How retail investors are connedCoppied from another board, here is aan interesting read though a little wordy.
FundamentalThinker (ID#: 50330) View of the markets... 12/21/00 13:13 2748269
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Here's my opinion fwiw...
The markets are now at a level that has erased the gains earned dating back to March of 1999. The question is, is that justifiable?
1999 was a banner year on Wall St. Brokers, & the houses they work for had record earnings. To be sure, bonuses paid to brokers were ALSO at record levels!
Y2K is turning out to be a complete bust!! Why?? The sentiment on the boob tube (ie the media at CNBC), state that this is likely due to an impending recession.
The DOW Jones industrials reached a high of ~11700 in January/00, and a low of ~9750 in March/00, less than 2 months later. Volatile? To be sure, with a drop
of ~13% from Y2K highs, to the current low of ~10,350. The question is, is that justified? Well, the obvious answer is Yes. Why? Simply because it is so.
It's the WHY, of why this is so, that should concern individual investors. Like never before in history, the financial markets are liquidity driven. This liquidity, to be
sure, has precipitated Greenspan's claims of "irrational exhuberance". Ie: It is individual investor sentiment & the investment capital they have placed in the markets
that has caused record levels of investment & not so coincidentally also created record highs for a great number of stocks. This is proof positive that the trading
ranges of many securities are not written in fair market values of any given security, rather, they are written in some subjectively determined assumption based on
sentiment.
Has the individual investor panicked at the sight of this pull back, and pulled his money at a loss? Highly, unlikely, imo. Why? Because small investors have had the
methodology driven into them that they should adopt a LONG-TERM view. (Which, imo, is the correct perspective to take.) They are smart enough to realize that
pulling your money out in the middle of a cyclical downturn would only cause their remaining invested capital to risk further losses & subsequently, if those
investments are sold, to REALIZE their losses. Once LOST, recouperation is, at best, difficult, at worst, impossible. Coincidentally, talk in the media, has
suggested now, (more than I've ever noticed before), that TAX LOSS SELLING is a "prudent strategy" toward capital preservation. (lol... IT IS NEVER
PRUDENT TO SELL A STOCK FOR LESS THAN FMV, assuming that the stock has a future! Why? Simply because all stocks go up, & all stocks go down.
The intermediate level, between the highs & the lows is usually very close to FMV. Sooner or later, EVERYTHING returns to the normal, intermediate level.)
So, if small, retail investors aren't pulling their money out, & the markets are liquidity driven, WHY are the markets performing so dismally? The answer (imo) is
very easy to perceive. Not all investors have the knowledge, time, energy, or indeed even inclination to police their investment portfolios. Further, the vast majority
don't have enough money to "PLAY" in the markets. The result? A great many, (I would imagine the majority), invest in mutual funds so that they have the
"perceived" added advantage of having a "professional" money manager conduct trades on their behalf. Fund managers, who are remunerated based on capital
invested as opposed to actual earnings, control the vast majority of individuals invested capital.
So, if the individual investor hasn't pulled the capital that has led to the down turn in the markets, assuming that the reason for declining stock prices is simply "more
sellers" than buyers, WHO must be doing the selling??
A quick look at the media gives credibility to the answer. Money managers are sitting on between $15 BILLION - $18 BILLION of YOUR MONEY! Are they
justified, in seeking shettler from any cyclical down turn? Well, if they follow the same creed they drill into retail investors they are NOT. What will be the result of
professional money managers pulling fund money out of the market to "in their theory" shelter the risk? Well, obviously, we are witnessing the results now. The
results are decreased returns in mutual funds, & concurrently individual stocks. Obviously, without capital invested in securities, the only option these managers have
is to buy into gold, bonds, or utilities which usually carry a far lesser return. Can they afford to sit on this money indefinitely? NO! Why?
At some point, individuals notice that fund returns are no better than the risk free rate they can get at the bank. They will pull their money from funds & re-invest in
the banks. Do fund managers want this? NO!! Why? Because they are remunerated based on the aggregate value of capital invested in their fund. Imo, fund
managers are walking a very fine line right now, in the hopes that INDIVIDUALS will dump their equity investments, so that they can re-purchase them at far less
than investors perceived "sentiment" value. THAT IS HOW THEY MAKE MONEY! Buy LOW & sell HIGH!
