In honor and reverence to one of my favorite comedic personalities, David Letterman, and the end of his talk show career here is my own market Top 10 List.
Top 10 list of Wall Street sayings that should be questioned
10) There is a lot of cash on the sidelines.
There is always a lot of cash on the sidelines and that never changes. The buyer of a stock, thus taking cash off the sidelines, gives it to the seller who puts it back on the sidelines.
9) There are more buyers than sellers (or vice versa).
Maybe technically there are more bodies buying or selling than the other side but the number of shares traded has to be exactly the same as for every share bought is a share sold. It’s the aggressiveness of one side or the other that matters.
8) Stocks are attractive because they aren’t quite as overpriced as bonds.
If bonds are artificially priced, shouldn’t stocks be? Overpriced though can of course remain overpriced.
7) The higher stocks go the more attractive and less risky they are.
For long term investors, the more one pays in price today with respect to valuation, the less return they should expect in the future.
6) Stocks aren’t expensive because they are still cheaper than the valuations seen in March 2000.
Really?
5) There is no alternative.
In bull markets there is always no alternative to common stocks. In bear markets, there are always alternatives.
4) Markets can’t go down as long as the Fed is easing policy, aka don’t fight the Fed.
While that is many times the case, the Fed started cutting rates aggressively in January 2001 and in September 2007.
3) We’re going to get a rotation into stocks and out of bonds.
For every portfolio rotating out of bonds has to see someone rotating in and that buyer of stock has someone rotating out. Again, it’s the aggressiveness of the moves that matter.
2) The selloff in stocks was profit taking.
Does anyone refer to a rally as profit seeking?
1) The US economy is in a new normal or plagued by secular stagnation.
Maybe now temporarily it is but free market capitalism is the greatest wealth machine in the history of the world if left to its own devices and not to central planners (fiscal, monetary and regulatory policy).
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Peter Boockvar
Managing Director, Chief Market Analyst
The Lindsey Group LLC
703-621-1170
peter -at- thelindseygroup.com
The final sentence of this post dwarfed the rest of the contents.If only students were inculcated with this statement at every level.
7) The higher stocks go the more attractive and less risky they are.
This seems to be contrary to logic. Given that stocks have no guaranteed value, it would seem to me that the more expensive they get, the more risky the purchase. After all, stocks take the stairs up and the elevator down.
5) There is no alternative.
Perhaps relative to the return available (risk adjusted) versus other potential investments.
3) We’re going to get a rotation into stocks and out of bonds.
This sounds like “chutzpah” to me. With the Baby Boomers retiring in the coming years, I would think the “Big Picture” would be to think that they will be seeking more secure and less risky investments in their Golden Years. However, with the complaint of a lack of return, due to low interest rates, maybe they will follow rule #5 as investment guidance, seeing no other way to afford their retirement.
1) The US economy is in a new normal or plagued by secular stagnation.
There may be some truth to this, in that as Goldman Sachs CEO and Chairman, Lloyd Blankfein, stated “we’ve done a better job in this country at creating wealth than we have at distributing it.”
Here in lies the problem. For the economy to keep growing, money needs to have velocity (in other words, it needs to change hands). For that to happen, it cannot stagnate in the hands of the few wealthiest families. We have plenty of work that needs to be done to deal with all kinds of infrastructure (water shortages in the Western U,S., transportation systems pretty much everywhere, energy creation and storage pretty much everywhere and funding social insurance for the Baby Boomers who are getting to retire (and, by extension, state pensioners who are in the same boat)). These things cannot be fixed without tax revenue. Government has traditionally — along with the court systems — been the avenue to effect wealth distribution (or, in other words, the method of creating velocity of money.
11.) “it’s a stock pickers market”. anyone that says this is a typical wall street clown that has no clue what theyre saying and is just spouting garbage….as is all too often seen on wall street.
12. Obama’s policies will ruin the markets.
This doesn’t really rise to the level of a Letterman list but let’s run with it a bit.
Sayings are often metaphors, meant figuratively rather than literally, so while taking them literally in the process of dismissing them as absurd has some modest comedic value it also prevents thinking about them a little more deeply even when that might be worth a little effort.
The first listed, #10, is a good case in point: There is a lot of cash on the sidelines.
Taken literally it clearly violates basic accounting principles and appears silly as a matter of definition. But definitions are not equilibria and a lot of folks including Nobel economists have made the fundamental error of assuming an accounting identity is an actual behavior — the game itself rather than the scoreboard recording its outcome at a given moment of time — and so neglect that money from ‘thin air’ thingie as well as market dynamics.
Taken figuratively the saying highlights a rather fundamental truism: if liquidity and leverage is available all it needs is an excuse and market price movement goes into a higher gear.
9) There are more buyers than sellers (or vice versa).
What about potential buyers v. potential sellers? What about fixed quantities — a sold-out sports event? An IPO? I would question anyone who claims there are “always” the same number of buyers and sellers, because they clearly don’t understand how real-world markets work.