Stock Markets Falling – Why Now?

[powayseller]

Why is everyone blaming fears of inflation for the falling stock market?

This CNNMoney story does it too.

I don’t buy it. Inflation has been raging for years.

Even if inflation fears were the reason that markets are down, shouldn’t they be up today? After all, rising oil prices were given as the reason for inflation fears up until today. With oil futures are lower today, the stock market should by rallying.

There’s something else going on, and I wish the guys at CNN would just admit they have no clue what’s going on.

Does this have to do with the unwinding of the Japanese carry trade, and the BOJ raising interest rates? Are people having to sell their stock positions to cover their cash loans?

Something else must be going on.

I also wonder how reporters at CNN or anywhere else would have any answer on why markets are behaving in a certain way.

Everytime you hear a story that gives you the reason that gold is up or down, that stocks are up or down, you should seriously question it. These reporters have no more of an idea why stocks are down today than the weatherpeople know why that earthquake hit last week.

I would love to hear some comments on this.

[davelj]

I’ll venture a guess (operative word, “guess”).

The “market,” which I’ll define as the Nasdaq and the S&P, has been trading above its long-term trend line for over a decade. The First Bubble popped in 2000 primarily as a result of rising interest rates and plain exhaustion (and then earnings fell after the internuts started going bk and 9/11).

Now we’re in the Bounce Bubble, where margins and valuations are lower, but both are still well above trend lines. Fair value on the Nasdaq is probably around 1200-1400 and on the S&P is probably around 750-800, again adusting for normalized profit margins and valuations relative to inflation.

As Jeremy Grantham has pointed out, we never actually got below the trend lines when the First Bubble burst before the Bounce Bubble took hold. Which is the first major bubble of the post-war period not to do so. So, we’ve had unfinished business on the downside building up for some time now.

My guess is that rising interest rates are finally spooking people into realizing that there’s a slowdown coming in the not-too-distant future and that this will impact margins and earnings. Also, I think there’s just some plain old exhaustion going on. This insanity has been going on for so long that it was bound to end at some point, the only issue was exactly when. Maybe it’s in the process of finally unwinding… but maybe not. Again, it’s just a guess.

[Carlsbadliving]

I get tired of hearing all the lame reasons for the market doing this or that. You can pretty much guarantee that today they’ll say either “fears of inflation spooked investors” or “nervous about further rate hikes”. The media doesn’t have a clue. Their blindness to the realities of the market are extremely annoying. You never know what the market is going to do as a whole on a daily basis. And for them to summarize each days activities with stupid remarks is just dumb.

In today’s global market, there are so many separate effects on the market at any given time. There’s never one single reason that can explain why the market took a dive on one particular day.

[powayseller]

Thanks for your comments. I seriously believed, until today, the media reports with the reasons given for the market moves. It dawned on me these are the same people saying housing prices cannot go down. They are basically clueless.

Does anyone know what causes the markets to move? As you said, the global market has so many influences. How can one discern them all into one nice summary?

I bet the end of the Japanese carry trade is causing some of this. We’ve got $300 billion removed from the global markets in 3 months of 2006: March – June 30. Isn’t that enough money to move markets?

[Carlsbadliving]

You have to remember that each day millions of people/investors will make decisions that when put together will shape the “market”. Obviously millions of people will have various different reasons/inclinations for their financial moves. For someone to then sit back at the end of the day and think they know why millions of different decisions were made, is ridiculous. Now, sometimes there are major factors/events that can happen and cause things to move in a particular direction but the majority of the time, especially on a day to day basis, the market is subject to immense variations in strategy or approach. Then when all of those are added up, you have your “market”.

[john67elco]

We killed one terrorist and Dow went up. Nice to see such a stable market that one loser dead can increase it.

“You say housing market will keep rising? Then your stupid for not buying as many homes as you can right now!!!!!!!!!”

