CRMH Eagle
Well-known member
I decided to write this after reading the posts on the market in the topic "How are those employed doing in this economy?"
https://www.fjrforum.com/forum//index.php?showtopic=114746
Let me preface this by saying I have studied the book stuff in college and out of college due to my profession. Also I daytraded full time for almost two years back in the late 90's when daytrading came into its noteriety. I am NOT an expert on the economy or the market or daytrading. However I've learned a few things that may help some here on this forum.
While daytrading I learned how things really work in the stock, options, and futures market. It's very ugly, unfairness is common, and illegal actions are part of it. Back in 1998 a fund manager was going to testify about illegal actions in certain penny stocks. The day before he was to testify he was found in his apartment with a bullet in his head and no gun in the vicinity.
When a professor or economist speaks who has no experience in the market or the business world then take what's being said with a grain of salt. Their view comes from academia which doesn't always translate to the real world. If you want real-time status on the economy and the market then listen to the people who have a successful track record and that track record has been in the market and/or business. Someone who qualifies would be Jim Cramer on Mad Money. He has both the elite educational background and a sucessful track record in the market. Some of the people on CNBC's show "Fast Money" are very successful traders and fund managers. These are the types of people YOU SHOULD BE LISTENING TO.
Who are those who you should take their viewpoint with skepticism? Journalist w/out the above credentials, the economics teacher at your local college, those speaking on behalf of the administration, those speaking on behalf of investment funds, etc. (Caveat: journalist without the "credentials" but really really know what's going on can be trusted, ie Maria Bartiromo.)
Here are facts you need to understand:
* The housing market was stated as overvalued since the early 1990's. The housing bust shouldn't be a surprise. When the Nasdaq and the technology sector crashed in 2000-01 it wasn't a surprise to traders or fund managers. We all knew it was going to happen. At that time we all knew the last thing to be brought back to reality was the housing sector. Just a matter of time. The pressure from gov't administrators to push mortgage approval for those who didn't qualify only increased the bubble.
* Markets are always brought back to "street" value. Doesn't matter if it is gold, housing, stocks, your car, orange futures, etc. If the value is out of whack then usually there is a huge swing in the other direction, past the street value, and continuing on. Just like a pendulum, it's gotta swing all the way to the other side before coming back to equilibrium.
* As a whole, the market is governed by two factors: greed, & fear. This is wisdom that is quickly learned by traders and fund managers. What about earnings, sector growth, great balance sheets, etc? Yeah, what about it? There are plenty of stocks NOW that have great balance sheets, earnings, etc, but the price has taken a beating. Why? Citigroup's news this week of decent earnings pushed the market up. Why? If you run your technical analysis you will see the Dow was overvalued over a year ago but people kept buying. What's the answer?
--> when people are greedy they buy, when they get fearful they sell.
* Consumer spending accounts for over half of our GDP. When this stops so does manufacturing, service companies, etc. And when companies don't get the orders they lay off people. Then people can't spend. Layoffs and decreasing output makes people fearful. When people are fearful they don't spend their money. What makes them buy? When there is a need or confidence. So this is a cycle that needs to remedied before our economy recovers.
* Many stocks can be controlled by large investment/hedge funds. Many times news is released or withheld for the large holders, NOT YOU. I've seen Merril Lynch recommend Cisco to their customers 2 weeks before it lost half it's value. I've seen analyists at Goldman Sachs put out unsubstantiated press releases on stocks just to protect their holding. I've watched our international trading club push a $7 stuck up to $30 in two trading days just so we could make a killing.
* The market with all of it's complexities should be viewed with simplicity: when there are more buyers than sellers (greed) the price goes up. When there more sellers than buyers (fear) the price goes down. Right now most of the money that was invested in the market a year ago is now in CASH. But there are still more people who haven't sold their positions and will do so in the next month as they realize they can't take any more pain. How do we know this? Because there are still more sellers than buyers.
* When the stock market rallies it should rally fast. Usually when the market moves in the other direction and past the equilibrium point, then the return back towards equilibrium is just as strong as the initial move. This is why the smart money is in cash. Is smart money trying to predict the bottom? No. Should you attempt to predict the bottom? Definitely not. Never go against smart money. Smart money is looking for confidence to return substantiated by reliable market and economical indicators. Confidence will breed greed. Greed will move the market it back up. Be patient and listen to the guys (as mentioned above) who know what they talking about. It's better to be patient and miss the first part of a true rally than jump in at the beginning of a fake rally that goes up and then quickly retreats and goes lower.
* There is a consensus among noted and successful traders and that is there is a pyschology to forces behind the market. The market doesn't run on it's own but by people like you and me. Because we are human then emotions are a huge part. Thus human greed and fear should be understood. If you were in a movie theatre and someone shouted "Fire!" then most people would quickly run out without substantiating the evidence. If you were in a store and someone shouted "everything on this shelf only a buck!!!" Of course you would go inquire.
Does greed and fear govern the actions of the big guys on wall street? Of Course!!!
So be smart. Spend only when necessary. Review your retirement accounts with a trusted advisor. If you are in the market or will be then put a tight hold on your greed and fear. Same applies to buying a house, car, or whatever. Don't let the realtor entice you that the fixer-upper in the bad part of town is going to triple your investment. Don't let that shiny new thing in the dept store window entice your greed to buy it. And lastly don't let fear get the best of you and sell everything and move up in Montana in the mountains and live like a hermit.
This economy will recover. The stock market will recover. When? Only God knows. There is some very good advice available, for free, if you are willing to learn and challenge everything you hear.
Traders have a saying that if a dumb sap is willing to put his/her money into the market then they are very willing to take it from them.
