So how bad are market analysts?

[Wagner]

This morning at 7:30AM they predicted that Wallstreet would see a drop, as other markets did abroad.....so what did the bell close on?


Dow 12,383.39 +176.72
(+1.45%)

Nasdaq 2,349.91 +23.71
(+1.02%)

S&P 1,353.96 +23.35
(+1.75%)



Boy they are smart....to quote Gordon Gecko: "There analysts wouldn't know preferred stock from live stock"

[LeMansX5]

Originally Posted by Wagner

Boy they are smart....to quote Gordon Gecko: "There analysts wouldn't know preferred stock from live stock"

Lot of market manipulation happens by big players.

[motordavid]

From Ben Stein's Sunday col. in the NewYawkTimes; not new or earth shaking, but a good view of how it really works. We "investors", of almost any size and persuasion, portfolio-wise, have the effect on the Mkt equivalent to pissing in the ocean. Seat belts on, for the 2008.

Link is for the entire article, but I know most here are time/attention span pressured ; the abridged version follows.
BR,mD


...Because I usually write about finance, I have come to believe in the theory of what I would call “financial realism,” or what might more accurately be called “trader realism.” Under this theory, on which I have an imaginary patent, traders can see masses of data any minute of any day. They can find data to support hitting the “buy” button or the “sell” button. They don’t act on the basis of what seems to them the real economic situation, but on what’s in it for them.

Just as a tiny example, years ago a close friend, now deceased, was a trader in London for a big financial house. As he told it, one day I.B.M. came out with stellar numbers. The boss of the trading floor said, “O.K., the guy who’s getting the prize is the one who can make us money selling I.B.M. short.”

So the traders grabbed for their phones and started to put out any bad thoughts they could dream up about I.B.M. They called journalists, retailers, anyone. They sold huge amounts of I.B.M. short. Soon, they had I.B.M. on the run, made money on their shorts and went to Langan’s to drink champers.

As I see it, this is what traders do all day long — and especially what they’ve been doing since the subprime mess burst upon the scene. They have seized upon a fairly bad situation: a stunning number of defaults and foreclosures in the subprime arena, although just a small part of the total financial picture of the United States. They have then tried — with the collaboration of their advance guards in the press — to make it seem like a total catastrophe so they could make money on their short sales. They sense an opportunity to trick other traders and poor retail slobs like you and me, and they generate data and rumor to support their positions, and to make money.

MORE than that, they trade to support the way they want the market to go. If they are huge traders like some of the major hedge funds, they can sell massively and move the market downward, then suck in other traders who go short, and create a vacuum of fear that sucks down whatever they are selling.

Note what is happening here: They are not figuring out which way the market will go. They are making the market go the direction they want.

I know this because I know traders. They’ve told me that they love to sell into fear because fear is bottomless — you can make money selling all day, while buying eventually slows because enthusiasm has limits. The amount of money available to large professional traders is so large that they can overwhelm the market, at least for a while, anytime they want. And they like to do it when the market least expects it.

To my humble eyes, this is what we have seen recently on world markets. Note that the losses in United States markets alone are on the order of about $2.5 trillion in recent weeks. How can a loss of roughly $100 billion on subprime — with some recoveries sure to come as property is seized and sold — translate into a stock-market loss 25 times that size? The answer is trader realism.

The losses in the stock market since the highs of October 2007 are about 14 percent. This predicts — very roughly — a fall in corporate profits of roughly 14 percent. Yet there has never been a decline of quite that size for even one year in the postwar United States, and never more than two years of declining profits before they regained their previous peak.

In other words, traders are sending stocks down by a fantastically larger amount than is warranted by a recession or the losses in subprime. How and why does it happen? As someone said in the movie: “Forget it, Jake. It’s Chinatown.” It’s just Chinatown in trader-land, where money is made and there is no perspective.

So when you see the market gyrating wildly downward and hear some pundit saying it’s because of this or that data or this paradigm or that ratio, remember trader realism. The traders move the market any way they want, any way they think they can make money, and then they whisper a reason to journalists later in the day. Then the journalists print it or say it on television, and the amateurs believe it. And the traders snicker.

These traders, not economists or securities analysts, can turn the world upside down, make governments tremble, give central bankers colitis and ruin the lives of ordinary men and women saving for their children’s college education or their own retirement. In America today, it is the traders, not the politicians or the generals or the corporate bosses, who have the power.

