Listen, here’s the thing. If you can’t spot the sucker in your first half hour at the table, then you are the sucker.

People don’t seem to  realize that when they sign-up for that 401k through their employer or have their union bargain for additions to a pension fund invested primarily in stocks, they are unwittingly sitting down at the table to compete against the exact same players in the exact same arena as if they were personally trading stocks, despite their protestations otherwise.  These people would do well to look around at the entire financial system and ask themselves “who is the sucker at this table”.  I am pretty sure it isn’t JPM or Morgan Stanley
Every trade is a zero-sum game, and for every winner somebody has to have taken the other side of that trade.  There are equal numbers of winning and losing trades, but these trades are by no means evenly distributed within the market.  Think about these headlines:
Goldman’s trading desk made money every single day for an entire quarter in 2013… 63 straight days of no losses
Total number of trading days in 2013 in which JPM’s trading desk lost money:  Zero
For generations now, the investing public has been the sucker at the table, they just haven’t known it.

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The other day I re-watched one of my favorite movies, one that I hadn’t seen in a long time.  I was thinking about the markets and metals at the time, and the combination caused me to come to an unforeseen conclusion:  Pretty much everything you need to know about investing in the 21st century is contained in the poker movie Rounders.

If you haven’t seen it, Rounders revolves around the underground world of poker players in New York City, and the plotline is pretty simple-  a talented former player who has tried to move on to a more “upstanding” profession (he is attending law school) unwisely vouches for a childhood friend who runs up a huge poker tab that is ultimately owed to Russian mobsters. To save himself and his friend, the player is drawn back into the world of underground poker and has three days to work his way through various games to try and come up with the money.

The real insights come about the observations of the game itself.  The writers spent two years getting to know the world of poker from the inside, interviewing and spending time with everyone from world-class poker players, to the “rounders” who make their living playing in the small-stakes games portrayed in the movie, to the casual games they played in all over the country from firehouses to VFW halls.  The core insight they gleaned is that poker is not “gambling” in the sense that everyone has the same chance to win (as statistically they should) but that poker is instead wholly a skill game, a brutal contest of strategy, will, and game theory where the casual players, given enough time at the table, would lose to the pros virtually every single time.  Indeed, though people steeped in the “investors” mindset would probably recoil at the comparison, poker is extremely similar to trading in that chance, dealing with the unforeseen, calculating risk and return on every hand and pot, and most crucially playing against the other players (or market participants) are all shared characteristics of the two contests.  Professional traders would have a great deal in common with professional poker players.

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The running commentary of “Mike D” (played by Matt Damon) provides the central narrative of the lessons, or insights into this world and how it works, during the film. The writers wanted to distill some of the more powerful lessons they learned, and some of these quotes came straight out of the mouths of the professional players they interviewed during their research.

.

Rounders starts with one of the best opening movie quotes of all time, and it sets up the entire premise:

“Listen, here’s the thing. If you can’t spot the sucker in your first half hour at the table, then you are the sucker.”

Wall Street has gone through various cycles of mass-participation by the public in stock investing, and public fervor for stocks has waxed and waned through the years.  The famous “shoe-shine boy recommending a stock as the harbinger of the 1929 crash” represents one peak of this public participation, and in the aftermath of that crash stocks were viewed as too dangerous for most people for a generation.  The “go-go market” of the mid 60’s was another peak, and the decline that followed discouraged yet another generation of people, but the cycle always returns.  In each and every case, the public IS the sucker at the table, but advertising and sales pitches have employed more and more sophisticated strategies and have effectively convince them that this is not the case. Greed always overwhelms fear eventually.

As a result, we see strange contradictions in ordinary people’s attitudes towards investing.  On the one hand, they will say “I don’t play in the stock market” and claim “trading is dangerous” because Wall Street is too slick, too powerful, and has too great an informational advantage and will beat the small-time trader every time.  On the other hand, they have no problem buying in to 401k’s or retirement accounts based primarily on stocks.  In their minds, those things are merely “prudent investing” and not “trading”.  For some reason, people hear the words “buy and hold” and “diversified asset allocation”, sold to them by uncounted television ads by the very same Wall Street firms they claim to distrust, and they have no problem gambling at the exact same casino because it has been sold to them as a responsible and prudent thing to do.

These people don’t seem to  realize that when they sign-up for that 401k through their employer or have their union bargain for additions to a pension fund invested primarily in stocks, they are unwittingly sitting down at the table to compete against the exact same players in the exact same arena as if they were personally trading stocks, despite their protestations otherwise.  These people would do well to look around at the entire financial system and ask themselves “who is the sucker at this table”.  I am pretty sure it isn’t JPM or Morgan Stanley.  For generations now, the investing public has been the sucker at the table, they just haven’t known it.

