Excessive credit clearance has been relaxed again and again for more than a year now. 50% of the credit was supposedly cleared on March. SEC is supposedly getting reports from the brokers so that it doesn't grow over 50% after that.
Brokers have been generating massive profits in the last few years through broker charges as well as through credit interest. Even some brokers are giving margin accounts for retail traders for some time now. SEC has already let brokers give credit when they have specific controlled financial systems in place separately.
Is this a beggar's wound (higannage thuwalaya) used by brokers to ignore the laws of a civilized stock market? The reason CSE formed a bubble was due to brokers ignoring the laws and the SEC not actively enforcing them from the beginning. Now SEC has somewhat actively enforcing the law. But brokers want to go back to lawless old times. So that they can do whatever they want to make massive profits just like old times.
Why do brokers give credit for customers who defaulted their payments in the past again and again? Any financial institution would not give loans to customers if they have not paid their past loans on time. No mudalali will give goods on credit if the customer has not paid dues on time. But why do brokers play with the laws force selling shares saying it's the SEC's fault and letting the customers buy back the same shares on credit again?
If you look at the stock market performance in the last 12 or so months, only times it went up were when something changed in the credit clearance. When the credit clearance gets relaxed market goes up. When the credit clearance dead line ends market goes up. It was like credit clearance giving the market a reason to go up when it's heading south for sometime now.
It is not the retail traders who will benefit from relaxing the credit. Not the big investors. It'll only benefit the brokers. They will find new means to make more profit. Big investors are already getting all the credit they want from banks and financial institutions at lower interest rates and in their terms under different labels. That is how these HNWI trade. Retail investors they have to pay the high broker commission charges which is about 2.5% both ways as well as the credit interest which all could add up to sometimes 20% or more. Retail investors already get this through controlled margin accounts through broker companies and banks. (There was a rumor a proposal came to lower the broker charges at the meetings but was cut short as the brokers were not happy to even discuss that.) To make a profit the retail traders have to expect a huge price increase. Only bubbles can make that sort of price appreciation. I believe it was this kind of price bubble we experienced in the in beginning of this year just after retail traders got credit from brokers and banks etc through margin accounts. To make a profit the price had to appreciate more and more.
I think this brokers getting more relaxed terms for issuing credit will not stop the share market going down. It can do something temporarily when some announcement ever comes. But this won't benefit the investors it's just that we're creating more ways to contribute to the profits of the broker. Retail traders even buying on more credit cannot make difference in the share market. Only they can do is push up a single counter for few days. As I said before brokers are already giving credit through controlled means by establishing separate entities. Broker credit is already there. It's nothing new.
These days many lament over 'fundamentals are going down'. They have to if they're overvalued. If a company is a well established and profitable doesn't make it a fundamentally strong company. It has to be fairly valued. Only speculative stocks, questionable companies can go at very high PE ratios of 30, 40, 50, 100. Today most of the shares which people label as 'fundamentally strong shares' are actually 'speculative stocks' - sky rocketed due to future expectations. 'muhudata hath gawwak thiyeddi amude gahuwa wage'
That's enough for now. If you come this far thank you for reading my ramblings.
Last edited by insidertrader on Thu Aug 04, 2011 12:37 am; edited 1 time in total