The Texas Stock Exchange

Democratize capitalism. Give it a finer grain. Make it local.

I was introduced to penny stocks in the 8th grade. The first time I saw the business pages with columns of numbers (and fractions), I was mesmerized. Although my 8th grade teacher informed me of the realm of math called statistics and probability, he didn’t know enough about it to teach it other than explaining why 7 was the most popular roll of the dice. Still the idea that I might be able to predict stock prices lodged in my head, a notion that would be demolished during the inflationary panic of 1980.

What I learned then was that the market was too big for anyone or any group of anyones to corner. Aside from what the Hunt brothers did with silver some time around then, everybody talked too much and too much factual information was published for real market secrets to be held long. Sooner or later, margins are called. Leverage ceases to leverage. Cash rules everything around you. Speculation is for suckers. The truth is unforgiving, even after you are dead. Actually, especially after you are dead, when your lies cannot remain ever adaptive and complex.

Still, seven years later, I was introduced to a gentleman named Curt Fey who worked for the head of what was left of the PC business at Xerox. He was one of those fantastic role models whom one might consider an impatient genius, the difficulty being determining whether or not he was evil. You see, Dr. Fey looked and sounded like he was a stock character at the Peenemünde Army Research Center. Thin, balding, excruciatingly precise in movement, diet and diction, Curt Fey poured over the Value Line every morning. Every once in a while he’d grin. Most of the time he’d scowl. I’m certain he would have rather remained inscrutable, but I found it entertaining to engage him. My girlfriend at the time found him both hilariously pathetic and creepy. I learned that after he retired from Xerox, he started an investment company - this doesn’t surprise me in the least.

In those days companies couldn’t even file their 10-Ks electronically. Xerox didn’t even bother with that business idea. Now that I recognize my own little bit of genius, I have a couple ideas that popped into my head over the years.

Local Savings & Loans
This is one that I think about on and off periodically. Since the Senator from Arizona, Keating, I believe his name was, effed it up for everyone. The failure of the Savings & Loans should not have foreclosed the future of Savings & Loans. We probably have a more efficient mortgage market, but I don’t like the shape of it. It seems to me that if we were paying more attention to people like Sheila Bair, we could make a great deal more of the housing market reasonably affordable. Anyway, I simply want small, local savings and loans so that large banks can’t have their subsidiary divisions handling this important part of the economy. Let it be local.

The Low End Theory
So what if investors had a bit more confidence in the OTC market? What could make that happen? Well, perhaps if an agency as capable as Morningstar and more serious than Motley Fool paid attention to small cap stocks. Now what is the definition of a small cap stock? Generally, small-cap stocks have a market capitalization between $300 million and $2 billion. These stocks are considered to be in the early stage of growth and often have more potential for significant gains compared to large-cap stocks, but they also come with higher risks and greater volatility. OK, that’s reasonable, but then again my supermarket has high risks and volatility in the grocery section. With practice and discipline I can become expert in understanding that risk. At least I can count on my wife to correct me when I buy bad carrots.

So why can’t I play the stock market for lower than low cap stocks. Because no reputable national ratings agency or financial services firm is interested in the OTC market or the small investors that might play in such markets. The OTC is not as transparent. The dealers are not working with realtime data. The companies themselves are not using high quality financial reporting systems. For somebody with a few thousand bucks to throw around I don’t want to take a chance in the OTC market. It seems like the wild west.

But what if?

What If?
What if a company like Intuit that manages to make my own tax reporting brain dead simple were to get involved? I’ve run a couple small businesses with Quickbooks, both non-profit and for-profit. Companies like small accounting firms and legal firms could benefit from these kinds of financial & regulatory companies in the same way the crooks at WeWork legitimately started off in the fractional real-estate business. BTW, I got a chance to meet with the legendary Paul Fegen of Beverly Hills’ AOMI. I never realized before that moment that a corner office could be so large. So you get Intuit and LegalZoom together and you get a senator or two to generate some benchmarks and then you find some smart guys at the SEC together with the tech guys at a second-tier hedge fund and you all move to Texas.

What you figure out is this. How to make a new stock exchange for very small cap businesses that would ordinarily list on the OTC and then create transparency at this level of the market that has never been seen. Then you add some inexpensive AI to provide analysis on margins that somebody on the buy side or sell side of a Wall Street firm would find too narrow. I mean, without grift, how could you make markets comprised of hundreds of thousands of companies with low capital liquidity? You create liquidity by adding accountability and transparency and you expose that market to a class of investors like me, uncertified retail investor peasants. Way better than NFTs.

Now I can look at the ridiculous world of Yelp and the ridiculous world of Google Maps and the ridiculous world of Zillow and identify businesses not only by their advertising but by their financials. Why do I use the term ridiculous? Because 25 years ago you had basically zero systems that could do that. Today you could have their quarterly numbers. Hell, you could have their monthly, seasonal, weekly or daily numbers. Who wouldn’t invest $50 in the new excellent bistro and brew pub that just opened up after COVID? I’ve tasted their burgers, which is much more than I can say about some ETF that Jim Cramer is shouting about.

For all the talk about community these days, wouldn’t it be spectacular if the only information we were getting about the places we actually live were not about crime, politics and advertising? We already know all that. We still don’t know about the money.

Democratize capitalism. Give it a finer grain. Make it local.

The Logarithmic Shadow
The little guy is saved by our innate human understanding about what a bully is. It’s why we protect children, those of us who haven’t fully succumbed to the seductions of aggregation. That slippery slope leads to douchebaggery. The douchebag will kick your baby in the face and tell you that on aggregate it hasn’t changed infant mortality one iota. Douchebags are always telling us to focus on the bigger picture. Are you following me here? Local control is where we get to be human. N-dimensional decision spaces are where we will inevitably cede authority to machine intelligence. And right now the governance model for AGIs is pathetic. We need a few of those steam engines to explode, but I digress.

The Logarithmic Shadow is why Michael Jordan does not hustle basketball at the local playground. It’s why Bernie Madoff’s Ponzi scheme didn’t affect downscale blue collar workers. The best rule I have ever heard in this realm of wisdom is this. If you want affordable housing, build small bedrooms. Rich people will never accept a bedroom under 100 square feet, and therefore will never bid up the prices on such housing. So for the Texas Stock Exchange, as soon as a company gets $300 million market cap, they get delisted. Time to go up into the big leagues or private equity. Either way, no longer will there be slim pickings as with today’s small businesses that will never get access to institutional capital like those with that kind of revenue.

We can institute bully rules in capitalism. That’s what anti-trust experts are supposed to do. But both parties have abandoned bourgeois capitalism in favor of corporate capitalism, crony capitalism and some have even claimed to be jealous of the CCP’s state capitalism. Listen to this data engineer when he tells you that 25 years ago all of the legislators and Wall Street investors were telling us micropayments would never work. I’m telling you in no uncertain terms, we have the compute capacity to make a lot of new small capital markets work. But we are hyping NVIDIA for the oligopolies of HLMs, forget LLMs - they want to go huge. In one way I’m glad to be in that logarithmic shadow, but we peasants deserve transparent, well-regulated capitalism too.

All we have to do is make the market. Now you know where it is. Where it has always been, with Mom and Pop.