True Market Players and Wealth Transfer

Truth is elusive

Great part of our understanding and impressions about market is subject to question. We may not necessarily know what we think we know. What we think we know may also not be true. Others can tamper with our knowledge and make up our minds for us. Sophisticated methods of creating or altering our knowledge have been used for centuries for the benefit of those who applied those methods. We are controlled in everything we think or do whether we are aware of that or not.

Market players

If you take the highest possible view of the market, you will basically see only two major groups: Institutional players and Commercial players. All others are just small fish, a noise in the system.

Institutional players are also known as FUNDS. These include all kinds of Mutual Funds, Hedge Funds, Pension Plans and other assets/asset management institutions. They are also called non-commercials or Managed Money.

Commercial players are also known as BANKS. These mostly include large investment banks. Sometimes they are referred to as Producer/Merchant/Processor/User group.

Other players like small retail players or PUBLIC are usually too small to make any difference. However, combined as a group, they have very important role as we will see below. Ordinary investors, who are members of team Public, incorrectly comprehend the picture of market players. They tend to think “Us” vs “Them”, “Us” being Public and “Them” being Institutional players. They either do not see Commercial players or at best do not understand who they are and what their role is. Nevertheless, they hate them.

Market game

Market can be thought of as one continuous game or a sport discipline where two teams try to outprofit each other. However, market is not an ordinary game – in this game winner is determined from the very start!

The amazing fact is not how one team wins all the time. It is astonishing how the other team has such enormous desire to play even when it is destined to lose. Even more astonishing is where the losing team comes up with all the capital it incessantly loses throughout the game.

You may be wondering which team is the winner? The sole fact that you might be asking this question actually explains a lot of things. At least it confirms that it’s not obvious who is winning all the time. Of course, the winning team tries not only to hide that it wins all the time, but it tries even harder to hide the fact that it is predestined to win to begin with!

What kind of a game it would be if you knew the winner before the game even started? If you knew that one team wins all the time and takes all the profits away, wouldn’t you be tempted to try to do the same? At the same time, the other team would look like a bunch of idiots, wouldn’t it? And when losing team figures it loses all the time, then short of other incentives, why in the world would they want to play anyway?!

Wealth transfer flow

Losing team is NOT bunch of idiots. The key word here is “other incentives”. The thing is, losing team doesn’t lose its own money! Thus, from their perspective, everything boils down to “other incentives” – trading commissions, management fees, bonuses etc.

So the answer to who is who in the big market game is: Eternal loser is Institutional player. That leaves Commercial player as eternal winner.

Basically, the whole market was invented by Mr. Commercial player. Of course, he setup the whole system and created the rules so he wins all the time. In order to close the loop, he needed another player and a source of capital to suck on. Public turned out to be a perfect target for a sucker: they work hard, they are told to invest and they do not have much brain to see what’s going on. So the public was sold a dream, Institutional player was made into a player designed to conduct wealth transfer and Commercial player collected all the wealth.

The Figure below shows unidirectional flow of capital. The wealth generated by Public gets invested with Institutional player who loses it all to Commercial player. Actually, Institutional player gets to keep a chunk of capital in the process of wealth transfer, just enough to keep itself afloat and happy to perpetually facilitate this transfer. Commercial player is a wealth magnet, operating from a shadow and piling up his wealth mainly in the form of gold. Public is oblivious to the whole situation, incessantly being fed by media and news created by Mr. Commercial player. Army of financial advisors, market analysts, respected economists, rating agencies and other “leaders” are employed by Mr. Commercial player to brain wash the Public and keep their focus away from reality so they can commit their wealth to the greatest wealth transfer machine ever invented.

Wealth Transfer Flow - From Public to Funds to Banks (and Pyramid Investors)

I hope you are not surprised with this wealth transfer revelation. If you are, then you need to start investing for your own benefit. It begins with realizing your position in the figure above (hint: Public) and accepting the fact of unidirectional flow of your investment capital. Next step is shifting your position from the source of capital to recipient of profits.

Position of pyramid investors

Even though pyramid investors rise from team Public, they nevertheless achieve to position themselves as a recipient of wealth. They refuse to buy the dream attempted to be sold to them. They chose to make their dream come true on their own by applying the only investment concept that works: Buy weakness, sell strength.

Pyramid investors refuse to let the Institutional player take their money as a means of supposedly achieving their dream for them. They decide to play on the same side as Mr. Commercial player. They understand they don’t need to be in love with Mr. Commercial player, but they do adopt his formula of success in the market. Market is his playground and his business where he is the undisputable ruler who mastered the philosophy of trading and profit making. Pyramid investors don’t need to reinvent anything, but only to apply what Commercials have been doing in the market for centuries already. Not having nearly the amount of capital as Commercial players, pyramid investors nevertheless apply the same approach with, of course, the same outcome only on a smaller scale.

So the saying I remember from Daffy Duck cartoon: “If you can’t beat them, join them”, is more than applicable in this scenario. There is actually no need to beat the Commercials as long as you are making profits in a manner they do. Ironically, the amount of suckers in the market will always be just right to provide abundance of profits for rest of us (pyramid investors and Commercials).

In the next article about COT reports, I will try to substantiate some of the claims I am making in this article.