Investment Counseling / Who Profits From Equities?

Is Bill Gross right, and are stocks just a Ponzi scheme after all? Big Government is collaborating with Big Finance to pull the wool over the people's eyes.

The Tel Aviv Stock Exchange is falling and business cycles are shrinking. This is an ideal moment for the businessmen who exert direct and indirect control over the press to brainwash Steinitz, Netanyahu and lots of other useful idiots, telling them that regulation has ruined the Israeli capital market and the Israeli economy.

To all those useful idiots who swallow the goods that the press tycoons feed them: It would be wise to look at which stocks and bonds have dropped over the past year and their relationship to economic growth, productivity, competition, value-creation and job-creation.

Only then will they discover that the ones pulling the stock exchange down are the money-sucking financial institutions whose incredible profits had been based on Israel's economy being concentrated and non-competitive.

The first domino to fall was the share prices of these institutions. Then came the stocks and bonds of the holding corporations that prop them up, and finally the stocks of the banks that lend to the companies and the holding corporations.

So who came out of the domino crash without so much as a scrape? The stocks of manufacturers that compete on the international market and create jobs. For example, the TA-Technology Index has risen by 36% this year thanks to increases by Mellanox Technologies and the like.

Until the prime minister and finance minister learn to distinguish between money-sucking companies and businesses that create jobs and productivity, do yourselves a favor: Understand that because of the bloated monopolies and financial institutions, the Tel Aviv Stock Exchange is no barometer of the state of the economy.

Critic from within

Bill Gross, co-founder and co-chief investment officer of Pacific Investment Management (PIMCO ), the world's largest bonds portfolio manager, made a kind of career change several years ago. Rather than settling for buying and selling securities, recruiting clients and managing thousands of employees in someone else's giant investment firm, Gross reinvented himself as an uber-commentator, guru and preacher stationed at the gates of Wall Street.

A billionaire and capitalist who, according to The New York Times, drew a salary of $200 million from PIMCO last year, Gross critiques the system of Wall Street from within. Sometimes he even mocks his wealthy colleagues for their dubious fortune-making methods.

Recently, Gross triggered quite an uproar when he wrote in his monthly newsletter that "the cult of equity is dying." The returns provided by the stock market on Wall Street over the past century were illogical, Gross explained: Stocks had risen more quickly than the American gross domestic product.

He even called the stock market a "Ponzi scheme" - in other words, a market whose profits are based on the unceasing entry of new suckers who buy the merchandise from the old-time suckers.

Stocks went up more than the economy did because the companies reaped the gains of that growth at the expense of the workers and taxpayers. But Gross forgot to mention that the top 1% and 0.1% - the employees of the finance industry, high-ranking corporate officials and their associates - grabbed the largest share of the profits.

Analysts, commentators and brokers were quick to hack at Gross and spit on his analyses and numbers. But Gross has even worse news: Not only is the cult of equity dying, so is the bonds market, of which he has expert knowledge. That is easier to understand, actually.

Portfolio problems

When interest rates all over the world have been so low for so long, particularly when inflation is deducted from them, chances are slim that investment portfolios will be profitable over the next several decades.

Most investors in the world have illogical expectations of their investment portfolios, and most of the pension funds will disappoint their investors over the next several decades. The problem is that world governments are collaborating with the investment industry without telling investors for fear they will demand a change in the rules of the game of the capital market and the economy. We promise to stay on top of this issue and not let it go.