Sunday, July 26, 2009

Why are markets supposedly "stupid?"

Because that's the claim by journalists or touts who are supposedly so smart, that also missed this move!

On May 5, after the market had a great move, Mark Hulbert said this.

Commentary: Yet more evidence we're in a bear-market rally

What I found reinforces the conclusion I reached last week: There is a good possibility that the market's rise since March 9 is a bear-market rally rather than the beginning of a new bull market.

At the same time, I was calling these bears Waldos.

Now Mr. Hulbert is warning us again:
That unfortunately means that the stock market's rally can no longer count on receiving much continuing support from the sentiment data. In other words, the editor of the average short-term market timing newsletter is no less optimistic today over Dow 9,000 than he or she was about the same market level in early January -- just before the stock market was about to go over a cliff. This is not what contrarians believe should occur at major market bottoms. The typical pattern is for there to be a lot more pessimism as the market recovers from such lows than during the initial descent into those levels.

I guess that's the difference between a journalist and myself. I say it like it is. These folks love to use the word "contrarian" when its just an euphemistic way of saying they are right and the markets are stupid.

But if they said that, who would buy it? Who wants to call the markets stupid? Oh wait. Didn't we have one of the most vocal bloggers alert us of that? (Karl should really be running for political office!) And say, "Do Not Be Stupid." And what was his "misplaced" advice on Aprl 11? That if we didn't listen to his bearishness, it would be to our own peril!

So now just call yourself a contrarian, and make bad calls, and then you can continue to write about them!

Even if the calls are--wait--I won't say stupid--I'll put on the hat of a journalist--and just say even if the calls are misplaced!

And while misplacing my modifiers--too your own peril!

Because stupid is only funnier on a shirt, than on your shorts!


Gary said...

Do you expect the rally to extend much longer or higher? thanks

Palmoni said...

Both--It's the commoditization of the markets, aided and abetted by the high frequency traders who provide "liquidity" and our Government that will keep rates down--because how could they raise them?

See how China wants to dump their $2.2 trillion of our paper? Instead of selling it, they are going to help China buy resources with it around the world. Now what would happen if there were people that could cause bidding wars with China? Wouldn't prices be materially higher for the assets they purchase?

Compare that with the stock market.

The HFT traders are like the daytraders in the late 90's. After Greenspan said "irrational exuberance" the market still had years of growth in front of it. Couple these billion dollar honey pots, who keep those short from covering, and who prevent the natural buyers from paying a "normal" price, it has the effect of increasing prices along all asset values for stocks.

And what can our Government do with interest rates? Raise them? And then pay more for our debt?

Doubtful--It just makes stocks a more attractive place for money.

look at Calpers. They blew up CA retirement accounts, and now they are doubling down. Why wouldn't they? We bailed out the banks, if the bet doesn't work, we'll have to bail out them.

Look at China last week--After the market doubled, they had almost 500,000 new brokerage accounts opened.

Higher prices attract liquidity, and its the same with our market.

Instead of pausing, the higher prices will attract more buying interest.

And then, Greenspan's theory, of higher equity prices, having a greater influence on people's behavior will start. And it's starting already, at the high end which starting to loosen up their purse strings.

But the market doesn't see it--because we have such a huge inventory of 1M+ homes out there,that everyone thinks that the rich are just hoarding their cash.

I see a lot of hedge funds, that have made the switch from being bearish, to bullish, because the market forced their hand.

The next stage is the realization by the pension funds that they need to switch also.

If oil, last year could go to 147, why can't we see new highs in the market next year?

And that's what I see happening.

The most dangerous position, still is to be short, but now it is even more dangerous than before.

Because now the animal spirits are returning, and soon, the bearish viewpoint will see that the wreckage in the economy will be reflected in currencies, instead of stock prices.

I think that is farther down the line, but I don't think those with bearish bets will be able to stay solvent, as this market ramps.

Just as the bear almost took down every bull; now we get the reverse.

Gary said...

OK, many thanks