Here's a proverb for thought: "A wise man will test but a fool always rushes in."
https://www.fjrforum.com/forum//index.php?showtopic=114746
Let me preface this by saying I have studied the book stuff in college and out of college due to my profession. Also I daytraded full time for almost two years back in the late 90's when daytrading came into its noteriety. I am NOT an expert on the economy or the market or daytrading. However I've learned a few things that may help some here on this forum.
While daytrading I learned how things really work in the stock, options, and futures market. It's very ugly, unfairness is common, and illegal actions are part of it. Back in 1998 a fund manager was going to testify about illegal actions in certain penny stocks. The day before he was to testify he was found in his apartment with a bullet in his head and no gun in the vicinity.
When a professor or economist speaks who has no experience in the market or the business world then take what's being said with a grain of salt. Their view comes from academia which doesn't always translate to the real world. If you want real-time status on the economy and the market then listen to the people who have a successful track record and that track record has been in the market and/or business. Someone who qualifies would be Jim Cramer on Mad Money. He has both the elite educational background and a sucessful track record in the market. Some of the people on CNBC's show "Fast Money" are very successful traders and fund managers. These are the types of people YOU SHOULD BE LISTENING TO.
Who are those who you should take their viewpoint with skepticism? Journalist w/out the above credentials, the economics teacher at your local college, those speaking on behalf of the administration, those speaking on behalf of investment funds, etc. (Caveat: journalist without the "credentials" but really really know what's going on can be trusted, ie Maria Bartiromo.)
Here are facts you need to understand:
* The housing market was stated as overvalued since the early 1990's. The housing bust shouldn't be a surprise. When the Nasdaq and the technology sector crashed in 2000-01 it wasn't a surprise to traders or fund managers. We all knew it was going to happen. At that time we all knew the last thing to be brought back to reality was the housing sector. Just a matter of time. The pressure from gov't administrators to push mortgage approval for those who didn't qualify only increased the bubble.
* Markets are always brought back to "street" value. Doesn't matter if it is gold, housing, stocks, your car, orange futures, etc. If the value is out of whack then usually there is a huge swing in the other direction, past the street value, and continuing on. Just like a pendulum, it's gotta swing all the way to the other side before coming back to equilibrium.
* As a whole, the market is governed by two factors: greed, & fear. This is wisdom that is quickly learned by traders and fund managers. What about earnings, sector growth, great balance sheets, etc? Yeah, what about it? There are plenty of stocks NOW that have great balance sheets, earnings, etc, but the price has taken a beating. Why? Citigroup's news this week of decent earnings pushed the market up. Why? If you run your technical analysis you will see the Dow was overvalued over a year ago but people kept buying. What's the answer?
--> when people are greedy they buy, when they get fearful they sell.
* Consumer spending accounts for over half of our GDP. When this stops so does manufacturing, service companies, etc. And when companies don't get the orders they lay off people. Then people can't spend. Layoffs and decreasing output makes people fearful. When people are fearful they don't spend their money. What makes them buy? When there is a need or confidence. So this is a cycle that needs to remedied before our economy recovers.
* Many stocks can be controlled by large investment/hedge funds. Many times news is released or withheld for the large holders, NOT YOU. I've seen Merril Lynch recommend Cisco to their customers 2 weeks before it lost half it's value. I've seen analyists at Goldman Sachs put out unsubstantiated press releases on stocks just to protect their holding. I've watched our international trading club push a $7 stuck up to $30 in two trading days just so we could make a killing.
* The market with all of it's complexities should be viewed with simplicity: when there are more buyers than sellers (greed) the price goes up. When there more sellers than buyers (fear) the price goes down. Right now most of the money that was invested in the market a year ago is now in CASH. But there are still more people who haven't sold their positions and will do so in the next month as they realize they can't take any more pain. How do we know this? Because there are still more sellers than buyers.
* When the stock market rallies it should rally fast. Usually when the market moves in the other direction and past the equilibrium point, then the return back towards equilibrium is just as strong as the initial move. This is why the smart money is in cash. Is smart money trying to predict the bottom? No. Should you attempt to predict the bottom? Definitely not. Never go against smart money. Smart money is looking for confidence to return substantiated by reliable market and economical indicators. Confidence will breed greed. Greed will move the market it back up. Be patient and listen to the guys (as mentioned above) who know what they talking about. It's better to be patient and miss the first part of a true rally than jump in at the beginning of a fake rally that goes up and then quickly retreats and goes lower.
* There is a consensus among noted and successful traders and that is there is a pyschology to forces behind the market. The market doesn't run on it's own but by people like you and me. Because we are human then emotions are a huge part. Thus human greed and fear should be understood. If you were in a movie theatre and someone shouted "Fire!" then most people would quickly run out without substantiating the evidence. If you were in a store and someone shouted "everything on this shelf only a buck!!!" Of course you would go inquire.
Does greed and fear govern the actions of the big guys on wall street? Of Course!!!
So be smart. Spend only when necessary. Review your retirement accounts with a trusted advisor. If you are in the market or will be then put a tight hold on your greed and fear. Same applies to buying a house, car, or whatever. Don't let the realtor entice you that the fixer-upper in the bad part of town is going to triple your investment. Don't let that shiny new thing in the dept store window entice your greed to buy it. And lastly don't let fear get the best of you and sell everything and move up in Montana in the mountains and live like a hermit.
This economy will recover. The stock market will recover. When? Only God knows. There is some very good advice available, for free, if you are willing to learn and challenge everything you hear.
Traders have a saying that if a dumb sap is willing to put his/her money into the market then they are very willing to take it from them.
Here's a proverb for thought: "A wise man will test but a fool always rushes in."
