Place your bets: Stock market bottom (Thread from 2009)

[AVGWarhawk]

Did he say something today? I do not know. I was at the Annapolis Naval Academy. It was quiet there also.

[UnderseaLcpl]

Heh...heh...heh...

No elation from me with the latest stock surge. Wise investors are simply fleeing the still-weakening dollar, and a GDP contraction that is now exceeding forecasts, by taking high-risk investments and hoping to win the inflation race.
They'll run for a while yet, but eventually they will have to latch on to what seems to be the most buoyant currency.

If we're lucky, we might see a decent "fool's rally" before the stimulus (and attendant monopoly money) kicks in and shoots the market and the currency to hell.

[Onkel Neal]

Say what?? I didn't understand any of that....

[bookworm_020]

Some positive news from Australia! Unemployment is down!!

http://business.smh.com.au/business/...0507-avyz.html

[August]

Originally Posted by Neal Stevens

Say what?? I didn't understand any of that....

I think it means we're screwed.

[Onkel Neal]

hmmm...ok, I can see that now.

[UnderseaLcpl]

Originally Posted by Neal Stevens

Say what?? I didn't understand any of that....

Sorry for not being clear enough. I'll provide my opinion in case you are interested, but it is kind of verbose, because I'm going to start with the basics. I'm sure you're familiar with them but others might not be.

The Dow has jumped almost 2000 points in just a couple months, with multiple false-starts and reversals, indicating heavy trading activity and investment. Normally, that is a good thing. Well, heavy trading activity isn't always such a good thing because it indicates market instability but it cannot be denied that investors are buying into the market, for some reason.

The worrisome thing is that the GDP has continued to contract, even exceeding forecasted contraction, and unemployment has risen. Normally, you would think that investors would shy away from the market in such circumstances, and most are. Historically, that is what they do.
Also, the exchange rate of the U.S. dollar has continued to decline more rapidly than many other currencies.
So why would investors be buying? And why is the trading so erratic?
Quite simply, many of the major investors can see what's coming and are trying to make hay while the sun shines.

Here's how it works. The value of the U.S. dollar is based upon the strength of the GDP, more or less. Each dollar is basically worth its' proportionate value in terms of quantity of dollars to Gross Domestic Product, sort of. GDP isn't the best measure because of how it is calculated, some economists prefer to use Purchasing Power Parity, which is calculated differently but means the same thing as GDP/dollars. Neither is perfect, but both are relatively good approximations.
Anyways, that's a function of supply and demand. If production of dollars outpaces economic value, they become worth less, and vice-versa. Inflation and deflation, in short.
The other major factor is the ratio of U.S. money supply/economy to foreign money supply/economy, or more precisely, the rate at which these values change relative to each other. If I gave you one dollar for 100 yen, and the next day one dollar was worth only 50 yen, I would have made a wise trade, because I got twice as much yen for my money, and each yen is also more valuable now.

Currency traders, and other investors, take all this into account. After all, it does one no good to make $100 from a $50 investment in the stock market if the dollars you spent to make the investment are only worth a quarter next week. You'd have more dollars, but you'd have less money, or purchasing parity.

Right now, the USD is weakening because the GDP (upon which its' value is based) is getting smaller, whereas the number of dollars is still increasing. Dollars are becoming worth less, and there is no real prospect for recovery in the immediate future. That weakness is exacerbated by the fact that other nations and their investors know that, and so place less value on dollars.

Wise (read professional, mostly) investors, are placed in a quandry by this situation. The U.S. dollar is in a bad way right now because the gap between money supply and GDP is widening. The Dems have spiced up the situation by throwing another trillion dollars into the mix, some printed, some borrowed. Both contribute to inflation of the currency. Even worse, they are expanding the size of the government by a third (future borrowing printing to finance that), and their economic recovery measures are so worthless that they no longer even fall under the principle of Keynesian economics, which also sucks.

These investors are just waiting to see which economy and currency experience a resurgence first. Until then, they are just treading water by investing in anything that looks like it might become more valuable in the short term, in order to accumulate soon-to-be-less-valuable dollars, which they can then dump on people who think the U.S. economy will recover because Barack has a fireside chat or something, the profits from which they will use to buy into the economy they see as having the most potential for resurgence.

