Understanding Markets
Concepts & Realities Result In Market Action

Rationalizing Economics With Psychology To Understand Markets

Markets go up and markets go down.
Cycles & Phases Tops & Bottoms When to Sell When to Buy Prepare for "Octobers" Impending What?
And today? The "New Economy" Technology Price Move Theory Capitalism Rationality Efficiency
Supply Demand Price Quantity Participants Buyers Sellers
Liquidity Shorting Orders Margin Psychology Markets Labor
Inflation & Deflation Timing Corrections Bubbles Force Options Economics
Greatest Fool Technicals Interest Rates Houses of Cards Long-Term Games  
Obfuscation Hot - Cold? Axioms Glossary Investment Survey Trend Survey Contact Us
Markets  >  >  > Stock Commodity Bond Real Estate  
Search This Site  > > >
Custom Search
Perspective 2010
If you think the decline in the DJIA from October, 2007's all-time high was severe, consider the following history of human psychology.
The DJIA's all-time high reached in October, 2007, faded throughout 2008 to the recent low reached in March, 2009.
September 3, 1929:  The DJIA  reached its closing peak for the bull market of the 1920's, 381.17.
October 28, 1929:  The DJIA lost 38.33 points to close at 260.64, losing 12.8% of it value.
October 29, 1929:  The DJIA lost 30.57 points to close at 230.07 losing 11.7%.
Over the two days October 28 and 29, the total DJIA loss was 24.5%.
October 30, 1929:  The DJIA rose 28.40 points to close at 258.47, second largest percentage gain of the DJIA, 12.34%.
October 6, 1931:  The DJIA rose 12.86 points to close at 99.34, largest percentage gain of the DJIA, 14.87%.
July 8, 1932:  The DJIA fell .59 to close at 41.22.  The decline from September 3, 1929 totaled 339.95 points, 89.19%.
1954:  It was not until 1954 that the DJIA returned to the all-time high it had reached on September 3, 1929.
Beware of false valuations that have been created through arrogant and ignorant groping for bottoms.
The valuation concept portrayed above applies to financial assets and real estate.
Through Ups & Downs

Having experienced frustrations while attempting to profit within market activities, I have determined that the best perspective is set by J. P. Morgan's off-hand comment when asked what he believes the stock market will do:
"They go up and they go down."
 It is a matter of having patience to wait for my price or find something else to gamble or invest in.
Capital Markets Understand
Why would capital markets participate in a radical restructuring of the society that afforded them the chance to prosper? Why would they be accessories to free-market homicide?
Now are you beginning to comprehend what socialism, Communism, and the Alinsky method are?
Capital gets it & is taking flight.
No, really Warren?
Berkshire Hathaway's Chairman Warren Buffett announced that the company experienced its worst year ever in 2008. Its per-share book value declined 9.6%.
So... let's see. It's hard to make money in a down market? Yes. Now people may learn that it's easier to profit in an up market such as America's capitalistic boom following WWII, especially when it was given a massive boost by President Ronald Reagan's policies which caused the 25-year-long Reagan bull market of 1982-2007.
Perhaps even Warren Buffett will be less god-like during the coming depression.
Quicksand
No rule, regulation, law, or contract will stand un-dirtied in the Age of BO.
The New York Stock Exchange always prided itself on maintaining the highest standards for all its listed companies.
The NYSE asked regulators for permission to suspend its $1 rule. No longer will companies be de-listed if their stock falls below $1. The limit was $5 in the before-time.
And you will sign a contract with whom?
Is This A Bottom?
Following 1929's stock market collapse, RCA stock declined from over 500 to under 5 within a few years. It did not return to 500 -- ever.
It matters less whether a man is born smart or dumb. What matters more is that he acquires the ability to act wisely.
Broken, Over, Done, Finished. The End.
Those who are under 50 years of age must read the history of markets to learn about the days when markets fluctuated based upon fundamentals and technicals. Only those over 50 experienced those days.
In October, 2007, we experienced the final, last, and harshest death scream of the Reagan bull market. Now we know exactly when it was born and how long that bull lived: Born: August, 1982 -- Died: October, 2007.
Self Defeat
In an ongoing, repetitious, unending stream, nearly all major economic indicators point to a continuing decline in available jobs, manufacturing activity, the housing market, investment and asset valuations. Prices for cars and homes are declining, but there is little credit available, so purchases are difficult and less likely than is required for economic growth.
Until investors believe they may invest with a reasonable opportunity to make a profit, they will not invest. Until confidence returns to markets, credit will remain in tight supply.
The reason why stock and other assets will likely trend downward over the longer term.
There is developing a diminished incentive and reduced ability to hold assets, along with an increasing desire to sell. This applies to stock and real estate.

