette or baccarat table. They KNOW this but push it back into the recesses of subconsciousness. They tell themselves that they are INVESTING as if a rational being can figure out what the stock market will do based upon cognitive experience or analysis. Then, a stock like Best Buy JUMPS even though it just reported continued losses.
Wall Street explains this by saying that the stock market is a discounting system. Meaning, projected jumps and declines are already figured into the price of a stock. What we all really know is that the market is moved by day traders and institutional investors. They make moves on sudden upticks or purchase and sell in such quantities that the market reflects their positions.
Lewis is claiming that the battle to fix the market (like playing with loaded dice at the craps table) is played by institutional trades called Flash Boys who, because of incredibly high-speed internet connections, are able to skim a bit off the top of almost every transaction. His claim is that these Flash Boys know what you bid to buy or sell before the market does and react by upping the price exactly at the time you buy. In effect, they gamble with a stacked deck.
The stock market is a brand that trades other brands. But it relies on our ability to trust and believe in the fairness of that brand for its life’s blood. Damage that trust and we are all faced with a double conundrum— it is just another form of institutionalized gaming (no different than a casino) and worse still… it is fixed.
It touches a belief already entertained even if it is hidden. We don’t want to be gamblers with the mortgage money. We believed we were INVESTORS, not shills.