Stock Market Jitters

Subject: Parable of the Monkeys

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each. The villagers seeing that there were many monkeys around, went out to the forest, and started catching them. The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort.

He then announced that he would now buy at $20 each. This renewed the efforts of the villagers and they started Catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch one!

The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now buy on his behalf.

In his absence, the assistant told the villagers, 'Look at all the monkeys in the big cage that the man has collected. I will sell them to you at $35 and when he returns from the city, you can sell them to him for $50 each.'

The villagers rounded up with all their savings and bought all the monkeys. Then they never saw the man nor his assistant ever again; only monkeys everywhere!

You now have a better understanding of how the Stock Market works.

A friend sent that to me. It concerns me because it assumes that the financial markets are part of a massive conspiracy. The real villain in this drama begins not with the financial markets, although they are partially to blame, but with changes in incentives in governmental policy. But this parable does not mention the changes in the Community Reinvestment Act, nor the books cooking at Fannie Mae. It does mention that the value of securities (or monkeys) change but gives no insight into why they change. The most important thing for all of us to do at this time is to calm down. The 24/7 news establishment wants to talk us into a crisis. They want to find villains. But calm here is the better option than creating false parables.