Do you remember the stock market of 1974?
Actually, it was the stock market of the 1970s which finally ended in August, 1982.
Reminisce while reading here.

Straight

How & Why The World Went Bust
The global financial system has been broken by a deadbeat minority of the population that was given clear access borrow large sums without regard for credit history and with little to no documentation. Their credit unworthiness and unjustifiable borrowing was legitimatized by the US Congress through social legislation mandating suspension of traditional bank credit-worthiness standards of lending. The lending process was enabled by automation created by overly-empowered, computer-enabled financial operatives conniving while being monitored by inadequate dynamic oversight. The factual substance & time frame of today's global bankruptcy can be comprehended. It is described below.
Learn how & why the world is going bust.
Dow-n
How much longer will the one-time fastidious and trustworthy custodians of the Dow indices keep GM in the Dow Jones Industrial Average?
Manipulating the Dow has become a difficult endeavor even for today's manipulators. Propping up the DJIA in this market is difficult. They recently replaced AIG with KFT, anticipating that Warren Buffet's investment aura will provide credibility and keep KFT's price up.
Difficult is not going to become any less difficult as the US slips deeper into recession. And once the recession's indicators breach territory that is defined by economists as "depression", it will be more difficult.
Fear not for the Dow. Fear for the economy. Manipulators as effective as we have everywhere these days are very good at manipulating something as poorly understood as a stock index -- or any index.

Operation Head-Start
The inept, lazy, seemingly unconcerned Bush administration has accomplished a most difficult task just in time to hand the nation over to pres-elect 44's socialists.
Bush and Paulson, along with the ignorant-of-ramifications Federal Reserve, initiated nationalization of the US financial industry. Their tool is the ill-conceived $700 billion bailout bill that acquires ownership in financial organizations. Then, just weeks after that Operation Head-start, they began expanding their nationalization process to include industrial corporations and opened the nationalization door to other industries.
Bush -- passively, in ignorance and displaying unconcern -- and his minions have handed the incoming socialists their head-start. It usually requires demagogues and dictators years to achieve what 44's administration will walk into thanks to the Bush administration.
Hugo Chavez could learn much from his arch-enemy George Bush.
Proving The USA Was The World's Engine... Of Confidence
Certainly no one should wonder why, nor expect anything short of a continued sell-off, as long as the shadow of Barack Obama socialism looms. Around the world delusional, envious non-investing people hoping they might destroy the USA in an insular manner are wishing for the promotion of communist Obama to its highest position. Markets are falling because capitalist investors are removing capital ahead of Obama socialism.Any fear of recession is dwarfed by thoughts of economic depression. To steer through financial and real estate markets these days, we must view the world a using rational, experience-rich, historic perspective. Today's prognosis is one of unlimited global business decline.
This global decline will continue because global capitalism's engine -- The USA -- is being disabled by the president-elect's socialism, tax increases, and productivity-inhibiting policies. He and his policies inhibit personal productivity, motivation, and the positive spirit Americans have always embodied.
A Quiz
Name any nation where most people enjoy a high standard of living, whether qualified or not, can find a good job, receive near-free educations, have reasonably affordable housing, can start any business, have access to luxuries from cars to foods, and have a steady supply of consumer staples from toothpaste to toilet paper.
ONLY in America does that exist. It is due to the Constitution, free-enterprise capitalism, & guaranteed individual rights.
So who other than an egoistic, self-involved, narcissistic, angry, man-boy who, at age 47, has not yet come to terms with his identity, would want to convert America to a socialist command economy and remove individual rights by taking from the most successful to grow government larger?
Announcement      Announcement      Announcement

Stocks are declining and will continue downward for the foreseeable future because Obama is leading in the polls and it is October, November,... 2008.

As always, in all nations and all economic systems, stocks decline on the prospect of increased taxes -- even without a socialist takeover.

The day has arrived when the United States has no more to give. The USA has given all she had that might be extracted. There is no more that even the overly-empowered unworthy can take from her.
William Durant started GM 100 years ago and went through extremely difficult times for several years.

GM and the USA have been through tougher times than these.

There is a new world opening up to buy and sell everything. Global trade will save GM and America.

Tough times force companies to be more efficient. Tough times also force people to consider, re-evaluate, and shape up.   

The Fed's Beige Book
This most-watched-for tome is often touted as being a very recent compilation of important judgments and opinions from serious economists and erudite thinkers from within the hallowed walls of the twelve Federal Reserve Branch Banks and some nearby laboratories.
In actuality, Bloomberg News reports that the Fed's Beige Book is:
"The Beige Book's regional anecdotes are gathered through hundreds of telephone calls, news clippings and personal contact by the staff of the 12 Fed banks, whose districts cover all 50 U.S. states. The anecdotes are designed to supplement quantitative forecasts of the Board of Governors staff."
It appears -- very plausibly -- that the Fed's Beige Book is merely more talk coupled with chatter smattered with anecdotes... likely talked-up between all those silly people driving SUVs while endlessly talking on their cell phones between slugs of bottled water.
And people thought they were making plans for lunch.

