Yesterday, I had the first and last quote in neat NYT Business section article, Heart-Stopping Fall, Breathtaking Rally.
It has already generated a few email questions. The quotes are accurate, but before what I said gets further misunderstood, allow me to clarify what we were discussing.
No, I was not calling for yesterday’s sell off, nor do I know if the rally from the March bottom is over. It looks to be weakening, but whether that is the end of the run or merely a short term consolidation remains unknown at this time. As far as I can tell, the data is inconclusive at this moment.
The discussion I had with the reporter was in the context of what these kind of rallies mean. It was not a forecast or a specific market call; Rather, I was waxing philosophically about historical patterns and collective sentiment.
There were two quotes in question. The first quote was:
“There are long, long periods of time when the market and the economy go two different ways,” said Barry Ritholtz, a professional investor and author of “Bailout Nation,” a book about the causes of the financial crisis. “A rallying market doesn’t necessarily mean the economy is healing.”
That’s been shown to be true over and over again — the rallies during the 1966-82 period, the Nikkei Dow in the 1990s, the Nasdaq ’98-00 boom, the October 2002 lows, the September to March 09 collapse, and the move off of those lows in March. Oftentimes, markets are not doing a “random walk,” nor are they responding to future economic prospects, but rather are responding to the excesses (in both directions) of the immediate past.
The end quote was:
“Mr. Ritholtz said that just as investors were overly pessimistic in March, when stocks fell to their lowest level in more than a decade, they have become irrationally optimistic about the recovery.
“History tells us that this will end with a substantial correction,” he said.”
This is not a forecast that we are about to collapse; rather, it is a general statement about what happens when momentum goes too far in either direction. The markets can continue with an upward bias for some time before the inevitable denouement . . .
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Source:
Heart-Stopping Fall, Breathtaking Rally
VIKAS BAJAJ
NYT, December 30, 2009
http://www.nytimes.com/2009/12/31/business/31stox.html
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