When the investing public plays (knowingly or unknowingly) at the Wall Street casino, they do so in the context of a carefully crafted fairy-tale that goes something like this:  “Freely traded markets will go up and down, but the prosperity they create will raise all boats over time so if I just buy and hold, I will grow my wealth eventually.  In the short-term, however, there will always be winners and losers and this is just how the game is played-  everybody places their bets and takes their chances”.  The fiction is that everyone at the table has a clean shot at winning. They don’t.

“Why do you think the same five guys make it to the final table of the World Series of Poker EVERY YEAR? What, are they the luckiest guys in Las Vegas?”

Every trade is a zero-sum game, and for every winner somebody has to have taken the other side of that trade.  There are equal numbers of winning and losing trades, but these trades are by no means evenly distributed within the market.  Think about these headlines:

Goldman’s trading desk made money every single day for an entire quarter in 2013… 63 straight days of no losses 

Total number of trading days in 2013 in which JPM’s trading desk lost money:  Zero

Now most people think of all those high-powered firms and traders and would think “Well yeah, they are pretty cutthroat,  but the fierce competition between those folks is what makes a market”.  Does it really?

In one scene the two protagonists make a run down to Atlantic City where they unexpectedly run into a half-dozen other Rounders from New York sitting at a public poker table at the casino.  They all know each other and while they are exchanging greetings and insults, two regular guys at the hotel for a convention sit down at the table.  With their cheap suits and nametags, they might as well have targets painted on their chests.  As the pros exchange knowing smiles, the narrator tells us that these poor schmucks have no idea what they just stepped into.

“We’re not playing together. But then again, we’re not playing against each other either. It’s like the Nature channel: You don’t see piranhas eating each other, do you?”

The two conventioneers think they know how to play because they sit in on a Thursday night game back home.  They have no idea that, through the ruse of an “even-odds game”, they are going to be harvested by the sharks at the table no matter what cards they draw.  And all of the pros at the table are holding to another hard and fast rule:

“It’s immoral to let a sucker keep his money”

It will be interesting to see what happens when the current big-stakes game of financial liars poker is done.  We have pyramids of market bets by the big financial players, topped by even larger pyramids of derivatives bets.  All of the players at the table are the risk counterparties to all of the other players at the table, and the understanding among them is that if they all lose- if the markets they are harvesting so aggressively get away from them entirely – the US taxpayer (via the Federal Reserve) will make all of them whole again if anything goes wrong.  They have every reason to believe this will be the case, because it has always been so.  From Long Term Capital Management to the Bear / Lehman / AIG fiasco of 2008, the US taxpayer has always made them whole when things go wrong.  But is this an endlessly viable option?

It seems to me that the financial system and their partners the Federal Reserve are backed into a corner.  If the Fed allows interest rates to rise, the interest on the 17 trillion dollar national debt (against just 3.5 trillion per year in tax revenues and a trillion-plus yearly deficit) would begin to accelerate, compounding upon itself as the debt is rolled over and could quickly undermine what remaining confidence there is in the US dollar. To keep interest rates low in the face of a market that doesn’t want to buy any more US debt, the Fed has become the buyer of last resort and has now taken 4 trillion dollars on its balance sheet already.  If they keep taking on more, their own credibility will be undermined. Damned if they do, and damned if they don’t.

And backstopping the whole thing is the American taxpayer, the people whose productivity and labor ultimately have been pledged as collateral for the entire financial circus.  The problem is that these people are knee-deep in debt, they are watching their purchasing power evaporate thanks to the Fed. They‘re just hanging on by their fingernails and praying that their paltry 401k bet will come through.  The situation they are in, if this can be believed, is even worse than the Fed.  They will have zero tolerance politically for yet another bailout of the Wall Street gamblers who treat them like marks then demand their  money to be made whole when the schemes go belly-up.  The public has been squeezed dry to the point that there is simply nothing left.

“I’ve often seen these people, these squares at the table, short stack and long odds against them. All their outs gone. One last card in the deck that can help them. I used to wonder how they could let themselves get into such bad shape, and how the hell they thought they could turn it around.”

At what point will these people look around the table, realize they have been suckered in the most egregious fashion, and simply get up and walk away?  After all, the game can only go on as long as they are still willing to ante-up.  The day is coming when the public will either push away from the table or they will be out of chips. Either way, it’s game over.

Keep stacking.

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  1. oh, this is gonna be so bad.  we’re going into a horror show & most people do not have a clue; in fact, whenever i try to tell people what’s going on (deliberate swindle) they don’t believe a word of it.   it’s a swindle, people; in the first Great Depression, the people were swindled out of their gold & farms.   this go-around people will be swindled out of their retirement money, 401k’s & houses.    do like SINCLAIR says !! GOTS …… or, GET (the hell) OUT of the SYSTEM !!  

