THE DECEITFUL EQUAL 
OPPORTUNITY MARKET
by Bill Bonner
Editor, The Daily Reckoning
May 4, 2007

The Daily Reckoning PRESENTS:
"The stock market run-up of the 1990s was based on the fraud that investors could all get rich - big investment pros from Manhattan as well as Mom & Pops from Duluth - just by all being 'in the market' together."

Last night we had dinner with a group of fund managers. The message we took away was the same one we've been hearing for months:

"What is really amazing is that there is so much money around. We don't know what to make of it. People have money. A lot of money. And they're ready to invest it in places that they never would have done a few years ago."

While Abby Joseph Cohen lures the lumpen to the NYSE with her Panglossian schtick, the big money goes after bigger returns…in hedge funds, private equity, and managed accounts. Every boom has an element of folderol in it, but this boom is bigger than most…with a gigantic dollop of humbug balanced like whip-cream on the top.

The stock market run-up of the 1990s was based on the fraud that investors could all get rich - big investment pros from Manhattan as well as Mom & Pops from Duluth - just by all being 'in the market' together. The Efficient Market Hypothesis - endorsed by the U.S. Supreme Court - claimed that everyone had an equal shot at making money in stocks.

Now along come all these opportunities for rich investors to make MORE than the lumps…by bidding against them! The hedge funds are playing options, futures, leveraged derivatives and other sophisticated investments considered too risky and too complicated for small investors. Private equity players are buying public companies right out from under the patsies' noses…'restructuring' them (generally, borrowing money against their assets in order to pay themselves special dividends and fees)…and then selling them back to the small investors at a bigger price. And, of course, fund managers argue that they can beat the market - which is to say, beat the average investor; and they've got the numbers to prove it.

Now, both propositions couldn't possibly be true at the same time. Average investors couldn't be doing as well as the pros…whilst the pros are supposed to be doing better than them. On the other hand, they can both be costly humbugs.

"America frets about executive pay," says an editorial by Clive Crook, in the Financial Times.

Mr. Crook noticed that the House of Representatives passed a bill to "strengthen shareholder oversight of top executive pay."

What follows is a Daily Reckoning cogitation, of the sort that pleases no one.

On the one hand, we are clearly in the camp of those who think the top echelon of American business spends far too long swilling at the trough. We say that based on no evidence whatsoever; it is just a matter of taste. Between one biped and another, in our opinion, there is not enough difference as to justify earnings of $5.29 per hour for the one…and nearly $500,000 an hour for another. And from our observation, there are thousands, or even millions of people wandering around with about the same level of competence…any one of whom could perfectly well do what the best-paid corporate bipeds do.

In short, we think the people who own these businesses are making a mistake; they're over-paying their employees. But that does not mean we see anything wrong with it or want to do anything about it. Mistakes are made all the time. Without error, there is no truth. Without stupid investors there are no smart ones. And without mis-priced shares, there are no bargains.

Envy takes over occasionally, as it did recently in the U.S. House of Representatives. But, generally, Americans are relaxed about differences in wealth. They will put up with extravagant personal earnings…as long as they think they - or maybe their children - might have a shot at them, too.

But modern America is so full of world-improvers, you can barely toss a beer can out of a car window without hitting one in the head.

Some want to limit executive pay…some want regime change in foreign countries…some want to try to alter the planet's weather! A pox on them all.

Regards,

Bill Bonner
The Daily Reckoning

© 2007 Bill Bonner
The Daily Reckoning Archives

www.dailyreckoning.com
Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of The Wall Street Journal best seller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley & Sons).

In Bonner and Wiggin’s follow-up book, Empire of Debt: The Rise of an Epic Financial Crisis, they wield their sardonic brand of humor to expose the nation for what it really is - an empire built on delusions. Daily Reckoning readers can buy their copy of Empire of Debt - now available in paperback - just click on the link below:

The Most Feared Book in Washington! http://www.dailyreckoning.com/empireofdebt.html