Fun with investing:
Wall Street Roller Coaster
June 23, 2008 4:47pm by Barry Ritholtz
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Dramamine anyone?
I’ve been on this ride five times already since last August. I just hope I have enough sense to get off at the bottom this time (cover my shorts). Please let me know when it arrives so I don’t miss it again!
Once in a while I look up from the nice tailgate party we’ve had going in the parking lot since late last spring. Seems to be the exact same crowd on those roller-coaster cars whenever I see them crest the tree tops. Think I’ll have another hot dog.
Considering all the things that have happened over the last year, I am absolutely amazed the market is still in the $12K area.
If I had gone away and came back knowing all that has happened, I would have expected the Dow to be in the $8K or $9K area (and possibly less than that). Certainly somewhere below $10K for sure!
I don’t understand what a long-term investor sees right now that compels him to stay in the market. I don’t get it.
Here’s another ride…while driving about 350 miles today making sales calls I heard on NPR that the government is raising milage allowance from 50.5 cents to 58.5 for the second half of the year. The raise was to compensate for hight fuel prices.
A 15% increase…there is no inflation!!!!
Barry – tell me if I’m crazy, or I’m missing something…
Oil speculators bashing was the leading story on NBC Nightly news. Also front page of marketwatch.com and other prominent web sites. Seven HUNDRED newslinks from a google search. Congress scrambling like an angry swarm of fire ants trying to close all the loopholes – London loophole and favorable laws from the Enron days… It’s a worldwide cooperation effort, and I expect this to move fast. Traders answer with “if you kick us out of U.S. we’ll trade in China, we’ll trade in Hong Kong, we’ll trade in London”… well they are going to have to trade on that new island that guy started, because the world markets – all in the tank – will be in lock down mode from London to NY to Hong Kong to Australia. There will be no market for them to trade on. With virtually no oposition to limiting speculator trading (i.e. those that don’t take physical delivery), I can’t believe that the market hasn’t started pricing this in yet.
I’m going on a shopping spree tommorrow. Airlines are dirt cheap, and an easy 3 bagger should this gain any kind of traction.
U.S. legislation and worldwide cooperation will be in an all out sprint to close down speculators/investors – again with virtually ZERO opposition. Until this legislative effort peters out for whatever reason, risk/reward seems very high to be long sectors like airlines for example.
BG:
The problem is a real lack of education of the investing public. They think it’s complicated and they aren’t interested enough, so they trust brokers and CNBC. They have been pounded for so long with the concept that the market always goes up and that buy and hold is the best strategy that they think they always have to be long and they don’t even think of selling out.
I have friend who’s a perfect example. Lawyer and a smart guy but never learned about finance and doesn’t want to. A broker at Chase bank sold him $75k of auction rate securities the month before the market locked up and he’s now up to the Exec. VP level demanding that they buy them back. He’s pretty persistent, so he may succeed. But he still has no inkling that maybe he shouldn’t hang on to his stocks and will ride his portfolio all the way to the bottom, even though he’s mentioned that he’s lost a lot already.
I’ve got other clients who have told me how great their broker did for them last year and are counting their future income streams of 7-8% returns ad infinitum. The little hiccup this past fall was nothing. I just keep my mouth shut since there’s no upside: they won’t listen and there’s nothing worse than being in a position to say I told you so. So, I just tell them how nice it is that they’ve done well.
First, the US government is DESPERATELY trying to re-anchor inflation expectations, so that it doesn’t have to raise rates and kill the economy further. That’s why they’re coordinating this attack on oil investment.
Second, a downward spike in oil and then gas prices gives McCain a much better chance in November.
I think the drop in consumption will already work its way into a near-term top for oil. So, after the “attack”, there will be much self-congratulation. But, really, it was probably the market itself that corrected.
Usually there is a bounce after one down day (Friday), but no more than two days. Me thinks the market has finally accepted the bad economic news.
Why is anyone surprised that stocks are being held up on sky-hooks, floating along with the clouds. Stock analysts are the of the same breed which told us real estate would go up forever, AMBAC was AAA, that Merrill would never need fresh capital, etc.
Bubbleheads on CNBC, analysts, brokers, and CEO’s make money when stocks go UP. Very, very few people make money when they go down, so the market is heavily skewed to the bull side. Think back over the past two years; every piece of bad news was a reason to rally. Bad housing numbers, market up cuz Fed would cut. Bad employment, same. And so on.
Now, they are telling us stocks are under-valued because the PE ratios are low. well, you need E for that. There is no more E. The analysts are using last year’s earnings. Or they extrapolate to the entire S&P when one company does well because ninety percent of its sales are in Europe.
The DOW is heading to 9000. The S&P to 900.
Housing price-income ratio to 2.5
Goodbye to: Merrill Lynch, Citi (as we know it), Lehman, and about two thousand hedge funds.
Hello to: unemployment at 11%, inflation at 12%, China owning GM, etc.
Burn, baby, burn.
It’s going to really be interesting to see what the Fed does when companies (i.e. UPS) start to report lower earnings. You know it’s got to be coming.
There are very few (I’m sure there are some) companies that are not currently being impacted in a significant way by the high cost of gasoline and the general malaise of the business climate right now.
The big question in my mind right now is… Will the Fed cut rates again (with all its associated negative effects) IF we go into another big down draft in the markets from here?
The Fed did go lower in 2001/2002 but the financial world the Fed now faces has completely changed since then.
Our situation is not much different than that of a junky…thinking he will die if he doesn’t get another fix. At 2.00%, we are just about out of junk!
These are really “interesting (fascinating) times”; but, for all the wrong reasons. You know…if you take everything that has already happened and add to it the things that are likely to happen in the near future, this whole thing is down-right surreal!!
Get out of the forest! To get a full appreciation of what’s going on, you need to observe this thing from about 10,000 feet.