Tuesday, October 26, 2010

Stock Market Myths Debunked

I got bored today while the Money Managers held the market up into the end of the month (window dressing) in order to give the illusion - by showing a high balance on their monthly statements (come out on the 1st of the month) - to show that there are big gains to be made by continuing to invest long term. I'm not sure why the SEC looks the other way during this kind of illegal activity, but maybe they'll take notice once the retail investor catches on to their little game.

Stock Market Myths Debunked

1. "The market doesn't like uncertainty"

The market actually does like uncertainty, as evidenced by the latest rally. Most investors have no idea what's going to happen in Washington with a lame duck congress in place, let alone who will hold a majority after the election. We also don't know what the fed is going to do, as if it matters. We are already at 0 interest rates, and it hasn't seemed to help the so called "recovery".

The future of the Euro and the Euro-zone is still in question, but the market doesn't seem to mind.

The future of the housing market is more than ever, uncertain, but the market doesn't seem to care about the consequences...

The Bank CDO market, and the survivability of the entire banking sector is uncertain,
just as it was when foreclosures rose during the sub-prime crises. Nobody has been able to even place a value on toxic derivatives, but who cares?

Future growth and earnings are uncertain.

The list goes on, and on, but the market loves it!

2. "Treasuries don't provide the return that equities do"

Treasuries do provide a return, whereas equities may or may not... so treasuries actually have value, and will provide a better return when a market, or the civilization that drives that market, is in decline. Nobody ever lost their entire nest egg investing in treasuries.

3. "The market will be held up by the PPT or some other invisible force"

If this were true crashes would be a thing of the past, yet the crashes continue. Where was the PPT in 07-08? The PPT is real, but their job is not to hold the market up when it's already near recent highs. Watch for them to come in around SPX 300.

4. "Equities have real value here"

Many fall into the value trap, and end up holding their losing positions all the way down, to zero in some cases. The equities market is a market like any other market, in which the value is determined by the highest bidder, not some theoretical PE ratio. In a crash all stocks are sold at any cost, so it could be said that equities have 0 value, or at best only a perceived value.

5. "The Market can stay irrational longer than you can stay solvent"

This is a good way to try to scare people out of their position, but the market never stays irrational for very long. I haven't covered 1 share over the past month, until I took a small profit a couple days ago, and I'm plenty solvent, and as long as the charts tell me wave 3 is in play I will stay short. If you can't learn how to patiently build a position, by buying/selling into strength/weakness, into a top/bottom you will never win at this game.

I suspect that certain members of the federal reserve bank, and their associated hedge funds, have simply used this earnings season as a final opportunity to shake out some weak handed shorts, while at the same time sucking in every last retail investor, before they rob the wealth of America, as they did in the last depression... and throughout history. All I would need to see next week to confirm this believe in my mind, is for the fed to surprise the markets next week by tightening, or even pulling the QE2 rug out, but all that I write is only the opinions of the author (disclaimer).

6. "The Market is forward looking"

If the market is forward looking then the market would only rally on future perceived earnings, not backward looking earnings, helped by frivolous government spending, short-term dollar weakness, and cost cutting.

7. "The federal reserve will hold interest rates low"

The market actually sets interest rates, and the federal reserve follows the markets lead. Interest rates may be historically low right now, but the market wants higher interest rates, as evidences by the inflation play, and just this year: "Chairman Ben Bernanke set the stage for higher interest rates here in the US; explaining in written testimony that in “due course” the Fed will “begin to tighten monetary conditions to prevent the development of inflationary pressures.” Source cnbc: End of an Era: No More Easy Money?

8. "The Dollar is weak"

I suppose this is a way for the news media to try to convince the average investor, and the public at large, that we are not in a deflationary spiral, or as the spin doctors like to call it, "a negative feedback loop", or perhaps something has been added to the water supply in order to block folks long-term memory. The Dollar has actually continued to strengthen over the past 2+ years, and it's going to rip again, as the global meltdown continues.
$USD - Weekly Candlesticks: "

via StockCharts.com


9. "We are passing this debt on to our children"

If the Baby Boomer's can't pay their own way, what makes anyone believe that their children are going to pick up the tab. Are we expecting a population boom, followed by another round of industrial and technological booms? If not, then we are using this phrase as an excuse to continue subsidizing a bankrupt generation.

10. "We are in a recovery"

I think the Bulls have said this so many times they actually believe it themselves, but to those who have bought into this rally over the past 18 months, and still holding... to believe otherwise is unacceptable to them. It would mean that the decades of greed is dead, and that they will soon be the next to join the ranks of the unemployed, and their wives may no longer have any reason to put up with them. Most money managers would prefer to jump from their office windows, and many more will before we see a real recovery. Recovery will come when nobody expects it, and when few are looking for it. Recovery will come when most have given up on recovery.

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