Tune Out The Hype Machine 21 comments
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I don't know if it is "Wall Street," the media, someone else, or all of the above, but the market often confronts scary events that cause people to get very worried - and then these scary events end up being nothing, or close to it.
Going in, these are all different, but they never really are. In the summer of 2002 there was genuine panic because CEOs were going to have to certify their earnings. Woooo, that was going to be a bad one. It really turned out to be more of a bottom than a top.
Just recently we had the options expensing thing. This was going to wreak havoc with earnings - hmmmm, not so much. I wrote about that one in December 2004, about six months before it was due to start. That one seemed to have zero impact.
I am not sure how many people are paying attention to the commercial paper issue or the mortgage reset issue, but neither will matter anywhere near as much as some people fear.
There will be impact here and there no doubt, but my hunch is that neither will derail the markets. Invariably there will be a dissenting comment on this but we have seen this movie over and over. The terror caused by the earnings certification was so huge - and it was a non event.
We start hearing about these things months ahead of time, so the market prices it in and the surprise factor disappears; who doesn't know there are a ton of mortgage resets coming?
While I am not a 100% efficient market guy, these sorts of things tend to have far less bite than bark.
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Making predictions is easy :D And at this point it is about 50-50 of where the market can go
The bigger thing is access to new capital for new mortgages that is impeded by the slope of the yield curve. The Allison Trannie deal shows there will be a way around the short term funding issues.
It is like an earthen levee. As long as the water stays below the top, we're fine. As the rains come and the water rises, it can look scary. But if the rains stop and it stays below the top, everyone can relax.
That said, I think the "hype" is those who say it will be fine. We are seeing the BEGINNING of the reset "rainstorm". It will reach full power next year. We will then see if the economic levee holds. If it doesn't, well, we know what happened to New Orleans.
One other thing: comparing so-called hype here to other past predictions on completely different events is a bit disengenuous. After all, as so many like to point out: "Past performance does not guarantee future returns".
We won that battle through hard work. It does not mean we will win them all.
Making predictions is easy :D And at this point it is about 50-50 of where the market can go
Oh and by the way, it's the CDO's valuelessness that is probably causing the dollar dump as well the possibility of a rate cut.
Do you understand economics or are you just not paying attention?
We're on the edge of foreign capital flight which will drive real interest rates (that would be BOND YIELDS) above 10%.
Oh, and there are signs of a recession by Christmas.
Naw, nothing to be worried about at all. Buy more stocks (thank you for the opportunity to unload into your portfolio!)
Just one final question. Historically-speaking, what percentage of value do stocks lose in a recession?
I enjoy the media hype because it creates opportunities to grab assets at sale prices. Having 40 years experience in the investment markets (as an investor, stockbroker, director of trading, director of international research), I have observed that when the "big" guys want to accumulate, they feed the media scary news, and when they want to sell, they feed the media good news (witness the analyst reports during the dot com era).
Valuemaster
Lenders though need to be spanked big time and deserve to go under!! some of these loans are insane --white collar crime if you ask me!! good luck---
how soon we forget!!
The entire context is don't panic when the market panics and stick to whatever your exit strategy is. I am picking on you because you seem to come at me very hard without having read the entire article.