08-09-2011 – Stock Market: Confusion Reigns On The High Ground
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We found the UP elevator!! And this despite an equivocal Federal Reserve announcement; manufacturing and productivity down; unemployment still up with more folks opting out of the workforce; crazy Tea Partiers still in charge, promising more and worse cuts; etc.
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| See how it looked yesterday . . . |
BUT, with interest rates near zero and the rates on long term debt of nearly all kinds, where is there to invest one’s money. In high risk and, thereby, high yield Spanish or Italian debt? In .005% savings accounts? How about expanding your business? Even more telling, how about starting a new business? There are other places to invest, but the spectrum of possibilities is less than dazzling, although gold remains so . . .
Many don’t want to risk a single dollar. They’re hoarding cash, from the average Joe and Josepha to major corporations. Mutual funds and exchange-traded funds are in business solely to be almost always fully invested, and those entities with trillions to invest are likely the main drivers in this market. These investors will not, and cannot, sit on cash (i.e. T-Bills, old-fashioned money, etc.). Small percentage changes in market participants, and thus market psychology and tactics, can cause unpredictable results – have a look at the recent volatility statistics for the stock market. This signals a hot, emotional, quick draw, quick shoot market. How long can that prosper?
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| Source: CBOE –> accessed August 9, 2011. |
In any event . many investors outside this mega-sized group have gone to gold, and have clearly done well, especially in the last 18 months. But aside from this well-known volatile investment, with less opportunities for investments with a payoff, there’s little choice other than the stock market. The market can be driven higher by sentiment alone. So, despite my downbeat expectations for the economy, I wouldn’t be surprised to see periodic bombastic rallies like today’s, driven by the (usually detested) short sellers covering their positions, bargain hunting (or so they think), institutions, ETF’s, and true believers who think all things rise. Moreover, those funds and day traders seeking quick capital gains will be attracted to the one place where they can invest in Apple one day, and sell it short the next . . . and often gain by the volatility this causes.
It’s reminiscent – but not analogous – of those days when a few big players – Mellon, Morgan, and other so-called robber barons – bought shares in a particular company to drive its price up, and thereby draw in the optimistic little guys. Then, with the price driven higher, sometimes in a matter of a week or less, they’ do the capitalist thing – like a shark on a wounded grouper, they attacked: selling quickly, feasting on a nifty gain, with the little guys left to drown in their losses in panic selling.
This time, though, I don’t think it’s a “conspiracy” of minds (although there is some of that), but an unconscious “conspiracy” caused by a modern system where trades in huge trading blocks rush the market at the speed of light, and then cause, through programmed price points in other systems, a cascade of selling (or buying, perhaps like today). These amoral systems are taking away the investor’s control, and the logic of these machines’ “personae” is to go, go, go . . . And are they leaving us behind?
Someone said, “All theories go to the end of their logic.” What is the end of the markets’ logic nowadays when it – and gold – are perceived by many as the only opportunities for gain? And then there’s the unemployment rate, the underemployment rate, the loss of union-driven wage stability, the coming biggest tranche of local, state, federal layoffs and furloughs, and the return – not today, not tomorrow, but soon, and for the rest of your life – of the Tea Party Congress. Oh, the humanity!
