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Is the Stock Market Only For The Big Boys?

I have written several postings related to Various topics including the military, Voting, the economy, religion and etc in America. A list of links have been provided at bottom of this article for your convenience. This article will, however address additional issues in these topics.

Over the years, Robert’s has regularly addressed the psychological and emotional pitfalls that ultimately lead individual investors to poor outcomes.

The internet is littered with a stream of articles promoting the ideas of “dollar-cost averaging,” “buy-and-hold” investing and “passive-indexing” strategies to help you achieve your financial dreams.

However, as he addressed in “The Illusion of Declining Debt to Income,” if these are effective solutions, why are most of Americans so financially poor?

Here are some statistics from a recent Motley Fool survey:

Imagine how the 50th percentile of those ages 35 to 44 has a household net worth of only $35,000 — and that figure includes everything they own, any equity in their homes and their retirement savings to boot.

That’s sad considering those ages 35 and older have probably been in the workforce for at least 10 years.

And even the 50th percentile of those ages 65-plus isn’t doing much better; they’ve got a median net worth of around $171,135, and quite possibly decades of retirement ahead of them.

So what happened?

• Why aren’t those 401(k) balances brimming over with wealth?

• Why aren’t those personal E*Trade and Schwab accounts bursting at the seams?

• Why isn’t there a yacht in every driveway and a Ferrari in every garage?

It’s because investing does not work the way you are told. (Read the primer: “The Big Lie of Market Indexes.”)

Seven myths you are told that keep you from being a successful investor
1. You can’t time the market

Now, let me be clear. Roberts is not discussing being all-in or all-out of the market at any given time. The problem with trying to “time” the market is “consistency.”

What he is discussing is risk management, which is the minimization of losses when things go wrong. While there are many sophisticated methods of handling risk within a portfolio, even using a basic method of price analysis, such as a moving average crossover, can be a valuable tool over long-term holding periods.

The chart below shows a simple moving average crossover study. The actual moving averages used are not important, but what is clear is that a basic form of price movement analysis can provide a useful identification of periods when portfolio risk should be reduced.

Again, he is not saying that such signals mean going 100% to cash. What he is suggesting is that when sell signals are given, it is time for some basic portfolio risk management.

If you use some measure, any measure, of fundamental or technical analysis to reduce portfolio risk as prices/valuations rise, the long-term results of avoiding periods of severe capital loss will outweigh missed short-term gains. Small adjustments can have a significant effect in the long run.

2. “Buy and hold” and “dollar cost average”

While those two mantras have been the core of Wall Street’s annuitization and commoditization of the investing business by turning volatile commission revenue into a smooth stream of income, they have clearly not worked for investors who were sold the “scheme.” Two of the biggest reasons for the shortfalls have been the destruction of investor capital and investor psychology.

Despite the logic behind buying and holding stocks over the long term, the biggest single impediment to the success over time is psychology. The behavioral bias that leads to poor investment decision-making is the single largest contributor to underperformance over time. Dalbar defined nine of the irrational investment behavior biases, but the two biggest are the herding effect and loss aversion.

Those two behaviors tend to function together, compounding investor mistakes over time. As markets are rising, individuals are led to believe that the current price trend will continue for an indefinite period. The longer the rising trend lasts, the more ingrained the belief becomes until the last of holdouts finally buys in, as the financial markets evolve into a euphoric state.

As the markets decline, investors slowly realize they are looking at something more than a “buy the dip” opportunity. As losses mount, anxiety pushes investors to try to avoid further losses by selling.

This behavioral trend runs counter-intuitive to the “buy low/sell high” investment rule and continually leads to poor investment returns over time.

3. More risk equals more return

Investors are always prodded to take on additional exposure to equities to increase the potential for higher rates of return if everything goes right. What is never discussed is what happens when everything goes wrong?

If you look up the definition of “risk,” it is “to expose something of value to danger or loss.”

As his partner Michael Lebowitz noted:

“When one assesses risk and return, the most important question to ask is: ‘Do my expectations for a return on this investment properly compensate me for the risk of loss?’ For many of the best investors, the main concern is not the potential return but the probability and size of a loss.

“No one has a crystal ball that allows them to see into the future. As such, the best tools we have are those which allow for common sense and analytical rigor applied to historical data. Due to the wide range of potential outcomes, studying numerous historical periods is advisable to gain an appreciation for the spectrum of risk to which an investor may be exposed. This approach does not assume the past will conform to a specific period such as the last month, the past few years or even the past few decades. It does, however, reveal durable patterns of risk and reward based upon valuations, economic conditions and geopolitical dynamics. Armed with an appreciation for how risk evolves, investors can then give appropriate consideration to the probability of potential loss.”

Spending your investment time horizon making up previous losses is not an optimal strategy to build wealth.

4. All the cash on the sidelines will push prices higher

How often have we heard this? He busted this myth in detail in “Liquidity Drain” but here is the main point:

Clifford Asness previously wrote:

“There are no sidelines. Those saying this seem to envision a seller of stocks moving her money to cash and awaiting a chance to return. But they always ignore that this seller sold to somebody, who presumably moved a precisely equal amount of cash off the sidelines.”

Every transaction in the market requires both a buyer and a seller with the only differentiating factor being the price at which the transaction occurs. Since this must be the case for there to be equilibrium in the markets, there can be no “sidelines.”

Furthermore, despite this very salient point, a look at stock-to-cash ratios also suggests there is very little available buying power for investors currently.

There is no cash on the sidelines.

5. Tax cuts will fuel the markets

We are told repeatedly that “cutting taxes” will lead to a massive acceleration in economic growth and a boom in earnings. However, as Lacy Hunt recently discussed, this may not be the case.

“Considering the current public and private debt overhang, tax reductions are not likely to be as successful as the much larger tax cuts were for presidents Ronald Reagan and George W. Bush. Gross federal debt now stands at 105.5% of GDP, compared with 31.7% and 57%, respectively, when the 1981 and 2002 tax laws were implemented. Additionally, tax reductions work slowly, with only 50% of the impact registering within a year and a half after the tax changes are enacted. Thus, while the economy is waiting for increased revenues from faster growth from the tax cuts, surging federal debt is likely to continue to drive U.S. aggregate indebtedness higher, further restraining economic growth.

“However, if the household and corporate tax reductions and infrastructure tax credits proposed are not financed by other budget offsets, history suggests they will be met with little or no success. The test case is Japan. In implementing tax cuts and massive infrastructure spending, Japanese government debt exploded from 68.9% of GDP in 1997 to 198% in the third quarter of 2016. Over that period, nominal GDP in Japan has remained roughly unchanged. Additionally, when Japan began these debt experiments, the global economy was far stronger than it is currently, thus Japan was supported by external conditions to a far greater degree than the U.S. would be in present circumstances.

“The outcome of tax reform/cuts at the tail end of an economic expansion may have much more muted effects than what the market has currently already priced in.”

6. Cash is for losers

Investors are often told that holding cash is foolish. Not only are you supposedly “missing out” on the rocketing bull market, but your cash is being eroded by “inflation.” The problem is the outcome of taking cash and investing it into the second-most-overvalued market in history.

He discussed the following in “The Real Value of Cash.”

The chart below shows the inflation-adjusted return of $100 invested in the S&P 500 SPX, -0.03%  (capital appreciation only, using data provided by Robert Shiller). The chart also shows Shiller’s CAPE ratio. However, he has capped the CAPE ratio at 23 times earnings, which has historically been the peak of secular bull markets. Lastly, he calculated a simple cash/stock switching model that buys stocks at a CAPE ratio of 6 times or less and moves back to cash at a ratio of 23 times.

He has adjusted the value of holding cash for the annual inflation rate, which is why during the sharp rise in inflation in the 1970s, there was a downward slope in the value of cash. However, while the value of cash is adjusted for purchasing power in terms of acquiring goods or services in the future, the impact of inflation on cash as an asset with respect to reinvestment may be different since asset prices are negatively affected by spiking inflation. In such an event, cash gains purchasing power parity in the future if assets prices fall more than inflation rises.

While cash did lose relative purchasing power because of inflation, the benefits of having capital to invest at lower valuations produced substantial outperformance compared with waiting for previously destroyed investment capital to recover.

Much of the mainstream media will quickly disagree with the concept of holding cash and tout long-term returns as the reason to remain invested in both good times and bad. The problem is that it’s your money at risk and most individuals lack the time necessary to truly capture 30- to 60-year return averages.

7. If you’re not in, you’re missing out

Periods of low returns have always followed periods of excessive market valuations. In other words, it is vital to understand that investment timing affects your eventual outcome.

The chart below compares Shiller’s 20-year CAPE to 20-year actual forward returns for the S&P 500.

From current levels, history suggests returns to investors over the next 20 years will likely be lower than higher.

The truth

No one can rely on these myths for their financial future.

Again, if the myths above weren’t myths, wouldn’t there be a whole lot of rich people heading into retirement?

In the end, only three things matter in investing for the long term:

• The price you pay.

• When you sell.

• The risk you take.

