The Real Wolves Of Wall Street

With the addition of the movie "Wolf of Wall Street", the public are now more keenly aware how the stock market can be a mad house, especially Wall Street. Many of the small individual investors are emotionally affected by the gyrations of the market and easily "herded" into the slaughterhouse, hence the term "herd mentality", like those wildebeest of Sarengeti in Africa driven like mad into their death while crossing a river full of hungry crocodiles.

Smart people like Warren Buffett know this particular psychology of the market, hence his famous advice "Be fearful when others are greedy and greedy when others are fearful."

From Business Insider

There's a new kind of craziness in the stock market and this abnormal behavior in recent years is related to the Federal Reserve("Fed")'s quantitative easing program that keeps borrowing in the United States at historically low rate for many years now. Because of that, investors fled the bond market into the stock market. Since the US economy is showing signs of recovery, the Fed in recent months indicated that it will start unwinding the program and stop feeding new money into the circulation by buying long-term bonds. So, now, every time there are good news about the economy, investors in Wall Street - the big guns with the big herd of small investors following them - get the jitters and immediately unload their hot stocks (including those from emerging markets like the Philippines) and move into bonds or at least those stable boring stocks for fear that the Fed will stop the quantitative easing program. When there are good economic reports, the stock markets nosedive, and when there are bad reports, they surge. That's crazy!!

This is how Robert Reich, former Labor Secretary, described it and I agree with him:

"In case you didn’t notice, the stock market surged yesterday after the lousy jobs report. Why does bad news on the jobs front cause the stock market to rise? Because investors assume
(1) the Fed will now continue to keep interest rates low (despite its announced intention of reducing the amount of long-term bonds it buys monthly);
(2) which will continue to push savings into shares of stock rather than bonds;
(3) and make it easy for big investors (including corporations) to borrow money to buy back their shares, thereby pushing up their values; and that
(4) employees, desperate to keep their jobs, won’t demand raises, thereby keeping profits high.

But that's bad for Main Street and good for Wall Street in the short term is bad for both in the long term. The American economy is at a crawl. "

When, if ever, will Wall Street learn? 

The sad part is the Big Kahuna of Goldman Sachs and other big shots of Wall Street have enormous power in Washington regardless of who sits as president. When Wall Street finally paid the steep price of their follies in 2008, Washington let the taxpayers bail them out at the tune of trillions of dollars. The Fed, for example, created a secured credit facility of up to US$85 billion to prevent the collapse of AIG, the parent company of Phil-Am Life in the Philippines.