Published: Friday, June 14, 2013

Economy

Revisiting the Illusory Share Market

Photo: Prabir Das

Photo: Prabir Das

My good old neighbour Alec Talukder never shows any sign of relenting in pursuit of his dream to revive the glory that once was in the hay days of Talukdery. He recalls that the title, which is a shade lower than the impeccable raja or maharaja, was given to his ancestors in the eighteenth century by the Mughals and the ‘Company Bahadur’.

The ta’luk is gone but the title stays, he quips. So does his relentless search of a bagful of money to regain the lost glory. The last of his forays to turn around his wavering fortunes saw him diving headlong in the country’s burgeoning share market in 2010.

As the bubble in the stock market began to grow from big to bigger, Alec resorted to ‘beg, borrow or steal’ to make a kitty of twenty lakh taka. With a prayer in his lips and hope in the heart, he invested it in the make-believe world of share market. So did hundreds of thousands of the fortune-hunters.

The euphoria could be described by borrowing a line or two from Dickens’ A Tale of Two Cities, “It was the best of times. It was the worst of time. It was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity…”

The best of times was orchestrated by motley of ‘wizards of ooze’ through fabrication, manipulation and doctoring the books of accounts. The regulators either preferred to remain mere spectators or played to their tunes to collect the king’s ransom by the so-called book-building or premium-laden IPO. It’s so easy to take the frenzied bunch of people for a ride.

The incredible naivety of the masses unfolded in colourful dimensions from until the end of 2010. Bank managers and their tellers, students and their teachers, engineers and their overseers, the rich and not-so-rich, young and not-so-young, housewives and their maids–all joined the fray.

As the third quarter of 2010 gave way to the last the index escalated to over 8000. The grin on our Talukder’s face started to turn wider. He counted his eggs long before they were hatched and broke the startling news that his investment of ten lakh taka had grown three folds. What he did not hear is the rumblings of the thunder at a distance signalling the impending catastrophe.  I pleaded with him and other fortune seekers within my ‘sphere of influence’ to unload their overheated portfolios. By now their euphoria and self-belief had reached a point of ‘no return’. Those who had come earlier for advice were now giving me one, urging me to join for the hunt. The roles had been reversed.

“Did you say that market is going to crash?” one bonanza hunter had a tinge of sarcasm in his voice, “For your information, sir, the market today has risen further by 2 percent”. Another added, “We have now 3.5 million BO account holders; with so many people casting their votes in favour of the market, it cannot go down.”

It reminded me the caustic, though a little exaggerated, view of the Indian Press Council boss, Justice Markandey Katju on how people vote, “Ninety per cent Indians vote in droves like sheep and cattle. They are like a herd of cattle voting along caste and religious lines. Because Indians vote like livestock, there are so many criminals in Parliament.” Doesn’t it strike a familiar chord?

By now the share price index had broken loose from its moorings, otherwise known as fundamentals symbolised by capital and reserve of the issuing companies, outlook for future growth, management quality, return on capital, internal rate of return, rate of dividends and many other factors. It was what Shakespeare said in Hamlet, “Something is rotten in the state of Denmark”.

economyIt did not take long for the inevitable to raise its ugly head to prove the theory that what goes up must come down. Starting from 2011, hundreds of thousands of investors were thrown into penury or broken homes, some even went to the extent of taking their own lives. As usual, the rise and fall of share prices were punctuated by comic relief provided by responsible men with irresponsible speeches while the desperate fortune seekers took to street to vent their grievances with war cry to chop off the head of one or the other guy.

Was it what Charles Dickens foresaw as the best and worst of times–best for big players, the insiders, and worst for unwary small investors? The story of share market crises turned a whole circle from where it started from—the Wall Street in 1929.  It goes to show that manipulation, subterfuge and greed are the hall marks of stock markets across the distance of time and territory.

In 1929, the Wall Street was agog with speculation, expectation and euphoria that drove the stock prices to an absurd level, way above those warranted by economic fundamentals. The guy who allegedly played the role of the chief manipulator was none other than the father of the celebrated American President John F Kennedy.

Some commentators maintain that Joe Kennedy, as Joseph Kennedy was known, had a contributing part to play in the Wall Street Crash of 1929. He was thought to be the main man behind the ‘Bear Raid’ that weakened the stock exchange just before the crash.

Fortune Magazine reported that when a shoe shine boy offered tips to Joe Kennedy about the stocks to be bought he figured that when the shoeshine boys have tips, the market is too popular for its own good. He scurried to his office and sold off all his holdings well in time before the inevitable crash. Bernard Baruch, another dealer in the Wall Street, described the scene before the big Crash of 1929:

“Taxi drivers told you what to buy. The shoeshine boy could give you a summary of the day’s financial news as he worked with rag and polish. An old beggar who regularly patrolled the street in front of my office now gave me tips and, I suppose, spent the money I and others gave him in the market. My cook had a brokerage account and followed the ticker closely. Her paper profits were quickly blown away in the gale of 1929.”

Another commentator added, “Are we at the same fatal stage in the market today, when people who aren’t expected to have stock tips have stock tips, including hot dog vendors, shoeshine boys, the homeless, pedicurists, barroom dancers, toll takers, and the trumpet player at the racetrack? Will stock prices fall off the cliff under the weight of enormous popularity?”

Don’t these scenes appear familiar to us? Or have we seen the last of the catastrophes in our own backyard that ruined millions in the mysterious world of share market? Knowing, as we do, the memory will fade, new expectations will replace the present despondency and once again people will start dancing to the melodious tunes of the pied pipers only to plunge into deep abyss all over again.

I know this prophecy will fall on deaf ears but hope never dies.

saali40@yahoo.com

  • Shuhag Shiqdar

    I thought it was JP Morgan that was tipped by the shoeshine.