Get any one of those three things wrong, and your outcome will be far less than you have been promised by Wall Street.

How the stock market is a sham for the working and middle class. 53 percent of Americans have no money in the stock market, including retirement accounts. 62 percent of all US wealth owned by top 5 percent.

The growing wealth divide in this country is devouring every piece of the middle class that is currently left.  The stock market is largely a sham for most Americans.  Why?  Many hedge funds and other large Wall Street firms are in the business of making quick profits even if it means destabilizing the underlying economy.  Many large companies have made larger profits since the recession ended by slashing wages and benefits.  More importantly however, is that this dramatic bull market in stocks since 2009 has been one big sideshow for most Americans.  A Pew Research survey found that 53 percent of Americans own no stocks, including in their retirement accounts.  And the fact that only 10 percent of Americans have pensions, many (most) are going to rely on Social Security as they enter old age.  Why is the stock market a sham for working and middle class Americans?

A decade of no real gains

The buy and hold idea hasn’t really worked for nearly 14 years.  Take a look at S&P 500 returns going back to 2000:

Adjusting for inflation, if you invested $1,000 in the S&P 500 in 2000 you would have $1,010 today, nearly 14 years later.  You would have been better off with savings bonds or even with a low rate savings account.  Beyond that, look at the incredible volatility.  At one point in 2009, it would have been down to $417.  Of course the mantra is “buy and hold!” but that assumption assumes most Americans own stocks in any meaningful amount.  Which they clearly do not:

Most Americans don’t have any stocks to their name.  In fact, many Americans don’t even have any savings to their name.  Those 25 to 34 have a median amount saved for retirement in the sum of zero dollars.  So this incredible amount of volatility has largely produced nothing for most American families.  And we have recently seen that household incomes adjusting for inflation are back to levels last seen in 1989:

Beyond the more obvious reasons that Americans are not participating in the stock market, you have the more apparent reason that the stock market is gamed and largely operates like a casino.  Think about the big banks.  These banks created financial products that brought the global economy to the brink of implosion.  Packaging junk and selling it off to unsuspecting investors and many times, even betting on this toxic waste since they knew it was merely time before these products went bust.  Instead of protecting regular investors, global governments and central banks rallied around the banks to save their own skin.  In the mean time, the rest of the public is getting proportionately poorer.  These aren’t titans of industry trying to help improve the economy.  These aren’t the job creators that are glamorized in the media.  These are merely glorified bucket shops hiding behind Bloomberg terminals itching to find the next company to sink and the next segment of the country and world to exploit.

So is it any wonder that Wall Street has been deep in cahoots with the for-profit college industry?  Of course not.  It is also no surprise that the Fed’s low rates have spurred on another real estate mania but the gains are largely going to big time investors (many that helped implode the market to begin with).  So like the stock market, these new real estate gains are going to a small portion of the population:

Isn’t it great that real estate is going up?  Not really given that banks are buying up those 5,000,000 foreclosures that have hit since the crisis began (a crisis they created).  They are buying it cheap and the nation is adding a fleet of renters.  Oh, and rents are going up faster than overall inflation.  As we mentioned earlier, incomes are back to 1989 levels adjusting for inflation so more money is going into real estate (a sector that is now largely being pulled away from Americans).  Do you see a pattern here?

The stock market has become even a larger sham because of other things like High Frequency Trading (HFT) and derivatives.  They try to sell it to the public that stocks are easy to understand but only a few years ago, these same banks were selling toxic junk to the public laughing all the way to the bank as the bets imploded and their options boomed in profits.  These investments were sold as easy to understand as well.  Those that failed didn’t really fail either.  They got bailed out.  The public was largely left holding the bag and the end result is a massive wealth disparity in the country:

The top 5 percent control 62 percent of all the wealth in the US.  Wealth is the true measure of power in the current economy.  If you make $50,000 a year and spend all $50,000 then you are left with zero dollars at the end of the year (which seems to be the common path for most Americans).  Yet more and more wealth is being aggregated in the hands of a few.

Part of the sham isn’t the idea of stocks or real estate.  In fact, real estate has been the most common form of wealth building for average Americans for a couple of generations.  The problem is the market now favors short-term booms and busts and casino like economics.  The slow growth model is out the window.  How can a regular investor compete with banks that essentially control the government and also have HFT machinery that is completely out of reach for most?  The fact that the S&P 500 adjusting for inflation has returned virtually zero dollars for 14 years should tell you something (forget about the most volatile time since the Great Depression).  The market is a sham for most because there has been zero substantive reforms since the crash happened.  Yet they expect the public to dive in and gamble again on the next repackaged toxic waste?  This is assuming most of the public is even investing which they are not.

For those of us who are as intimate with the inner workings of the stock market as we are with the circuitry of the Large Hadron Collider, the brouhaha over GameStop has been illuminating. While the story may seem esoteric, it is highly revealing of the way economic and political power operates today, laying bare both the irrationality of the market and the reach of corporate privilege.

For those who don’t know, GameStop is a US video game retailer that has lost much of its market share to online trade and whose stock plummeted from $56 (£40) a share in 2013 to about $5 in 2019. It is set to close 450 shops this year. Some big hedge funds decided that they would cash in on GameStop’s misery by shorting its shares. A short is a bet that an asset, such as a share, will decline in price. It’s a maneuver that can generate huge profits. But if the asset price doesn’t fall, investors can also lose a lot of money.

And that’s what happened with GameStop. A bunch of Reddit geeks on the online forum r/wallstreetbets, an investment discussion group that boasts more than 6 million users, decided to buy GameStop shares en masse. Perhaps they saw it as an investment, perhaps they were bored, perhaps they wanted to inflict pain on Wall Street. Whatever the reason, the consequence was to push GameStop’s share price up. And up. Once it became a global story, others piled in too, boosting the share price from about $40 to almost $400 in a matter of days. As a result, big investors lost big, one hedge fund, Melvin Capital Management, even being forced to seek a rescue package. The story, however, is not just about traders getting their comeuppance, but also about the absurdity of the stock market.

One might naively imagine that it exists to allow people to invest in companies. But share trading often has little to do with productive investment. According to the writer Doug Henwood, IPOs – initial public offerings through which people can buy shares in private companies – have, over the past 20 years, raised a total of $657bn (£479bn). Over that same period, the companies in S&P’s 500 stock index have spent $8.3tn (£6trn) buying their own stock to boost its price.

A stock buyback – a company purchasing its own shares to reduce the number openly available and so push the price up – is a form of market manipulation that was illegal in the US until Ronald Reagan decided that to ban it was to restrict market freedom. As a result, many corporations, instead of building factories, now plough money into their own shares.

It has helped raise the stock market to record levels and provided shareholders with a huge largesse. But few others have benefited. The pharmaceutical company Merck insists that it must charge exorbitant amounts for its medicines to help fund new research. In 2018, the company spent $10bn on research and development – and $14bn on share repurchases and dividends. One report suggests that had Walmart diverted half the money it has spent on stock buybacks into wages, one million of its lowest-paid employees, many of whom live below the poverty line, could have had a 50% pay increase.

As speculation rather than productive investment has become the fuel of the stock market, so big investors have come to spend more time playing games such as shorting. Last week, though, having been outgamed by a bunch of nerds, the titans of Wall Street did what all entitled people do. They whined. How dare people manipulate the market! Only those with Manhattan penthouses who attend dinner parties with presidents and Federal Reserve governors should be able do that, not people with online handles such as DeepFuckingValue. As Severus Snape exclaims in Harry Potter and the Half-Blood Prince: “You dare use my own spells against me, Potter? It was I who invented them.”

Having the right connections means that when you whine, others listen. Regulators in Washington are now keeping an eye on possible market manipulation by social media groups. The digital investment app Robinhood, which has helped open up the stock market to a wider public, last week restricted trades in GameStop, allowing investors to sell but not to buy, a sure way of pushing share prices down. The company insists that this was for technical reasons rather than from a desire to protect hedge funds. Small investors have, however, taken out a class action against Robinhood for “knowingly manipulating the market”.

Discord, an online platform, banned wallstreetbets from its servers for spreading “hate speech, glorifying violence and spreading misinformation”. By all accounts, group members indulged in racism and homophobia. Its founder, who was expelled earlier this year, claims that some moderators “were straight-up white supremacists”. It’s quite a coincidence, though, that the group should be taken down for “hate speech” on the day that big investors lost so much money. At the same time, the relationship between such groups and regressive politics shows how much Wall Street has become associated with liberals and how much of the anger against big corporations has been hoovered up by the populist right.

Discord’s action demonstrates again the power of tech companies to shut down groups or discussions that those with power and influence find troublesome. It demonstrates, too, how campaigns against “hate speech” or “misinformation” can become means of throttling much wider forms of challenges to authority.

There might be something cathartic in watching the wolves of Wall Street themselves beeing savaged, but we should not romanticise the Reddit geeks. This was not an “uprising” or “the French Revolution of finance”, as Donald Trump’s former communications director Anthony Scaramucci absurdly described it, but a scheme to play professional investors at their own game.