[Lickitysplit]

PS – You hit the nail on the head. If the media can’t accurately view, research, or report the very ground under their feet (aka RE), why in the world would we assume that their acumen is better in other reported areas? I use to date a girl who teaches university-level communication classes. Not communications, aka telecom, but communication, i.e. journalism, public relations, etc. As she did her schooling she was disgusted with what she learned about journalism. The vast, vast majority of the news comes from press releases, made by PR people from the company, special interest group, government agency, political party, etc that have a vested interest in the perception of the situation. It is then regurgitated to you in your medium of choice, often with little to no work on the part of the journalist. True, honest, impartial investigative journalism is far from the norm. Fact-check anything and everything… you can assume the journalist didn’t.

[davelj]

I’ll know that we’re close to the bottom when Jim Cramer and Larry Kudlow no longer have shows and CNBC has such little viewership that it’s in danger of being sold or merged with another news-oriented channel. There should be a label at the bottom of the screen for CNBC (Bartiromo, Jim Cramer, Larry Kudlow, etc.): “These remarks are likely to be dangerous to your financial health.”

[LookoutBelow]

Markets dont move by fundamentals or economic dynamics, they move by emotions, mass emotions. Industrial pshycology. Your odds are better in Las Vegas roulette wheel betting on colors, at least there its almost 50/50, no upper math, no crazy charts, no data to pour over, free drinks, pretty gaudy surroundings, cheesy music, lounge lizard, second rate free singing reviews, Brylcream overdoses, Sparkly sequined neon blue dinner jackets, Whooops…. I was describing the NASDAQ trading floor.

[Jim Brubaker]

I agree with Carlsbadliving and LookoutBelow.

But you have to remember one thing, a stock broker,investment analyst or a stock commentator, needs to look like they are on top of things with their clients. These clients want reassurance that the person they are doing business with is in the know.

Fortune telling has been with us for centuries and the pay can be quite good. The trick is having good plausible answers, that satisfy the listener.

[Anonymous]

Chris Johnston

I fully explained in advance what was going to cause the market to drop, and it did. I also covered it in my newsletter. Interest rates. The reverse scenario may set up by fall, as we are getting a nice rally in the 30 year now, with dropping stock prices.

This is a bullish formation after it has been in place for about 3 months. So, by the fall if the bond rally sticks, we could have a good underpinning for a fall rally in stocks. I would expect to go lower until then.

I have told you to ignore the media, they have no clue whatsoever, what drives stock prices. You will be interested to see my upcoming coverage on the relationship of crude to stock prices. Hint – it is not what is reported by these experts!

[zk]

“Fact-check anything and everything… you can assume the journalist didn’t.”

I’ve always tried to get my news from what I thought were reliable sources (LA Times, NY Times, W. Post, etc.) and therefore assumed I was getting the straight scoop. After 10 or 15 years in the business I’m in, though, I kept noticing articles about my field that I knew were inaccurate. Not just spun one way or another (although there is certainly plenty of that), but factually inaccurate. It then occurred to me that, if they’re getting those stories wrong, then obviously they’re getting plenty of other stories wrong, and I have no way of knowing it.

Yes, I agree, the media can’t be counted on. Or, for whoever said he was anal about such things, should I say, the media are not things on which we can count. Or, since it’s way past my bedtime and I’m probably rambling, should I just delete this entire post.

Ahh, screw it and goodnight.

[anxvariety]

Carlsbadliving seems pretty grumpy for living in such a nice area code 😉 Hopefully he/she isn’t saying there aren’t discernable trends or patterns to be reported in the market… surely there is no one single resaon, but there are certainly leading indicators and I think that’s what the media trys to report on (albeit 6 months late 🙂 )

[powayseller]

Carlsbadliving gave a helpful response.

[privatebanker]

You’re right, the press typically is going off pure speculation. That’s the issue with real time news, etc. They are always jumping to be the first to make the report without doing extensive research. I personally think this pullback is a very healthy, needed one. Stocks were getting expensive, emerging markets (BRIC) were growing to the sky and commodities were being driven by a lot of speculation. I think over the long term trend, we will see the markets continue to improve but we need to have our checks and balances along the way. Commodities such as Gold and Oil have seen a pull back as of lately however, look for that to move north again soon.

Here’s something new and interesting but certainly not investment advice or a recommendation. One can now gain easy exposure to futures & commodities without the complications by buying ETNs (Exchange Traded Notes). These track the Dow Jones AIG Commodities Index (DJP) or the GSCI Total Return index (GSP). Do your homework first of course.

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