  2. Interesting article…but it won’t be over until every bank account and 401K and every other pension plan has been “appropriated” and “reinvested” by the government…at which point, those government “appropriations” will be promptly spent and doled out to friends and accomplices of the people in power, and also at which time the poor dumb sheeple will be given an EBT card.  Good luck.

  3. There was a time when I looked at poker the same way I do buying Lottery Tickets.   “There’s a voluntary form of taxation I choose not to volunteer for!”  This is now the same way I have come to see retirement accounts.  It’s like withholding taxes.  Retirement and Withholding assume you should give your funds to the government so they can use YOUR money for a year or many, because, left to your own devices you’d squander and lose it before it came due…
     
    That’s how they “Take Care of YOU!”

  4. It would be difficult to find an article that contained more BS than this one.  LOTS of people, not just the rock stars of Wall Street, have made LOTS of money in the stock market.  No, it is not a zero sum game.  This is just more misinformation.  If I buy a stock for $10 a share and sell it at $20 to someone, I’ve made $10.  If it then goes to $30 and he sells it, he makes $10 too, and so on.  Any number of people can make money from the same shares.  A win for one person is not an automatic loss for someone else.  This is the kind of talk that people spread around when they know jack about something and just want to denigrate it for some reason.  Yes, there are problems in the stock market.  So?  Show me something… anything… that doesn’t have problems.  Far as I know, Heaven is the only problem-free place known.
     
    The bottom line on this is that saving and investing allowed me to retire early at age 55… and not just retire but retire COMFORTABLY. That is something that I never could have done merely by saving because savings simply do not grow fast enough to keep ahead of taxes and inflation.  Now, THAT, is what I would call a zero sum game.
     
    As to the future… well, who knows?  Could US retirement plans be grabbed by the US Gov?  Sure, but they better eliminate those pesky elections first because any Gov that tries this WILL be booted out on their @$$, investigated, prosecuted, AND jailed.
     
    Just remember, folks, owning PMs is not an either / or choice.  Some of us own both stocks AND PMs and for GOOD reasons.  Allow me to direct your attention to year 2013 when gold was down about 35% while stocks were up 30-35%.  Owning both is a way to hedge the bad years with the good ones and reduce the losses that one can incur.  These are, of course, only paper losses for those who chose not to sell any of their PMs in 2013.  Some, however, were forced to sell due to their financial position at the time, which is definitely too bad for them.  Those with more balanced portfolios, however, cannot be forced to sell something when it falls in price because they have other things that are up and that can be sold at a profit.  The things that are down can be held until their prices rise again.  That’s one part of financial independence, something that everyone should pursue.

  5. Good article and true as an arrow. A lesson I learned as a broker, switching between ‘trade’ oriented clients and those favoring ‘investment’. The realization helped bring me to the place where I found myself in preference of holding ‘money’ and further on, to metals and finally … to learn how metals constantly gain value by natural forces.

    In our genre, the ‘suckers at the table’ are the ETFers … unless all they only really want are very small ‘gains’ before they leave the ‘table’.

  6. Looking at the sucker’s game;  the one called DEBT, I would rather lose at the tables and owe the vig’  to Teddy KGB than owe a banker $1   Yes, one freaking dollar.  
    Back in the day, 25 years ago, God forbid you owed my bank anything, even a modest balance on a loan.
     You could have paid us our pound of flesh 4 times over and if you defaulted you’d get me at your door.  6 foot 2 and 3 feet wide, I was the muscle that my boss send out to help ‘convince’ the debtor to pay his loan or get current.
     Failing that, we’d send in the collection squad (not me),  hunt you down, look you up and f*** you up.
     No one at my bank gave a rat’s ass if you ended up homeless.
    Today there are more than a few of my former banker friends who are completely destitute.
    If we were willing to do this a quarter century ago, just imagine what bankers and the government is willing to do when they do some serious teaming up to steal people’s money.  Any money. So long as it is OPM.
    Ask any Cypriot what they thought when 60% of their funds were looted by central banksters.

    • @AGXIIK
       
      “Today there are more than a few of my former banker friends who are completely destitute.”
       
      Damn, I LOVE a story with a happy ending!  :-D
       
      “Ask any Cypriot what they thought when 60% of their funds were looted by central banksters.”
       
      We don’t have to look that far afield, AG.  Just look at what’s happening to the folks down in Argentina and Venezuela.  They are getting roto-toto-reamed and there seems to be no end to it.  One of these days, there will be revolution down there and banksters and their friends will be decorating every lamp post in Caracas and Buenos Aires.

       

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