Many of the players are undoubtedly unsavoury figures with regressive politics. Their actions do nothing to challenge the inanities of the stock market or to diminish the miseries the market imposes on so many people’s lives. On the contrary, what the GameStop affair reveals are the frailties of the contemporary challenge to power.

Just as our news cycle has been dominated by the two warring political parties in this country, churning just under the surface are opposites of a different kind — the two economies in our country. The coronavirus-induced economic downturn has brought the contrast between the haves and have-nots, and the salaried and the hourly, into such stark relief. 

In the late 70s and early 80s, I believed in the merits of trickle-down economics. I was educated as a supply-side economist. But forty years later, I’m growing alarmed that the result of trickle-down economics has reared its ugly head as trickle-up economics instead. The pandemic has not only made this visible, it’s put us on an accelerated course that we may struggle to reverse.


It’s no secret that the U.S. economy hasn’t been a manufacturing economy for a long time — we’re now a consumer and market-driven economy, and profits continue to be the fuel for survival for any company competing in a capitalistic society. For many decades, manufacturing elevated the middle class, but the shifting of production to intellectual capital created a different set of opportunities for those manufacturing employees, along with many more jobs for those at the bottom in the service economy.

The simple definition of capitalism is “the increasing cooperation amongst strangers,” but perhaps economist John Maynard Keynes summed it up best when he said that capitalism is “the astounding belief that the wickedest of men will do the wickedest of things for the greatest good of everyone.” For centuries, we’ve staked our society to the tenants of capitalism, and today, the main tool of this economic system is the public stock market… The problem with this is that only 10% of the population— the top 10% — has ever made a trade. The vast majority of American families simply do not have a seat at the Wall Street table. 


When we look at the public companies that drive the market, we see they all have a responsibility to shareholders to maintain profits. Thus, the pandemic has required them to act prudently and lay off employees in order to stay afloat… But when the economy crashes, the government then steps in to prop up those very same companies. Making the government and the public good dependent upon each other (rather than independent players) brings us to the completion of the full circle in this grand economic experiment we call capitalism.

In recent history, we saw the government bailouts of 2009, and today we have the CARES Act, wherein the Fed has thrown a trillion dollars at the economy in order to “help consumers.” While assistance is always welcome, in a capitalist economy, the result is that the real beneficiaries are public companies — not the little guy, as countless headlines as of late would have you believe. 

Why? The reasons are simple.

* Those at the top of the economy save (and invest) 65% of their income, while the bottom 90% spend 106% of their income. 

* Right now, those who have money to invest also find themselves with more money to spend due to the restrictions on travel, dining out, and myriad other things that drive the bottom half of the economy.

* Those who own real estate as an asset are now able to refinance, thus freeing up even more cash to invest, only furthering the divide between our two economies. 


But, why, during a global pandemic and major recession, does the stock market continue to reach all-time highs? Firstly, the S&P 500 is an irrelevant measurement tool when it comes to gauging the true state of the economy. (And remember, this risk target measurement tool created by Wall Street has no realistic benefit for 90% of people in their financial lives.) If we look to the “big six” stocks: Apple, Facebook, Amazon, Netflix, Microsoft, and Google’s parent, Alphabet, we see they’ve been up by nearly 45% so far this year, while, as of mid-August, the rest of the companies in the index had reported losses of about 4%, according to the Washington Post. 

Understanding what truly drives the markets is a vicious cycle that often (if not always) spills over into politics. But no matter your side of the aisle, in an intellectual market economy, investing in whatever keeps you ahead is the only way to survive. And in a global economy, having a melting pot of diverse perspectives will help expand the reach of innovation and ideas.

Whenever I speak to people about their fear of the stock market — or their excitement surrounding it — I love hearing their rationale behind their emotions. But far too often, their feelings are based on a disconnected understanding of what truly drives Wall Street. 

In simple terms, the stock market is almost completely disconnected from people’s wealth, and it’s the great illusion of Wall Street that the only way to get rich is to take your cash and give it to America’s biggest corporations, who will be the only ones to get rich at the end of the day. You take all the risk, they have all your cash, and once they take care of themselves, you *might* get your money back. Because as soon as coronavirus, or credit default swaps, or tomorrow’s next boogeymen rears a head, it’s your money they’re going to lose — not theirs.

U.S. stocks are hovering near a record high, a stunning comeback since March that underscores the new phase the economy has entered: The wealthy have mostly recovered. The bottom half remain far from it.

This dichotomy is evident in many facets of the economy, especially in employment. Jobs are fully back for the highest wage earners, but fewer than half the jobs lost this spring have returned for those making less than $20 an hour, according to a new labor data analysis by John Friedman, an economics professor at Brown University and co-director of Opportunity Insights.

Though recessions almost always hit lower-wage workers the hardest, the pandemic is causing especially large gaps between rich and poor, and between White and minority households. It is also widening the gap between big and small businesses. Some of the largest companies, such as Nike and Best Buy, are enjoying their highest stock prices ever while many smaller businesses fight for survival.

Some economists have started to call this a “K-shaped” recovery because of the diverging prospects for the rich and poor, and they say policy failures in Washington are exacerbating the problems.

Congress has not passed another relief bill, and the bulk of the federal stimulus originally passed in March to sustain small businesses and more than 28 million people on unemployment benefits has largely expired.

As talks between Republicans and Democrats in Washington have disintegrated, the burden of supporting the economy has fallen on the Federal Reserve, which has pumped trillions of dollars into the financial system to prop up businesses and markets, fueling a 50 percent gain in the stock market since March and a surge in home and car buying. But the Fed’s main tools in this situation are reducing the benchmark interest rate and buying bonds. The Fed cannot give people checks, which is why its actions have done little to help renters facing eviction or small businesses on the verge of dying.

Fed leaders have urged Congress to act swiftly before the damage to the economy becomes permanent. Boston Fed President Eric Rosengren warned on Wednesday that “the recovery may be losing steam.” Former Fed chair Janet L. Yellen called for “urgent” fiscal action.

“The stock market isn’t the economy. The economy is production and jobs, and there are shortfalls in virtually every sector of the economy,” Yellen said in an interview with The Washington Post.

“This pandemic is causing suffering and losses,” Yellen said. “Individuals and businesses are not going to make it through this unless they get grants, and only the federal government can do that.”

As much of the economy has moved to work-from-home mode, the shift has mainly benefited college-educated employees who do most of their work on computers. A Fed survey found that 63 percent of workers with college degrees could perform their jobs entirely from home, while only 20 percent of workers with high school diplomas or less could work from home.

Richer Americans also have seen their wealth recover — or even surge — as home values have jumped to their highest level ever (even in inflation-adjusted terms), according to the National Association of Realtors.

New analysis by Opportunity Insights of Labor Department data found employment is still 20 percent below pre-pandemic levels for workers earning under $14 an hour, and 16 percent down for those making $14 to $20 an hour. Opportunity Insights also analyzed data from the payroll processors Paychex, Intuit and Earnin and came to a similar conclusion.

“The recession is nearly over for high-wage workers, but low-wage workers are no more than half-recovered,” said Friedman, who led the research, which is sponsored by Harvard and Brown universities and the Bill & Melinda Gates Foundation.

The pandemic and economic crisis have hit Black and Hispanic neighborhoods the hardest. Many of these households had little savings before the pandemic, and their jobs have been slower to return as the coronavirus risk remains highest in crowded indoor spaces such as shopping malls.

Black men and women have recovered about 20 percent of the jobs they lost in the pandemic vs. almost 40 percent for White men and 45 percent for White women, Labor Department data shows.

The slow job rebound is leaving many minority families fearful of eviction. Nearly half of Hispanic renters and 42 percent of Black renters said they had “no confidence” or only “slight confidence” they could pay their August rent, according to a Census Bureau survey conducted July 16-21. On the social media site Reddit, unemployed Americans are posting harrowing accounts of their electricity being shut off, not being able to afford medication and being days from eviction.

In many parts of the country, a sense of helplessness and fatigue has set in as the virus continues to threaten people’s health and the economy and families see little action by Congress. Small-business owners are accustomed to being nimble, but this level of uncertainty makes week-to-week planning nearly impossible.

“There’s always been huge disconnect between politicians and the working class. I wish they would pay attention and listen to what we actually need: more clear guidance and some more financial support,” said Derek Caskey, co-owner of Sawstone Brewing Co. in Morehead, Ky.

Sawstone Brewing is one of more than 5 million businesses that received Paycheck Protection Program grants this spring. The grant the brewery received enabled Caskey to keep paying his eight workers and shift his business model to takeout orders. But the PPP money has run out and business has not fully recovered.

“What’s saving us right now is outdoor seating. But when that isn’t feasible, what are we going to do?” Caskey said.

The stock market is telling a different story. Thanks to a wave of optimism about a possible vaccine and an economic recovery, as well as continued support from the Fed, many investors are doing quite well. The Standard & Poor’s 500-stock index is within a few points of hitting a record high. If it happens, it would be the fastest turnaround ever from a bear market, said Howard Silverblatt, a senior analyst at S&P Dow Jones Indices. The tech-heavy Nasdaq composite index has been in record-high territory for more than a month.