This is what has become of the America of Thomas Jefferson. Lucky for the traders. Sad for the rest of us.

And one thing’s for sure: With the traders running things, it won’t be a good time for amateurs until the traders cry “Switch!” and the market starts to rise.


Ben Stein is a lawyer, writer, actor and economist. E-mail: [email protected].

http://www.nytimes.com/2008/01/27/bu...pagewanted=all

[Quicksilver]

Great post MD, Thanks for the education...

[Eric5273]

As with anything, sometimes they are right and sometimes they are wrong. If they were right 100% of the time, they would have their own investment companies and wouldn't be analysts for the media.

[Quicksilver]

I may be wrong but it seems to me that NOT owning their own investment companies would be the best bet. I mean after all, why not make tons of money while you work for someone else and avoid the expense of running a business. Either way they wouldn't be 100% right.

Originally Posted by Eric5273

If they were right 100% of the time, they would have their own investment companies and wouldn't be analysts for the media.

[E61Silver]

So MD and other market experts, do you think the market has reach its low for the year?

[motordavid]

Originally Posted by x54.4blue

So MD and other market experts, do you think the market has reach its low for the year?

Blue, I have absolfookinlutley no idea, nor do I put much faith in any of the pro crystal ballers
one reads in Barron's, WSJ, et al.

They all have an agenda with their "picks & pans" and their guess of what the Dow 30 or
S&P500 or Naz will "be", imo...

Another blip somewhere on the globe, another terror deal, another fart on main street:
the M is so contrived and edgy and glitchy these days, that almost any Lil' bump can make
it dive hard or, climb ever so slightly, for a day or so, backed up with trivial and inane "reasoning".

Fwiw, I'm down to 48% equities and 52% cash, cash equiv., which is the lowest equity ratio I've had
in my investing life...though, that works for me, as I'm 60 and change, not 30 or 40, or...my port is
our money vehicle, besides our paid for real estate, so I watch it carefully and try to make the best decisions.

Fwiw, I'm buying some stuff now, which I think will do well over time, after getting beat down lately.
But, I keep stops in on all my stocks and if a stock gets to a Sell Point, it's gonzo, at least in part.
I like dividend paying stocks for the past several months, I like to fart around in currency mkts,
(with "disposable dough"), and I like under the radar stuff. And, CASH or its close equiv.,
is king these days, imo.

If I knew where the M would be at any given time, even +/- 5%, I would be selling the info to the
ever faithful, foolish, yearning lemmings, that constitute the majority of "investors", imo .
My 2Cts...
BR,mD

[Wagner]

Originally Posted by motordavid

Blue, I have absolfookinlutley no idea, nor do I put much faith in any of the pro crystal ballers
one reads in Barron's, WSJ, et al.

They all have an agenda with their "picks & pans" and their guess of what the Dow 30 or
S&P500 or Naz will "be", imo...

Another blip somewhere on the globe, another terror deal, another fart on main street:
the M is so contrived and edgy and glitchy these days, that almost any Lil' bump can make
it dive hard or, climb ever so slightly, for a day or so, backed up with trivial and inane "reasoning".

Fwiw, I'm down to 48% equities and 52% cash, cash equiv., which is the lowest equity ratio I've had
in my investing life...though, that works for me, as I'm 60 and change, not 30 or 40, or...my port is
our money vehicle, besides our paid for real estate, so I watch it carefully and try to make the best decisions.

Fwiw, I'm buying some stuff now, which I think will do well over time, after getting beat down lately.
But, I keep stops in on all my stocks and if a stock gets to a Sell Point, it's gonzo, at least in part.
I like dividend paying stocks for the past several months, I like to fart around in currency mkts,
(with "disposable dough"), and I like under the radar stuff. And, CASH or its close equiv.,
is king these days, imo.

If I knew where the M would be at any given time, even +/- 5%, I would be selling the info to the
ever faithful, foolish, yearning lemmings, that constitute the majority of "investors", imo .
My 2Cts...
BR,mD

I'd be first in line to buy

[motordavid]

Thanks, BigR...but then I'd be just another
"Picker/Prognosticater" pumping his jive on the Street, lol!
BR,mD

PS: Diversification, Index Funds, and Time are all on most
of this Board's readers' sides.