The decreased returns affect who? The money managers are compensated based on capital invested, & under their control. THEY RISK NOTHING, other than a
bonus check for "high returns" performance. So why do they pull their money now? The answer to this is almost comical, imo. (Further down... )
Has Greenspan collapsed the "irrational exhuberance in the markets" statements he has made in the past? Doubtlessly, imo. Has he stepped up to the plate to
reduce interest rates, now that a recession threatens? No. How come?? Because their is no prolonged recession forecasted. Is he going to risk collapsing the
value of the US dollar & spinning the US economy into deep recession? lol ... I hope not because as the US dollar is now apparently replacing GOLD as THE
standard by which to value all other currencies, WHAT WILL HAPPEN TO THE PRICE OF GOLD?? (Through the ROOF BABY, imo, on ANY threat that is
perceived by Mr Market to mean that the US dollar is not stable, and therefore NOT a good basis to value international currencies!)
Not a hope in hell, imo, that Greenspan is going to allow the US economy to free fall. NOT A HOPE IN REALITY! Or GOLD WILL SPIKE!! If GOLD spikes,
NOTHING, BUT NOTHING, WILL HELP THE INTERNATIONAL DAMAGE CREATED IN WORLD WIDE CURRENCY DEVALUATIONS, as world
wide, Central Banks have been selling off gold reserves, in an effort to meet demand, without ANY increase to the price of gold. When these Central Banks sell off
their reserves, what will be left to support the valuation of their currency? It is no wonder why the US central Bank has avoided selling off ANY of its gold reserves.
IF!!!! the US economy is actually headed for recession, that literally translates a reduction in US GDP. Is THAT likely to occur? Hell, NO!! Why?
The internet HAS AND WILL CONTINUE to bolster economic performance GLOBALLY. Why? Because PEOPLE DEMAND that this growth take place in
an effort to accomodate them. For example, the expansion of broadband technology is forcasted to grow by 3000% of the next 8 - 10 years. 3000% Is
that a number that lends itself to a SLOW DOWN? Hell NO! The burgeoning capital budgets of these companies that are facilitating this expansion do NOT imply
any recession, of any longevity, to have any lasting effect on increased efficiency of capital markets in allocating capital resources to these expanding companies. So,
why do fund managers sell off a company such as Nortel? ... Grin ... Buy LOW!
The internet is STILL fairly new. Generally, people do not yet understand the full effects of what the internet has accomplished. The internet has fostered
international competition like NEVER BEFORE in HISTORY! Who will be the benefactor? CONSUMERS! Why? Because simply, the reduction of brick &
mortar establishment costs will be passed down to consumers. Is that likely to generate a recession in the generally falling price levels? NO. Why? Because the
wealth created by the vast dispersion of unconventional online retailers will help to make up any shortfall in GDP. Some do, however, realize the effects of the
internet. Some are beginning to rue the day it was implemented! (More later...)
Does this mean that inflation looms? Inflation has ALWAYS existed (except during the depression of the 1920's), and it is a good thing, as long as it is kept in check
& under full control. Why? If inflation didn't exist, (and this assumes that absolute stability in pricing is virtually impossible), then necessarily, we would have
recession. Recession, is simply defined as a period of generally falling prices, and concurrent reduction in GDP. AND IT IS BAD. Why? Because of the effect it
has on consumers purchasing habits. When prices are falling, people wait longer & longer to buy the things they WANT, because, generally, if they wait, the price
for any given "WANT" will decrease. The effect is to compound the effects of any recession yielding a spiralling economic downturn which in turn creates less
profits & therefore less disposable income, and therefore less purchasing power & therefore decreased consumption ... etc... So, Is a recession expected? Is a
recession going to cause a collapse of international markets? No, No, NO! Why?
Because people's NEEDS are constant. Poeple will always NEED, food, clothing, shelter, medicine, heat, electricity ... And now, there is a new NEED. That need
is the internet. While some may now perceive this last one not to be a "need", it indeed, will become a basic need. Why? If not for the access to information, if not
for the access to easy communications, if not for compartive shopping, if not for managing their finances, if not for games playing, if not for education, IT WILL BE
NEEDED FOR ALL OF THESE THINGS & MORE ... IT IS THE FUTURE you are looking at here! It will be a NEED! Why is this important? Because the
internet, as a NEED, has FOREVER CHANGED the CONSUMPTION HABITS of people, much the same way as the lightbulb created a NEED for electricity.
THIS NEED HAS & WILL CONTINUE TO CREATE INTERNATIONAL GROWTH UNTIL 100% MARKET SATURATION IS OBTAINED!