President Trump has hailed the “tremendous” stock market gains as a sign of a “super” economic rebound.

“We’re in the middle of a pandemic and yet we’re going to be hitting records,” Trump said Thursday on Fox Business channel.

It’s a similar tale in housing. Families with jobs and savings are taking advantage of the lowest mortgage rates in U.S. history — below 3 percent — to buy bigger homes at bargain rates. Home purchases are up more than 20 percent, and refinancing is up nearly 50 percent from a year ago, according to the Mortgage Bankers Association.

White House economic adviser Larry Kudlow suggested Wednesday that the recovery is going so well that the economy may not need much more aid from the federal government.

“We are entering what I think is a self-sustaining economic recovery,” Kudlow said on Fox Business. “A rising tide does lift all boats.”

Trump’s Council of Economic Advisers issued a report Thursday highlighting that poverty probably declined in the spring because of the $1,200 stimulus checks and extra unemployment funding Congress and the White House approved.

But former Trump economic adviser Gary Cohn was one of several business leaders this week stressing that the U.S. economy is far from healthy and that the consequences of Congress’s inaction could sting for years. He said the stock market gains are a red flag signaling that small businesses are being crushed.

“The stock market continues to reflect big businesses increasing their market share during #COVID19. If a small business closes, a larger business fills the void. We need to contemplate what this means for Main Street USA going forward. Is this really the future we want?” Cohn tweeted.

Janice Tabangcura is one of millions of Americans furloughed and waiting to be called back to work. Tabangcura has been a line cook at Roy’s Waikiki Restaurant in Hawaii for six years. The normally vibrant Honolulu neighborhood is empty, and no one knows when that will change.

“It’s creepy. Waikiki is usually so busy. We call it Hawaii’s little New York. But now you see five people on the street,” Tabangcura said. “They keep extending the quarantine here. It’s dampening our spirits. We thought tourism would pick up this month, but it hasn’t.”

Tabangcura, 30, has waited weeks for an unemployment check, which still hasn’t come. To make some money and stay hopeful, she’s started a baking business, delivering “Bento boxes” of cookies and pastries.

For many of the unemployed, the downturn is lasting far longer than they had anticipated. Nearly 80 percent of furloughed or laid-off workers thought they would be rehired, a Washington Post-Ipsos poll conducted April 27-May 4 found. Yet so far, only 42 percent of jobs have returned, Labor Department data shows.

“This has been a very clear K-shaped recovery,” says Peter Atwater, an adjunct lecturer in economics at the College of William & Mary. “The biggest and wealthiest have been on a clear path toward recovery. Meanwhile, for most small businesses and those worst off, things have only become worse. The contrast is piercing: One group feels better than ever while the other borders on hopelessness.”

One of the key debates between Republicans and Democrats is about how long the U.S. economic recovery will take. Republicans point to the fact that the economy added more jobs than expected in May, June and July as a sign that a comeback is taking hold. They also highlight the swift bounce-back in home, car and truck sales. Some auto dealerships have had their best July ever, and gasoline sales have mostly rebounded.

Democrats point out that the unemployment rate is 10.2 percent — higher than at any point during the Great Recession, and that millions are unable to pay rent. Census data shows that more than half of Americans said they felt depressed or hopeless in July, and 20 percent of Hispanic households with children and nearly a quarter of Black households with children say they don’t have enough to eat.

One of the most telling indicators about the economy is consumer spending. It’s still down about 8 percent from pre-pandemic levels overall, but it was down only 2 percent among low-income households in July. This is largely because of the stimulus checks that went to working- and middle-class families this spring and the extra $600 a week in unemployment aid Congress sent out in April, May, June and July.

Now that those funds for struggling families have stopped, many economists predict a rapid rise in evictions, bankruptcies and vehicle repossessions — as well as a hit to the overall economy as spending slows.

Trump attempted to take action over the weekend to provide more aid to struggling Americans, but it was limited. Even if Trump’s executive moves survive legal challenges, they would, at best, pump less than $100 billion into the economy, JPMorgan notes. That’s far less than the $1 trillion or more that many on Wall Street and Main Street are counting on.

“The consensus is that a deal is necessary if the U.S. is to avoid economic calamity,” JPMorgan wrote in a morning note.


The only solution to our economic crisis is to reduce interference by the government. The more they try to control our economy the worse off we are. All they need to do is set up guidelines and monitor for fraud. They also need to be willing to prosecute those guilty of perpetrating the fraud regardless of the source. If the rich and entitled paid the price for their transgressions, there would be less white collar crime. Open up the economy and allow the small businesses to open just like the big boys are doing. Allow free trade in the stock market. Some techniques being used by the stock trader should be made illegal. I have included them in the addendum section. Freedom of press needs to be restored to our country. We also need to level the playing field in the media. News needs to be what is reported , not what is created. News services are not supposed to be the news. Social media needs to stop controlling the flow of conversations on the internet. Information makes us strong. We can’t impede the flow of it. This is how the traders make so much money, they are the only ones with the information. That is what President Trump was trying to do, drain the swamp.

Resources, “Opinion: If the stock market can make you rich, why are so many Americans poor?” By Lance Roberts;, “How the stock market is a sham for the working and middle class. 53 percent of Americans have no money in the stock market, including retirement accounts. 62 percent of all US wealth owned by top 5 percent;”, “An uprising against Wall Street? Hardly. GameStop was about the absurdity of the stock market,” By Kenan Malik;, “Why Has The Stock Market Soared While The Economy Sputters?” By John E. Girouard;, “The recession is over for the rich, but the working class is far from recovered,” By Heather Long;, “The Market Crash of 2008 Explained,” By Vaneta Lusk;, “The Crazy Thing About The 2008-2009 Stock Market Crash;”, ” Top 10 Scams Of 2008,” By Mark Huffman;, “5 Market Manipulation Tactics And How To Avoid Them;”, “7 Reasons Stock Buybacks Should Be Illegal,” By Will Ashworth;


The Market Crash of 2008 Explained

The stock market crash of 2008 was the biggest single-day drop in history up to that point. The aftermath of this catastrophic financial event wiped out big chunks of Americans’ retirement savings and affected the economy long after the stock market recovered.

The financial turmoil caused by the crisis impacted many sectors, leading to massive job losses and mortgage defaults. As investment firms collapsed and automakers stood on the verge of bankruptcy, the federal government stepped in and “bailed out” company after company.

What caused the crisis and why? Here’s what triggered the worst recession in U.S. history since the Great Depression and what do if a similar crisis occurs again.

About the 2008 Stock Market Crash

Easy credit and raising home prices resulted in a speculative real estate bubble. While the market crashed in 2008, the problem started years earlier.

In the late 90s, the Federal National Mortgage Association, or Fannie Mae as it’s commonly known, began its crusade to make home loans accessible to borrowers with a lower credit score.

Fannie Mae wanted everyone to attain the American dream of homeownership, regardless of credit. Lenders who extended home loans to high-risk borrowers offered mortgages with unconventional terms to reflect the increased likelihood of default.

The relaxed lending standards fueled the housing growth and corresponding rise in home values. People with bad credit and little-to-no savings were offered loans they could not afford. Meanwhile, banks were repackaging these mortgages and selling them to investors on the secondary market.

While housing prices continued to increase, the rising subprime mortgage market thrived. Because house values rose so quickly, the increase in home equity offset the bad debt buildup. If a borrower defaulted, banks could foreclose without taking a loss on the sale.

The resulting seller’s market meant that if homeowners couldn’t afford the payments, they could sell the house and the equity would cover the loss.

A crisis was virtually inevtiable. Once the housing market slowed down in 2007, the housing bubble was ready to burst.

What date in 2008 did the stock market crash?

The 2008 stock market crash took place on Sept. 29, 2008, when the Dow Jones Industrial Average fell 777.68 percent. This was the largest single-day loss in Dow Jones history up to this point. It came on the heels of Congress’ rejection of the bank bailout bill.

Why did the stock market crash in 2008?

The stock market crashed in 2008 because too many had people had taken on loans they couldn’t afford. Lenders relaxed their strict lending standards to extend credit to people who were less than qualified. This drove up housing prices to levels that many could not otherwise afford.

The build-up of bad debt resulted in a series of government bailouts starting with Bear Stearns, a failing investment bank. Fannie Mae and Freddie Mac (the nickname given the Federal Home Loan Mortgage Corporation) were next on the government-sponsored bailout train.

In September 2008, investment firm Lehman Brothers collapsed because of its overexposure to subprime mortgages. It was the largest bankruptcy filing in U.S. history up to that point.

Later that month, the Federal Reserve announced yet another bailout. This time it was insurance giant American International Group, Inc. (AIG), which ran out of cash playing the subprime mortgage game.

Each bailout announcement affected the Dow Jones, sending it tumbling as markets responded to the financial instability. The Fed announced a bailout package, which temporarily bolstered investor confidence.

