Monday, July 27, 2009
Saturday, July 25, 2009
Here is a chart comparing the Dow Index from 1920-38, and the Nasdaq Index from 1994-present. The resemblence is striking! Assuming this is not due to chance, I attribute the resemblence to never changing human nature, the extraordinary popular delusion and the madness of crowds, the psychology of investors that drives bubbles to inflate and then pop. Over and over again.
Next week I'll roll the clock forward 6 years on the Dow Index to show how that story unfolded, to examine a possible scenario for how today's market may unfold over the next few years.
Saturday, July 18, 2009
Friday, July 17, 2009
How the stock market works
Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each.
The villagers, seeing that there were many monkeys around, went out to the forest and started catching them. The man bought thousands at $10 and as supply started to diminish, the villagers stopped their effort.
He further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.Soon the supply diminished even further and people started going back to their farms.
The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!
The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now buy on behalf of him.
In the absence of the man, the assistant told the villagers; "Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each."
The villagers rounded up with all their savings and bought all the monkeys. Then they never saw the man nor his assistant, only monkeys everywhere!
Now you have a better understanding of how the stock market works.
Sunday, July 12, 2009
Thursday, July 2, 2009
Today, the Labor Department reported that nonfarm payrolls (jobs) decreased by 467,000 in June. The stock market declined sharply on the news. This chart puts that decline into perspective by comparing job losses during the current economic recession (solid red line) to that of the last recession (dashed gold line) and the average recession from 1954-2006 (dashed blue line). As the chart illustrates, the current job market has suffered losses that are nearly three times as much as the average. In fact, if this were an average recession/job loss cycle, the number of jobs would have begun to increase three months ago.