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Minyan Mailbag - Privatization

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Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.

John,

If privatization happens, the stock market will become even MORE of a "political priority" than it already is, and we can expect Fed officials and politicians--ever mindful of the psychological effect of stock prices--to behave accordingly. This is a fairly scary prospect.

In my opinion, an increased obsession with the stock market by the public and powers that be is the absolute LAST thing we need.

Does anyone besides me remember when the Fed was loathe to admit that it even LOOKED at the stock market when it made decisions? My, how times have changed.....

Minyan Michael

Michael,

If markets were linear, privatization would have to be good for the stock market: marginal increase in demand would drive prices higher. And to your point, you are indirectly saying that they are not.

I agree. Part of the nonlinearity of markets is the fact that they ultimately cannot be controlled by artificial forces, like government mandate. This doesn't mean that the government can't pass legislation favorable to stocks like privatization or a value-added tax (the middle class, or what is left of it, will soon realize how devastating these will be to them). It means that eventually imbalances created by government intervention will be unwound by market forces.

For a lesson on what market intervention eventually does, just look at Japan. The government of Japan tried to "manage" the stock market in the late 80's and early 90s (and may be to this day).

No positions in stocks mentioned.

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