The bank bailout bill made its way to Congress, where the Senate voted against it on September 29, 2008. The Dow plummeted 777.68, the largest single-day drop in history up to this point. Global markets were swept up in the panic, causing global instability.

Congress eventually passed the bailout bill in October, but the damage was done. The Labor Department reported big job losses across the board as the Dow Jones continued its downward spiral.

Effects of the 2008 Market Crash

The economy continued to lose hundreds of thousands of jobs, and the unemployment rate peaked at 10 percent, double the December 2007 national unemployment rate of 5 percent.

Three of the biggest automakers (known as the Big Three) were in trouble and asked the government for help. The federal government took over the General Motors Company and Chrysler LLC in March 2009. Ford Motor Company received a bailout from the Term Asset-Backed Securities Loan Facility.

The housing slow down caused home prices to decline. Homeowners found themselves “upside down” on their mortgage, meaning they owed more than their home was worth. Faced with job losses and increasing mortgage payments, many lost their homes to foreclosure.

Between late 2007 and mid-2009, the period widely referred to as the “Great Recession,” the economy lost nearly 8.7 million jobs. Consumers cut spending to a level not seen since World War II. Many experienced a sharp decline in retirement savings, which compounded unemployment and housing instability.

The loss of home values combined with declining stock totaled nearly $100,000 on average per U.S. household at the peak. Slower economic growth cost the U.S. economy an estimated $648 billion.

The Dow Jones hit bottom in the first quarter of 2009 as the bad financial news continued. The widespread panic fueled steady economic decline. Only weeks after taking office, President Barack Obama outlined an economic stimulus package to boost consumer spending.

Congress passed the American Recovery and Reinvestment Act of 2009 in February as a way to jumpstart the economy and generate jobs. It had the desired effect, boosting economic growth and investor confidence.

Who Predicted the Market Crash of 2008

While the housing market slowed down in 2007, many missed the warning bells of the impending recession. The World Bank sounded the alarm in January 2008 when it predicted that global economic growth would slow down as a result of the credit crunch.

Few envisioned the severity of the market crash of 2008 or the steep economic decline caused by the Great Recession. Even among those who foresaw a steep decline got the timing wrong.

Wall Street bankers, the Federal Reserve, banking regulators, politicians, and economists top the long list of those who failed to see the financial crisis brewing. While some warned of a housing bubble, few could predict the effect it would have on the economy and the stock market.

What to Do if the Market Crashes

Since the stock market goes through cycles, another market crash is very likely at some point. The economy is currently experiencing the longest period of uninterrupted gains in American history, hitting the 10-year mark in the first quarter of 2019.

While living through a market crash makes some investors panic, it’s important to stick to your plan. The stock market is cyclical and the quickest way to lose money is to cash in investments when stocks lose value.

Avoid letting your emotions rule your actions. Stick to your investment plan and stay the course even if you are worried about your portfolio. As the stock market rebounds, so will your portfolio… but only if you leave it alone.

Diversify your investments. This should help smooth the curve if there is a sharp decline in stocks and help your portfolio weather the storm.

The Bottom Line

The stock market crash of 2008 was a result of a series of events that led to the failure of some of the largest companies in U.S. history. As the housing bubble burst, it affected banks and financial institutions who were betting on the continued increase in home prices.

Many lost their jobs, homes, and retirement savings during this period. It was the greatest economic slowdown since the Great Depression. Those who were heavily invested in real estate and stocks saw the biggest losses to their portfolio.

This is why it’s important to diversify your investments and spread your risk. A solid investment plan that accounts for the ups and downs of the stock market has a better chance of producing steady gains over the long term.

With all due respect to the terrible economy of 1973-1974, The Great Recession of 2008-2009 has found its place in history as the second worst economic catastrophe to hit the United States in the past century, trailing only The Great Depression. But when you compare The Great Depression to The Great Recession, you will notice one critical difference between the two: many of the blue-chip stocks during the Great Depression experienced significant declines in business performance, while many investors in high-quality assets during The Great Recession of 2008-2009 saw their businesses continue to fire on all cylinders.

During the Great Depression, just about everything got whacked. IBM (NYSE:IBM) saw its earnings fall 40%. Pillsbury saw its earnings fall over 30%. General Motors, despite steady international expansion, saw its earnings fall 28%. The Union Pacific (NYSE:UNP) railroad saw its earnings get cut in half. AT&T (NYSE:T) experienced an earnings decline of over 20%. For the few American investors fortunate enough to even have money to invest during The Great Depression, they had to make the very difficult judgment call to determine whether the earnings declines of these companies were temporary or permanent. To put it mildly, that makes investing hard.

This is what made The Great Recession of 2008-2009 so strange in comparison. Yes, the stock market declined almost 40%. But look at what happened to investors that owned excellent companies outside the financial or cyclical sectors:

1. Procter & Gamble (NYSE:PG) saw its earnings decline by about a nickel from 2008 to 2009, as they fell from $3.64 to $3.58. The worst financial crisis many of us have seen in our lifetimes, and P&G is only making six cents less per share. Oh, and the company actually increased its payout to shareholders by giving them a raise from $1.45 to $1.64 in annual payouts.

2. IBM, which got clobbered during The Great Depression, survived much better this time around. From 2008 to 2009, IBM actually grew its earnings from $8.93 to $10.01 and jacked up the dividend from $1.90 to $2.15 per share. The price decline from $130 to $82 was actually a blessing because IBM stuck with its buyback program, making shareholders richer in the process. From the IBM shareholder’s perspective, the 2008-2009 was actually a blessing that made them richer in a way they could realize at that very moment: the earnings per share went up over a dollar!

3. Lorillard (NYSE:LO), the storied tobacco giant, also delivered results that could make someone looking at the financial results alone think, “What recession?” Like IBM, Lorillard was in the process of conducting a large buyback program, and took advantage of the low prices to reduce the share count by roughly 30-40 million shares. This allowed investors to see an immediate earnings per share increase from $1.72 in 2008 to $1.92 in 2009. Oh, and Lorillard granted its investor the largest dividend increase in its history in 2009, more than doubling it from $0.61 annually in 2008 to $1.28 in 2009.

4. PepsiCo (NASDAQ:PEP), the legendary soda and snack manufacturer that comes about as close to “buy and forget it” as you can find, grew its earnings from $3.21 in 2008 to $3.77 in 2009. Oh, and shareholders got a dividend raise from $1.60 to $1.76 annually. It’s crazy: while many were selling their stocks and running for the exits as the prices declined during the March lows, a company like Pepsi was achieving record levels (at the time) of profitability and returning even more of those profits to shareholders in the form of cash dividends.

5. Colgate-Palmolive (NYSE:CL), which is one of the few blue-chip companies out there that is both safe and projecting to grow at rates greater than 10% for the medium term, saw its earnings grow from $3.66 in 2008 to $4.37 in 2009 (although the company’s earnings did decline a bit to $4.31 in 2010, mostly due to currency fluctuations). The company aggressively hiked its dividend from $1.56 in 2008 to $2.03 annually in 2010.

6. If you ever get a chance, check out a chart of Coca-Cola’s (NYSE:KO) earnings from 2003 to 2013. It’s a beautiful sight. Other than a negligible earnings decline from 2008 to 2009 (earnings went from $1.51 to $1.47), the company’s earnings per share move in a steady march upward. As for Coca-Cola’s dividend, there are no exceptions. It is a steady march upward. There’s a reason why this company gets touted as the ultimate buy-and-hold stock. The worst crisis in many of our lifetimes didn’t even shave a nickel off of this company’s earnings per share.

7. Right now, I’m looking at data charts that go back to 1997. During every year in that period, Johnson & Johnson (NYSE:JNJ) increased its normal earnings per share. No exceptions. There is a reason why this company is my largest personal holding. While everyone complains about the steady stream of recalls that has dogged this company, a look at the company’s financials reveal one thing: this company keeps getting more and more profitable. During the worst of the Great Recession, Johnson & Johnson increased its earnings $0.06 per share and the annual dividend went up $0.13 per share.

8. What the heck, let’s take a look at what the king of retail did. Wal-Mart (NYSE:WMT) increased its earnings from $3.42 per share in 2008 to $3.66 in 2009. The dividend went up from $0.93 per share in 2008 to $1.06 in 2009. If you look at an earnings and dividend chart for Wal-Mart since 2000, you won’t be able to identify any point at which it looked like Wal-Mart the business was experiencing a recession. The earnings and dividends just keep going up.

9. Oh, and of course, there is McDonald’s (NYSE:MCD). Since hitting a low in 2002, the company’s earnings and dividends have been steamrolling upward. During the crisis, McDonald’s grew its earnings from $3.67 in 2008 to $3.98 in 2009. The dividend went up from $1.63 in 2008 to $2.05 in 2009. McDonald’s is yet another company that, from the perspective of a shareholder, there appeared to be no recession.

