Tuesday, August 17, 2010

Market reactions

I don't know much about the US stock market and I generally don't like to comment on matters that I don't have at least a passing expertise, but I am an observer of things and I am perplexed enough to seek guidance on the following observations of the market's reactions to events:

1. When the dollar was weak , that was bad. But when the dollar got stronger that was bad too.
2. When the price of oil was high, that was bad. But when the price of oil dropped that was bad too.
3. When the EU economy was strong, that was bad. But when the EU got weaker, that was bad too.
4. When China's economy was strong and growing rapidly , that was bad. But when China started to slow it's economic growth, that was bad too.
5. If interest rates rise, that's bad. But if interest rates stay low, that's bad too.
6. The US economy is clearly weak and in trouble, yet the rate of interest on our Treasury bills is extremely low ( which is usually an indicia of economic strength) because we are the strongest and safest country in the world in which to invest.
7. US consumers didn't save enough and that was bad. US consumers now save too much, and that's bad.
8. Banks were justly criticized for making too many loans to less than credit worthy borrowers. Bank are now being criticized for not making enough loans to less than credit worthy borrowers.
9. We want banks to lend more, yet we pass laws and regulations which make it harder and less profitable for banks to lend more.

We all know that the one thing we can agree on is that the jobless rate is too high and that's certainly bad. However, I won't be surprised that once the jobless rate goes down by a significant amount that will be bad too.

Can someone out there enlighten me, please.

It seems to me that the market has a mind of it own and interprets data to fit whatever scenario in its wisdom it wants. Of course the market is not a person, so you may ask how does it have a mind, or wisdom, at all. Not going there, yet.

However, I've noticed that all market analysis takes place after the market does it's daily thing; never before. I guess if I could do it before , I won't have to worry about what the market is going to do and I'd be a very rich man.

Eric

3 comments:

  1. Is one the yin and the other the yang? Are you saying that no matter what happens, it's good and bad? Why do some people get rich doing this and others lose their shirts (pants, socks, and underwear).
    There should be a new system of economics devised that makes sense, and communism is not the answer. When it happens, I'll buy into it and then get rich.

    ReplyDelete
  2. Eric-

    You're right. There's a huge psychological component to market movements, especially in the short-term. The economy typically moves at glacial speed while the markets move at the speed of light. That leaves a lot of room for greed and fear to get in the way. The problem is if the market priced quarterly instead of continuously, a whole bunch of people would be out of work.

    ReplyDelete
  3. I believe it is much simpler than most of these financial pundits make it seem. Not that you can easily make money doing this, because it is not at all clear which vehicle (i.e. particular stock or fund) will be used by investors.
    Right now, without any alternative investment possibilities except commodities, which are not easily used for common consumption, the stock market is the only game in town for most people.
    As long as investible companies show good profits or growth, investors, professional or amateurs are going to put fresh money into the market. It is a byproduct of our hyperlow interest rate environment, and works because many publicly owned companies have become lean and mean and profitable.
    MARC

    ReplyDelete