So why do the markets appear to be collapsing around us when such astounding growth figures are expected? Why do the markets appear to be collapsing when
their is more money than ever before in history being thrown at equity investments in an effort to return to individuals an amount greater than the meager earnings you
can obtain at your local financials institution?? So, why has Greenspan increased interest rates so substantially in 1999/2000? Is it to stave off inflation? Is it to
implement an econcomic retraction?
Inflation is MATERIALLY, NON EXISTENT ... Any recession is likely to be extremely short lived. So why the monkey games with interest rates?
The answer to that one is simple, imo.
Brokers made a killing last year because of record levels of personal investment in the markets. The same is happening this year. SO why the down turn??
Information, as facilitated by the internet, is making individual investors SMARTER. THEY ARE PROFITING from online investing. The results? More
millionaires than ever before in history are being CREATED! Brokerage houses are being pressured to make smarter trades and become even more manipulative!
Brokerage houses are faced with increasing COMPETITION from INDIVIDUALS! These individuals, becoming smarter & smarter every year to the "games" that
are played in financial markets ARE, IN FACT, taking profits from professional mututal fund managers!! Do they like it??? (Big Grin ... You guess!) Are they
getting ticked off that some of these INDIVIDUALS are making them look like schmucks, by earning returns on their individual portfolios in excess of the BEST
fund managers, with results in excess of 50% per annum?? YOU BET!
You are witnessing the beginning of the END of the convention broker. You are iwtnessing the beginning of the end of the current need for a brokerage house! Are
the houses worried? YOU BET!!
So, what is their remedy?
Pressure the capital markets lower in the face of the reailty that has been the largest & longest expansion in HISTORY! Why?? To test the resolve of those
individuals to "SIT" on losses. Imo, they are betting that indiduals don't have the guts to hold through any semi-prolonged down turn. They hope you dump so that
they can reacquire ... IF YOU DON'T ... The tables will have been turned. As powerful as these brokerage house are, as manipulative as they can be, THEY ARE
NO MATCH FOR INDIVIDUALS' CONSENSUS of opinion, when that opinion is adopted en masse!! They cannot complete with the absolute power of people
acting in unison! That! is why these guys are beginning to rue the day the internet was born.
Here's why imo...
We have a unique situation in history (a situation that will likely NEVER again be repeated!) whereby the intenet has empowered PEOPLE to obtain the same
information that was previously the exclusive domain of brokerage houses. The result?? INDIVIDUALS are becoming smarter & more adept at handling THEIR
OWN investment portfolios. The results?? Well, the old adage "you can fool some of the people some of the time" comes into play. Investors are aware that
regulators do not have the power to police brokerage houses with 100% certainty that "undesirable", and/or "illegal activity" will be caught & stopped before it
becomes a costly affair to the investor. So what happens next?
In the interim, before increased regulation of the industry is proposed & comes into being. (And it is coming imo.) We the people have an opportunity...
As Investors learn the games of the markets, they begin to trade more wisely. The effect is to reduce the profitablity of the PTB! What happens when large
brokerages begin to notice a reduction in their bottom line? Well, THEY FIGHT BACK. Most who invest in these markets are well aware that stock prices can
be arbitrarily & unjustly increased through manipulation of its trading range. THE INDIVIDUAL acts quickly & recognizes a unjustified run up in a stock price &
begins to short the stock. The result? The PTB lose some of their power. The reverse situation is also true. When ANY stock is pressure BELOW its FMV,
there will be some, if not many, who will recognize this fact & invest! Since there is power in numbers, & since the vehicle to facilitate immediate communication
exists, the SMART INVESTORS, will broadcast their suppositions in public in an effort to have those suppositions challenged. Where there are no challenges, you
can be fairly well assured that you may have reached the correct conclusion, (and I SAY, MAY! because LIARS also exist).
The comical part is ... IF you perceptions of reality are correct, YOU WILL PROFIT! If you are profitting while huge amounts of capital are sitting on the sidelines,
when they decide that it's "time to buy", who will be the benefactor? Hint: Buy LOW! Sell HIGH!!
The tables are a turning imo... Remember, what goes up, comes down again. What goes down also comes up!! We've experienced the down. What do you think
is going to happen next? Justify your assumptions! If you cannot refute those assumptions, generally, you will be correct.
Merry Christmas &
Take Care
Fundamental Thinker
PS ... If any of what you've read makes you feel any better about you personal investment situation. If any of this has kept you entertained. Please do me a HUGE
FAVOR & POST IT EVERYWHERE YOU CAN!! Individuals NEED TO KNOW ... Individuals NEED to COMMUNICATE ... Individuals will be
EMPOWERED!