This is why some people build a portfolio of blue-chip stocks that exclude most banks, tech, and cyclical companies. This is why they do the whole blue-chip dividend investing thing. While the prices of these companies cratered, the business performance of these companies actually improved or experienced a comically negligible decline, given the scope of the crisis. That is the crazy thing about the stock market collapse. Many of the best blue-chip companies were making record profits and making record dividend payouts while others were obsessing over the 30-40% declines in their net worth. Things are a lot easier if you stick with the business fundamentals of excellent companies. You can avoid a lot of misery if you adopt the mindset of an old-school banker that constructed conservative portfolios for widows and orphans back in the day.

Top 10 Scams Of 2008

The year 2008 has been marked by economic turmoil, first with high gas prices, followed by the subprime mortgage crisis, which in turn triggered a full-scale financial meltdown. It’s been a fertile year for the world’s scammers, who find fear and desperation helpful.

This year, there were a few new scams and a lot of old ones, some cleverly repackaged for a new year and new circumstances. By far the biggest scam — perhaps the biggest ever — was the Bernard Madoff investment scandal. The prominent Wall Street financier and onetime NASDAQ chairman had for decades managed billions of dollars for many of the nation’s wealthiest families, charities and institutions.

But as the year drew to a close, Madoff summoned his two sons, senior managers in a separately-operated stock brokerage firm, and told them the money management business was “a giant Ponzi scheme,” prosecutors said. Losses to investors may reach or even exceed $50 billion.

The scope of this alleged scam dwarfs all the small-time cons usually featured in our Top 10 Scams round-up and, like the financial institutions and automakers deemed too big to fail, is far too large to be included in our annual listing. It would snag all ten top spots and a few hundred more, so we’re ignoring it for purposes of this dubious competition.

Here, then, are the Top 10 Scams of 2008.

1. Foreclosure rescue scam

As the economy began to slow in 2008, only to fall into meltdown mode in September, the foreclosure “rescue” scam snared an increasing number of victims. The FBI reported in May that mortgage-related fraud was up 176 percent year over year.

“The problem is these ‘rescue scams’ just take people’s money and fail to do almost anything to help them avoid foreclosure,” Iowa Attorney General Tom Miller said. “And they take precious funds from people who are vulnerable and who can least afford to be cheated. This is the definition of adding insult to injury.”

A foreclosure rescue scam typically works this way: The “rescuer” approaches a desperate homeowner and promises to help to ward-off foreclosure. The homeowner has to make payments to the rescuer, as well as sign over the deed to their home. That supposedly stops the bank from foreclosing.

Of course, it doesn’t. And to make matters worse, the homeowner has signed over his home, losing any equity he might have. In May, Florida Gov. Charlie Crist signed the Foreclosure Rescue Fraud Prevention Act of 2008, ensuring that homeowners in his state are properly informed about their rights before signing a contract with a foreclosure rescue entity in addition to other protections. A number of states passed similar legislation.

2. Unauthorized charges

Unauthorized charges can take many forms, from sneaky negative option marketing to outright cramming. In the latter, an unscrupulous company simply places a small charge on your credit card or phone bill and hopes most people won’t notice.

But unauthorized charges can also occur when a supposedly legitimate business offers you a “free trial” of something. It usually occurs when you’ve just made a credit card transaction with another merchant. What consumers don’t know is the business offering the “free” trial has a relationship with the company you’ve just given your credit card to. Next thing you know, you’re being charged $9.95 a month for something you’ve never heard of.

In 2008 this scourge remained widespread and, judging from the complaints to about such companies as ILD and Trilegiant, makes consumers angrier than almost any other injustice.

3. Work at home scams

Work at home schemes have proliferated to the point that government agencies this year launched a coordinated offensive against them. Project Fal$e Hope$ was an Federal Trade Commission (FTC)-led effort that targeted bogus business opportunities and work-at-home scams and resulted in more than 100 law enforcement actions by the FTC, the Department of Justice, the U.S. Postal Inspection Service, and law enforcement agencies in 11 states.

A stalwart of the work-at-home schemers this year is the “secret shopper” scam. The secret shopper is a legitimate tool for retailers. Consumers are recruited to visit a place of business and report back on service, the appearance of the store, and other things. It’s hardly a lucrative or glamorous occupation.

In recent years scammers have tried to present secret shopping as fun, exciting and lucrative, hoping to enlist people looking for a fun, easy job. At best, these victims are required to pay an assortment of advance fees and end up with neither money nor promised merchandise.

At worst, these scams enlist “shoppers” to wire large sums of money through MoneyGram, to “test” the effectiveness of the service. They are given a check to cover the funds, but the check turns out to be counterfeit.

There are, of course, legitimate ways to make a few bucks while working in your pajamas, as our Tom Glaister explained in his July how-to article Make Money at Home — Or Anywhere Else.

4. Phony government official scam

Some consumers are easily intimidated by anyone who claims to be from a government agency. Scammers are increasingly turning that to their advantage, masquerading as officials of agencies like the Food and Drug Administration (FDA), FTC, and that most fearsome agency, the Internal Revenue Service (IRS).

The FDA says it has received numerous reports of calls enticing consumers to purchase discounted prescription drugs by wiring funds to one of several locations in the Dominican Republic. No medications are ever delivered.

A subsequent call is received from a fraudulent “FDA special agent” informing the consumer they’ve broken the law and must send a fine of several thousand dollars to an address in the Dominican Republic to prevent incarceration or other legal action.

“Impersonating an FDA official is a violation of federal law,” said Michael Chappell, the FDA’s acting associate commissioner for regulatory affairs. “The public should note that no FDA official will ever contact a consumer by phone demanding money or any other form of payment. FDA officials always present identification in person when conducting official business.”

The FTC has received reports that people who claim to work for the agency call to say they have won a lottery or sweepstakes. To receive the prize, all they have to do is pay the taxes and insurance. But there is a catch — you have to wire money or send a check for an amount between $1,000 and $10,000. It’s a new wrinkle in the old tried and true fake lottery scam (see scam number 7).

Meanwhile, the IRS says it’s still getting reports from consumers who receive emails that look like they’re from the agency, requesting sensitive information. The IRS says it never asks taxpayers to submit important information by email.

5. Financial meltdown scams

In mid-September the financial world seemed to come unglued. Congress was told it had to “bail out” the banks to the tune of nearly a trillion dollars to keep the economy from collapsing. The stock market went into a swoon and businesses began cutting jobs as fast as they could.

By early October the New York State Consumer Protection Board (CPB) was tracking an increase in scams related to the financial crisis. The agency spotlighted credit counseling scamspayday loans, phony job offers, and investment scams as increased threats to consumers.

“As scammers are salivating over this situation, we must take steps to protect ourselves from any ‘bad apples’ who can potentially make matters worse,” said Mindy A. Bockstein, CPB’s Chairperson and Executive Director. “The results of this financial storm are devastating and may be far-reaching, but we can weather the squalls if we are alert and careful.”

Phishing scams, with the object of identity theft, also used the Wall Street crisis to get consumers to bite. Spam emails, promising information or advice, attempted to persuade recipients to click on bogus links and enter sensitive financial information.

“Email scammers like to use global crises and high profile news headlines when baiting consumers,” said Peter Horan, chief executive officer of Goodmail, a company that provides CertifiedEmail, a more secure form of email.

“In the wake of Hurricane Katrina, millions of Americans received fake emails claiming to be from charitable organizations soliciting donations,” Horan said. “When the government distributed stimulus checks earlier this year, the IRS became the target. Phishers know how to make use of people’s vulnerabilities during times of stress.”

6. Campaign 2008 Scams

The historic 2008 presidential election energized millions of new voters, and where there is interest and enthusiasm for something, scammers won’t be far behind.

No sooner had Barack Obama been elected than online “brokers” were offering to sell tickets to his January 20, 2009 inaugural. There were just two problems with that — tickets are free, and are only available through Congress and the new administration.

“Any website or ticket broker claiming that they have inaugural tickets is simply not telling the truth,” Howard Gantman, Staff Director for The Joint Congressional Committee on Inaugural Ceremonies (JCCIC), warns on his committee’s Web site.

Within hours of Obama’s election night victory speech from Grant Park in Chicago, researchers at the University of Alabama at Birmingham began seeing a spam email inviting recipients to view an online video of the speech.

The spam pointed to five separate Web site domains, each registered that day in China. Visiting the Web site required the user to install an “Adobe Flash Player” in order to watch the speech.

However, the downloaded program is not an Adobe Flash player. It’s actually a “keystroke logger” or “keylogger.” Installing it will cause all user IDs and passwords, whether for online banking, online stores, email, or even chat programs, to be sent to the criminal’s computer.

With so much interest in voting, scammers claiming to be from the voter registration board called people advising them of a “problem” in their registration, and attempted to elicit their Social Security numbers.

7. Fake lottery scam

The fake lottery scam is approaching the cultural icon status of the Nigerian 419 scam. But despite all the publicity, people are still falling for it, often losing thousands of dollars.

As in years past, most of these scams are based in Canada. This year, scammers masquerading as the Atlantic Lottery have snared victims south of the border.

