Tuesday, August 9, 2011

MOB MENTALITY MARKETS: THE VOLATILE MARKETS SWING IN UNISON

HERE ARE THREE GRAPHS OF TODAY'S TRADING AT 3 BIG MARKET INDICES IN THE USA.



THESE INDICES CONTAIN MANY MANY MANY DIFFERENT STOCKS, BUT TRADED AS IF ALL 3 INDICES WERE ONE STOCK ALL MOVING UP-AND-DOWN IN UNISON.







STOCK INVESTORS AREN'T MICRO-TRADING STOCK AND AREN'T BUYING SHARES IN COMPANIES.



STOCK INVESTORS ARE MACRO-TRADING MARKETS AND CURRENCIES AND ECONOMIES.




THIS IS ONE REASON WHY THE MARKETS FOR THE LAST SEVERAL YEARS HAVE BEEN MUCH MORE VOLATILE THEN IN PREVIOUS DECADES.



(75% OF THE BIGGEST ONE-DAY LOSSES AND ONE-DAY GAINS HAVE BEEN SINCE 2008, AND 90% OF THEM HAVE BEEN SINCE 9/11/01.)



YES: PROGRAM TRADING AND COMPUTER TRADING MAKES TRADING MORE STOCKS MORE RAPID, AND THIS ALSO HAS AN EFFECT ON VOLATILITY.



BUT THOSE PROGRAMS ARE WRITTEN BY HUMANS WITH TRADING BIASES (AKA STRATEGY), AND IN MY OPINION IT IS THIS STRATEGY WHICH UNDERLIES THE RECENT VOLATILITY.



I THINK MOST INVESTORS - ESPECIALLY THE PROFESSIONALS - TRADE STOCKS BASED ON MACRO-ECONOMIC MOVES AND NOT UNDERLYING VALUE OF THE SPECIFIC STOCK. (BUFFETT IS AN EXCEPTION.)



AND THESE PROFESSIONALS CONTROL THE MARKET DYNAMICS.



TODAY, INVESTORS BOUGHT AT HIGHER PRICES AT THE OPENING, THEN WHEN BERNANKE SPOKE THEY DUMPED STOCK, AND THEN THEY REGROUPED AND PAID HIGHER PRICES.



THE MARKET SWING WAS ABOUT DOWN 100, THEN 250 UP, THEN 300 DOWN (A SWING OF 550) AND THEN A SWING UP OF 600!



TO MOST PEOPLE THESE SWINGS ARE INSANE.



AND THEY MAKE THE REGULAR GALS 'N GUYS SCARED OF THE MARKETS AND LOATHE TO PUT A SINGLE PENNY IN.



ON TOP OF THIS INSANITY, THE DOLLAR PLUNGED AGAINST THE SWISS FRANC AND GOLD WENT UP.



SO...



WHAT MIGHT BE REALLY HAPPENING?



SIMPLE: BIGTIME INVESTORS SOLD A PERCENTAGE THEIR FOREIGN CURRENCY HOLDINGS AND BOUGHT CHEAPER DOLLARS AND THEN USED THESE CHEAPER DOLLARS TO BUY CHEAP US STOCKS.



THEY GOT A DOUBLE DISCOUNT NOW AND WHEN THE DOLLAR AND THE STOCK MARKETS GO UP LET'S SAY 5% (WHICH COULD HAPPEN IN A SINGLE DAY) THEY WILL DUMP THEM BOTH.



AND BOTH WILL AGAIN TUMBLE.



THESE BIG-TIMERS WILL MAKE MONEY BOTH WAYS.



ONLY ONE THING:



THEY ARE STEADILY KILLING THE MARKETS THEMSELVES BY DRIVING THE LITTLE INVESTOR AWAY.



THE LITTLE INVESTOR WILL TAKE HIS 401K AND HIS IRA AND HIS MUTUAL FUND MONEY AND MOVE IT OUT OF EQUITIES AND INTO ANYTHING THAT SEEMS SAFER AND SUBJECT TO SLOW RELIABLE GROWTH.



AND THIS WILL MAKE IT HARDER FOR CORPORATIONS TO FINANCE GROWTH - WHICH WE ALL NEED.



WHAT CAN BE DONE?



DUNNO, BUT I THINK THE MARKETS WILL HAVE TO FIND A WAY TO MAKE THEMSELVES LESS VOLATILE.

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