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Monday, October 6, 2008

DIPUTS

My peeps are calling and asking where the market bottom is going to be. Do you think I have DIPUTS tatooed on my forehead? That is STUPID spelled backwards so you can see what you are when you look in the mirror by having the temerity to try and time market bottoms. Some things are going on now with peoples' asset allocation choices that make me want to weep even harder than when I think of my own human condition. More later.

4 comments:

derek pszenny said...

To all those who think they can time the stock market good luck. In the year there are approximately 250 trading days and 10 of the days account for over 90% of the stock market return in any given year. If anybody can tell me when those 10 days will be we can move to the tropics together tomorrow and start enjoying umbrella drinks by the sea. For those that can’t predict the 10 big days stop wasting your time trying because it is a fools game. Take your money to Vegas and spend it on the roulette table it will be more fun. Additionally, anybody taking their investment advice from Jim Cramer should contact Dr Parker to find out who his long shot bet is on the next triple crown winner and place your bets!

ArmChairEconomist said...

This is true.

And regarding Jim Cramer - If I'm not mistaken it was only a few weeks ago when Cramer was heavily praising Wachovia and talking highly of their CEO, Bob Steele, as he was the day's guest on Mad Money. And we all know how Wachovia has turned out.

ArmChairEconomist said...

Here is a link regarding the great Jim Cramer ignoring one of the first rules in trading - leave your emotions at the door:

http://www.huffingtonpost.com/2008/09/30/jim-cramer-admits-i-screw_n_130602.html

derek pszenny said...

There are many reasons for the stock markets to be down right now and far too many to list here. However, one reason we have not heard much about relates to the stock market is our only forward looking economic indicator. All other economic indicators (that I can think of) look at past data. The stock market, on the other hand, attempts to predict the future cash flows of companies and discount those cash flows to the present value. This is called discounted cash flow valuation.
Perhaps the markets are discounting extra in anticipation of an Obama victory. Let me explain! Obama has promised to raise taxes on the wealthy by increasing taxes paid on dividends and capital gains, among other increases. This promise has made owning dividend paying stocks less desirable. The promise to raise taxes on capital gains may be causing investors to realize gains now (if they have any left) and instead of reinvesting in such troubled times they are just hoarding cash and trying to preserve capital.
I have been speaking to my clients for many months now about this issue and its potential for causing a stock market correction of historic proportion. I will not state that this is the cause for the current correction but it certainly contributes to the mess.
Obama should state that he will put off his tax hike, at least, until we get through this very difficult time. Many Americans that have 401ks and particularly those baby boomers that do not have time on their side do not need the additional downward pressure on the equity markets.