“I got a letter stating that I just won 248,000 US dollars from a lottery,” Cassandra, of Shullsburg, Wisconsin, told

Cassandra called the toll-free number and was told that yes, she had in fact won nearly a quarter of a million dollars, even though she had never heard of Atlantic Lottery or entered any kind of contest. With the letter was a check for nearly $5000. Cassandra was told to deposit the check, then wire the same amount back to Atlantic Lottery to cover taxes and fees. Fortunately, Cassandra didn’t follow through.

“I was told by my bank that it was a scam,” she said. “I never got my hopes up because I knew something was fishy,” she said.

There actually is an Atlantic Lottery Company in Canada, which warned in August that scammers were using its name. The real Atlantic Lottery says that to win any of its cash prizes, you must have purchased a ticket from an authorized retailer in New Brunswick, Nova Scotia, Prince Edward Island or Newfoundland and Labrador, or on their PlaySphere website. The company said it is not authorized to operate lotteries or games of chance outside of Canada.

8. Charity telemarketing scam

Thanks to the Do Not Call list, aluminum siding and timeshare salesmen can’t interrupt your dinner with their pitches. But “charity” telemarketers can, and in 2008 a growing number of scammers were using that loophole to reach out and touch consumers in their wallets.

At least two states, Arkansas and New Jersey, cracked down on these “charity” schemes in 2008.

In Arkansas, Attorney General Dustin McDaniel settled a consumer protection lawsuit against American Veterans Coalition after suing the, for deceiving Arkansas residents. McDaniel alleged that less than one percent of the donations raised were actually used to support veterans and no support whatsoever had been given to Arkansas veterans.

Meanwhile, the New Jersey Division of Consumer Affairs moved to revoke the registration of a charitable organization that purportedly raised funds to aid rescue workers who sustained health problems after responding to the September 11, 2001 attack sites.

Illinois and Iowa were also among the states taking action against “charity” telemarketers during the year. In Illinois, Attorney General Lisa Madigan settled a decade long dispute with Telemarketing Associates, Inc. and Armet, Inc., barring them from soliciting on behalf of Illinois charities or directing solicitation campaigns to Illinois residents. The companies and their owner also paid $70,000 in fines.

9. EPPICard scam

A number of states have turned, in recent years, to administering payments and benefits electronically, through the EPPICard. Instead of receiving checks, recipients access their payments with the EPPICard, much as they would a debit card.

Scammers have recycled an old credit card/debit card scam and targeted EPPICard holders. Using bogus text, voice and email messages, scammers warn of a problem with the victim’s EPPICard account and say it will be closed down unless they act.

“If you have received a message, purportedly from EPPICard, do not respond,” said Indiana Attorney General Steve Carter. “It’s nothing more than a scam designed to drain your account and steal your personal information.”

10. Kevin Trudeau’s “Weight-Loss Cures They Don’t Want You To Know About”

What would an annual Top 10 Scams list be without Kevin Trudeau? The marketer extraordinaire rounds out our Top 10 Scams of 2008 with his “easy” recipe for slimming down.

In October a federal judge banned Kevin Trudeau from infomercials in which he has an interest for three years and ordered him to pay more than $5 million in profits from his book, “The Weight Loss Cure ‘They’ Don’t Want You to Know About.”

The ruling confirms an earlier contempt finding against Trudeau — the second time he has been found in contempt of court in the past four years.

In August, Judge Robert W. Gettleman of the U.S. District Court for the Northern District of Illinois stood by his conclusion in 2007 that Trudeau “clearly, and no doubt intentionally,” violated a provision of a 2004 stipulated court order that prohibits Trudeau from misrepresenting the content of books in his infomercials.

When consumers purchase the book, the FTC charged, they find it describes a complex, grueling plan that requires severe dieting, daily injections of a prescription drug that consumers cannot easily obtain, and lifelong dietary restrictions.

Enforcement crackdown

Law enforcement seemed to devote more efforts during 2008 to dealing with these ever-present scams, taking particular aim at telemarketing.

In the largest telemarketing fraud crackdown in history, authorities in the United States and Canada filed more than 180 criminal and civil actions against companies that allegedly used deceptive tactics to sell everything from extended car warranties to magazine subscriptions.

The legal action — spearheaded by the FTC under the code name “Operation Tele-PHONEY” — targeted 13 companies that allegedly duped more than 500,000 consumers nationwide through deceptive telemarketing schemes.

Consumers lost more than $100 million in these companies’ various schemes, the FTC said. In addition, scammers continued to steal consumers’ identities in 2008, allowing them to steal millions more.

How can you avoid becoming a scam victim in 2009? We recommend keeping an eye on emerging scams through our Scam Alert section, and our daily and weekly newsletters. And remember — if it sounds too good to be true, it almost always is.

5 Market Manipulation Tactics And How To Avoid Them

Losing investors often blame market manipulation as the primary reason for their lack of success. Pointing at the insiders or massive market players, failures always find a reason for their investing misfortune.

Winners, on the other hand, understand that their success or failure rests purely on their market knowledge and ability to execute on the experience.

Winners are always working on building their knowledge base and skill set to better understand how the market works rather than merely complaining.

Grasping how the market works forces one to accept brutal truths about life. One of these brutal truths is that whenever money is involved, there will be those who try to get an advantage by either legal or illegal means.

Often legal, but sometimes illegal, financial market manipulation is rampant in today’s stock market. Understanding market manipulation provides you an edge over those who merely ignore or deny it.

It’s Always Been This Way

Market manipulation is part of the game. Stories of the original stock trading icon Jesse Livermore launching “bear raids” and the Hunt Brothers cornering the silver market to today’s stock “spoofing” and VIX rigging abound where ever active investors congregate.

The best way to think about manipulation is to accept it as part of the market structure. As retail investors, we cannot control or change how the big boys play the game. Understanding that manipulation can work for or against you, depending on your position, helps remove worry about these sometimes unethical or illegal practices.

Also, it is critical to understand that stock market manipulation is mostly always in the concise term. In other words, it has the most adverse effect on day traders and other short-term investors. Make no mistake, long-term concentrated manipulation can and does take place. However, investors can definitely profit from long-term manipulation, as it results in price trends that can be exploited.

The best way to protect yourself from stock market manipulation is to think long term. Understanding the types of manipulation can allow you to make better decisions when investing.

Here are five ways stocks are manipulated:

1. Fake News

The term fake news has become very popular recently. The Trump Administration, in its efforts to “drain the swamp,” has exposed the many ways media manipulates the news.

Large or media-savvy stock market players have long attempted to spread the fake news about a company or even the entire market to make it move in their favor. The shady world of penny stock promoters is the classic example of fake news being used to manipulate stock prices.

Protect yourself from fake news by always confirming the source of the news before acting upon it. Be warned though that the time drain from this can result in your missing the move.

One way I use fake news to profit is to fade the initial move. This means to wait for the stock to spike higher or lower based on the dubious news then enter a trade in the opposite direction. The fading tactic is also quite profitable if the news is real, given the traditional wisdom “buy the rumor, sell the news.”

2. Pump And Dump

A derivative of fake news, pump and dump manipulation is done via mass email or even regular mail. Usually the province of penny stock promoters, pump and dump manipulators send out millions of glowingly bullish proclamations about a company to attract buyers.

The “pump” occurs as the retail masses buy into the stock, resulting in the price and volume spiking higher. Once the regular investors are committed to the stock, the promoters sell their shares (“the dump”), causing the price to plunge.

The best way to protect yourself from a pump and dump is to avoid buying stocks that are rocketing higher. Nimble traders can profit from pump and dumps by fading the move higher as mentioned in the last section.

Understanding that a pump and dump is taking place and fading the move is a time-honored way to profit. Just like with fake news, wait for the price spike to start rolling over on the chart and short! Fading the move places you on the same side as the pump and dump promoter, virtually guaranteeing a winning trade.

3. Spoofing The Tape

Spoofing, also known as layering, the tape is when sophisticated short-term investors place orders in the market with no intention of having them filled. Other investors see the large orders waiting to be executed, believing that a market whale is trying to buy or sell at a certain price. Therefore, the investor places their order at the same level to buy or sell.

Seconds before the market trades at the price of the large order, the order is pulled from the market, and the retail investor’s order is filled. After the spoofer pulls the order, the market drops, resulting in losses for anyone unfortunate enough to be tricked into buying.

Avoiding short-term trading is the best way to protect yourself from spoofing manipulation. If you do short-term trading, over time you will learn what spoofing looks like, and thus be able to capture profits along with the spoofer. However, this type of trading is only for the most sophisticated and skilled investors.

4. Wash Trading

This tricky form of manipulation is when a big player buys and sells the same security continually and nearly instantaneously. The rapid buying and selling pumps up the volume in the stock, attracting investors who are fooled by the spiking volume. Once again, this form of manipulation does not affect long-term investors.

5. Bear Raiding

Bear raiding is when a large player forces share prices lower by placing large sell orders. The price plunges as stops are hit, adding to the selling.

Risks To Consider:Thinly traded stocks are prime candidates for manipulation. Avoid investing in low-volume names .

Action To Take : Be alert to manipulation when making investing decisions. The best way to protect yourself from the manipulators is to invest for the long term.