I used the term "fool's rally" in my last post. That is what I am talking about here. Dedicated investors base their investments upon macroeconomic trends, but they occasionally buy heavily to increase the price of a stock and encourage further purchase of the same, driving the price up. Then they sell it before people realize that there is no market for that company's products/services and it posts a quarterly loss.

Investors are also pulling out of low-risk, low-yield investments because they do not expect the yield form those investments to appreciate faster than inflation depreciates their money. They are refocusing that capital into high-risk ventures while they can, in hopes of making a net gain in the fashion described above.

Does that make more sense?

[Onkel Neal]

Yep, sure does, thanks.

[geetrue]

Here's advice for the average investor, but I still wonder where the big boys put their money when the table is cold:

http://moneyover55.about.com/od/howtoinvest/a/averageinvestor.htm

Study after study shows when the stock market goes up, people pour money into equity mutual funds, and when the market goes down, they pull money out. During bear markets, they pull even more money out. They continuously buy high and sell low. They chase trends, focused on what is happening right now. This irrational behavior causes their market returns to be substantially less than historical stock market returns.

What would cause investors to exhibit such poor judgment? After all, at a 12% return, their money would double every six years. Rather than chasing performance, an investor could simply have bought a single index fund, and earned significantly higher returns.

The problem is the human reaction, to good news or to bad news, is to overreact. This emotional reaction causes illogical investment decisions. This tendency to overreact can become even greater during times of personal uncertainty; near retirement, for example.

4 Truths To Follow To Increase Your Market Returns



When it comes to your investments, if you feel your emotions are getting the best of you, come back to the following truths:

1. Do nothing. A conscious and thoughtful decision to do nothing is still a form of action.
2. Your money is like soap. To quote Gene Fama Jr., a famed economist, “Your money is like soap. The more you handle it, the less you’ll have.”
3. Never sell equities in a down market. If your funds are allocated correctly, you should never have a need to sell equities during a down market cycle. This holds true even if you are taking income. Just as you wouldn’t run out and put a for sale sign on your home when the housing market turns south, don’t be rash to sell equities when the stock market goes through a bear cycle. Wait it out.
4. Science works. It’s been academically proven that a disciplined approach to investing delivers higher market returns. Yeah, it’s boring; but it works.

Start following these truths now and become one of the few investors earning above average market returns.

[NEON DEON]

Invest in shotguns and canned goods

Dont forget to get a nice little bunker in Montana too.

[Onkel Neal]

So, looking back,

The DJIA hit a market low of 6,443.27 on March 6, 2009

And today, 16,267.

So, the poll choice 6300 was the closest.

Yes, this is an old thread, don't get the shakes. I find it interesting to look back and compare what we were saying about a current topic.

[GoldenRivet]

Happened not long after i opened a flight school - which relies pretty heavily on people parting with thousands of dollars in order to learn to fly - at a time when so few people were parting with anything of value.

The good part of the market crash is that it forced me to completely re-evaluate my career options, and landed me right in the middle of the highest paying job i've had yet, one in which i am frequently able to help people.

The bad part of the market crash is that i have been so busy with other things that gone from about 900 hours a year flying to about 30.

fun to look back


sometimes

[STEED]

Stock markets are rigged!

[Wolferz]

Originally Posted by STEED

Stock markets are rigged!

Ain't that the truth!
Recent revelations by a Royal Bank of Canada employee who deeply researched the phenomena of predatory stock brokers and their marriage to the big Wall Street banks and stock exchanges. He proved that the house always wins. Usually by nanoseconds. It's a technocratic screw job and whoever is closest to the servers gets the brass ring and all the money. I just read an article about it the other day and last night Jon Stewart had a guest author who has just published a book about it.
It's all legalized greed plain and simple. Insider trading is illegal unless it's done by a computer or our elected representatives. WTF?

[Mr Quatro]

Originally Posted by Neal Stevens

Yeah, the top value has already been renedered moot by today's collapse.

I'm just waiting to see where Skybird applies his predictive powers

Skybird never did check in must of been an overcast day in Germany