7 Reasons Stock Buybacks Should Be Illegal

Did you know that stock buybacks were illegal until 1982? It’s true.

The SEC, operating under the Reagan Republicans, passed rule 10b-18, which made stock buybacks legal. Up until the passing of this rule, the Securities Exchange Act of 1934 considered large-scale share repurchases a form of stock manipulation.

The 1982 rule provided “safe harbor” protection as long as a company bought back no more than 25% of its average daily volume over the previous four weeks and didn’t buy its stock at the beginning or end of the day’s trading. The SEC Commissioners argued at the time that the rule would encourage higher stock prices thereby benefiting investors across the board.

Care to guess who the SEC Chairman was in 1982? John Shad. 

John Shad was a former executive with E.F. Hutton. It seems odd that someone who worked for a company that directly benefited from the rule change (higher prices equals higher commissions) would be in charge of the agency created to protect investors. In hindsight, it seems like a massive conflict of interest, but I digress.

The reality is that stock buybacks have helped the wealthiest 1% get even richer over the past 36 years.

In 1982, according to the Economic Policy Institute, the average CEO earned 50 times the average production worker. Today, the CEO Pay Ratio’s increased to 144 times the average worker with most of the gains a result of stock options and awards.

Suggesting stock buybacks ought to be illegal isn’t a crazy notion. Here are seven reasons why:

Stock Buybacks Reward a Lack of Creativity and Innovation

By mid-December of 2018 following the corporate tax cut that was supposed to help the middle class, America’s public companies had announced $1.1 trillion in stock buybacks with $800 billion already repurchased with only two weeks left in 2018. A record year by any standard.  

On the one hand, buybacks of this size make sense in a year that saw many stocks lose ground. On the other, 2018 was the first year of negative returns for the S&P 500 since 2008, making the latest bull market one of the longest in history.  

In the eyes of many, stocks are overvalued, despite their retreat in 2018.

Companies like Apple (NASDAQ:AAPL) ought to have better things to do with their cash than buying back billions of dollars in stock. It stifles creativity and innovation, something Apple’s going to need if it wants to keep growing.

“I find it absolutely mind-numbing that a company like Apple can sit on $260 billion of cash,” Morgan Creek Capital CEO Mark Yusko told CNN recently. “You’re telling me that all these genius people can’t think of one intelligent thing to do with that capital?”

Stock Buybacks Hurt the U.S. Economy

This argument is a rather circuitous one so bear with me.

CNN recently reported that America’s total debt is nearly $22 trillion, an average of $67,000 per person. That’s right; split between all U.S. citizens, you’d owe $67,000 for your share of America’s debt.

In 2019, America’s bill for the interest on that debt is $383 billion; by 2025 it’s projected to hit $928 billion or about the same amount as corporate stock buybacks in 2018. Imagine if the dollars directed to share repurchases were redirected to paying down the national debt. At the current pace of stock buybacks, the debt problem could be eliminated in 22 years.

But of course, that wouldn’t help the wealthiest 1%.

Consider this: Many economists argued that the Trump tax cuts would worsen the debt situation and they were right. The Congressional Budget Office predicted that the Trump tax cuts would add $1.9 trillion in principal and interest to the deficit by 2027. Since Trump’s become President, the national debt’s increased by more than $2 trillion.

Thus, the president and Congress face a difficult decision.

Increase taxes, cut spending or do a combination of both. Do nothing, and the deficit continues to increase, and the U.S. dollar risks becoming irrelevant on a global scale as its creditworthiness crumbles.

Trump’s plan was simple: Cut corporate taxes and the savings will be reinvested. The $1.1 trillion in stock buybacks in 2018 suggests that didn’t happen. God help the common man if we go into recession in the next two years because there will be nothing available to reignite the economy. The cupboards will be bare.

Stock Buybacks Add to Debtload

The previous reason why stock buybacks ought to be illegal had to do with the federal government’s mishandling of an economy on the rise. I never thought the corporate tax cuts were a good idea.

“America’s crumbling infrastructure isn’t going to be fixed when the federal government’s revenues are going the wrong way. President Donald Trump promised an infrastructure plan, but with lower revenues expected over the next decade, it will be tough for him to deliver,” I wrote in December 2017. “And don’t for a minute expect private businesses to jump into the fight to save the day with their new-found wealth.”

They haven’t. And won’t.

So, here we have a federal government drowning in debt, encouraging public companies to do the same through stock buybacks. Unfortunately, as bond guru Jeffrey Gundlach suggests, increasing stock buybacks reduces the solidity of a company’s balance sheet.

“So, the balance sheets of corporations are balanced on ever-dwindling equities as they buy back shares and increase their leverage ratios. And that’s not good,” Gundlach stated in January. “Strong balance sheets are going to be the way to survive during the zigzag of 2019.”

In Gundlach’s estimation, strong balance sheets are far more critical than strong earnings.

With 62% of investment grade debt maturing over the next five years, there are a lot of companies that are going to wish they didn’t buy back so much stock.

Stock Buybacks Reduce Capital Spending

All businesses have one cash flow bucket. Cash goes in; cash goes out, the difference is the capital it can allocate for uses other than keeping the company running. These uses include debt repayment, dividends, stock buybacks, acquisitions, and investing in the future.

The Trump corporate tax cut was intended to put more money in corporate coffers so they could invest in the future creating more jobs. While the unemployment rate is healthier than it’s ever been, it’s unlikely that it was the result of increased capital spending.

In the last two years of the Obama administration, five million jobs were created while 4.8 million were created in the first two years of Trump’s presidency, suggesting that almost any economic strategy would have worked for the incoming president.

According to Just Capital, 56% of the tax savings from the new corporate tax rate went to shareholders with just 24% allocated to wages and job creation. Just 8% went to improving products and innovating, and the remainder went to lower prices and community involvement. In 2018, the bucket spilled over for stock buybacks. Capital spending, not so much.

Stock Buybacks Provide a False Picture

The main argument for stock buybacks is that the reduction in shares outstanding increases earnings per share which is the primary driver of higher share prices. A secondary consideration is that every shareholder gets a more significant piece of a smaller pie.

It’s no wonder, then, that Warren Buffett’s a big fan of stock buybacks. Every time a company held by Buffett announces a $10 billion share repurchase program, he rubs his hands with glee because his ownership stake goes up without making an additional investment. It’s the power of compounding in reverse.

In 2014, I wrote an article entitled The 2 Biggest Lies of Buybacks. One paragraph sticks out for me to this day.

“The premise that buybacks boost earnings is a big fat lie. It’s an optical illusion meant to distract investors from the truth: Bottom-line growth is measured by net income only and not earnings per share,” I wrote in 2014. “After all, you wouldn’t judge top-line growth by anything other than revenue, would you?”

In the article, I used Exxon Mobil (NYSE:XOM) as an example of how buybacks hide the truth. Because it bought back 4.4 billion shares between 2009 and 2013, while its net earnings were down 28% that year, EPS were down a more palatable 15%.

You can argue till the cows come home why I’m wrong, but a 28% decline is a 28% decline, no matter how many shares are outstanding.

Stock Buybacks Create Income Inequality

As I pointed out in a previous slide, the period between 1982-2017 has created a much wider gap between the person at the top of the pyramid, the CEO, and the workers on the bottom.

According to the Harvard Law School Forum on Corporate Governance and Financial Regulation, CEO pay between 1990 and 2016 increased by 438%. Meanwhile, according to the Pew Research Center, the average seasonally adjusted hourly wage in the U.S. between 1964 and 2018 grew by just 12% in constant 2018 dollars.

The legalization of stock buybacks in 1982 gave CEOs a massive incentive for repurchasing their company’s shares. Their pay packages went through the roof while the rank-and-file employees saw their wages barely budge.

A rational person would see the causal link when it comes to income inequality.

CEOs Love Stock Buybacks

Hey, if you’re a CEO, I wouldn’t blame you for taking advantage of the system. It’s not your fault that the board of directors gave you such a lucrative compensation package. After all, they didn’t have to. It’s not as if you were holding a gun to their heads.

Who wouldn’t like a pay package that grows and grows and grows without any additional effort?

As a writer, I’d love to be able to get paid X dollars to write this article today, X dollars plus next year, and X dollars plus, plus, the year after that. It is not going to happen. But it happens every day for CEOs. Is it any wonder why they love stock buybacks?

Let’s take Qualcomm (NASDAQ:QCOM) for example.

In fiscal 2018, it repurchased 279 million shares of its stock for $22.6 billion. That alone would have a material effect on earnings per share, which is a significant factor in Qualcomm’s annual cash incentive plan, as well as a considerable influence on both its performance stock unit and restricted stock unit awards.

In fiscal 2018, CEO Steve Mollenkopf received total compensation of $20.0 million. The year before that it was $11.6 million and $11.1 million in fiscal 2016. Of Mollenkopf’s total compensation, 86% was EPS-related to one extent or another.

Do you think he’s got an incentive to repurchase Qualcomm shares? I sure do.   

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