Financial Warfare
World War III is a financial war. The old-fashioned military wars being waged are distractions consisting of people doing what simply comes naturally.
The weaponry of WWIII includes commodities, corporate assets, and real estate often in the form of civilian national assets. Examples include commodities such as oil, corn, rice; corporate assets such as the Rolls-Royce automobile company, Lenovo Computer Corporation; real estate such as the Chrysler Building, Sears Tower, the Panama Canal, the New York Port Authority. There is a myriad of examples in all industries crossing all industrialized borders and several primitive nations.
The ammunition of WWIII is money, commodities, and financial instruments.
Today's form of war is a globalized manifestation of old-style nationalization of foreign assets on domestic soil.
The WWIII end objective is to disrupt enemy commerce, industry, domestic stability, & daily civilian life.

Continuation
There are several momentous changes taking place during the first decade of the 21st century. These changes are gaining momentum and developed as a result of the psychologically disruptive impact of the new millennium along with some attendant aspects. Even though it sounds silly, people are silly, psychologically frail, and fearful.
Today's stock market and financial asset correction is a continuation of the corrections that began in 2000. This may be the final down-leg of the correction. The meaningful question is of course, "Where and when will asset valuations come to rest?"

When To Buy & When Not

Stock buys are made in the immediate term. I do not need -- nor does my ego need -- to buy at the bottom.  I do need to make money.
No Experience
Never before in several recent decades has there been a market marked by such apparent desperation, ignorance,& arrogance. Such grand ignorance and arrogance are unbelievable.
Clear Vision Into Today's Market Pricing
Larger-than-functionally-tolerable market spreads with resultant lock-ups describe today's real estate markets. And they are the defining element in several of today's credit markets. This lack of operational price discovery potential also applies to commodity markets.
In commodity markets, product absolutely must be transferred from sellers to buyers. Therefore the spread is not the issue, but price unidirectionality forced upon prices. Many of these prices are not "discovered" in the markets, but are virtual-mandates of demand.
Observe long-term price / volume charts for oil, industrial & precious metals, softs, & grains.
How To Lose Money -- The Easy Way
Bottom fishing is an easy and nearly guaranteed method to lose money in today's markets.
This technique is also known as "catching a falling knife".
Check out the charts of most financial stocks over recent months.
Faith
Faith in this market and the moves made within it requires faith in the majority of the individual participants.
I do not have faith in the wisdom, financial backing, nor investment knowledge to trust today's majority.
Faith in today's market moves will likely damage my net worth.
Recall a guy named Lewis who repeatedly invested in BSC all the way down.
Bargains Are Relative
In 1929 stock markets crashed. Many former blue chip stocks declined over 90%. By 1932 many people thought they should buy those bargain-priced stocks.
It was not until 1954 that the Dow Jones Industrial Average of those blue chip stocks returned to its level of 1929.
So are today's stock prices representing values and bargains?
It is frequently wise to wait to buy stock -- and many investments -- at higher prices on their way up. Often buying on the way down results in holding it while losing potential yields from cash, living with a loss, and waiting for the stock to rise to above your purchase price. And then, when should it be sold after waiting all that time in a losing position?
Hedge -- To Limit Losses
In financial terms, the dictionary definition of "to hedge" is:  To initiate transactions that are protected to reasonable magnitudes against loss by using instruments that will make inverse price movements. Hedging is a means of preventing complete -- or at least large -- losses of a position through the use of a counterbalancing position.
If today's hedge funds have been using reasonable mechanisms and tools to hedge, why are so many hedge funds failing? And why are so many hedge funds failing to such a large extent as to force them into liquidation?
Logical answers include, 1.) They did not understand how to effectively hedge many positions, 2.) They failed to put hedges on many positions in order to cut costs, or 3.) They used the regulatory title of "hedge fund" so that they could take on extraordinary margin debt, thus executing highly leveraged positions.
In any case, many hedge funds held on too long out of arrogance and failure to envision the potential magnitude of today's credit clutch.
Understanding markets requires

...learning fundamental rules that have always been guided by psychology and economics. Today's markets function as the first open-air markets did thousands of years ago. The only thing new to markets are the participants new to gaining some share of understanding. Once they learn the fundamentals of a specific market, they must integrate the market participants' net psychology with its underlying economic fundamentals.

The mixes of experts and unskilled, winners and losers, speculators and investors change. Products, services, financial instruments, commodities, buyers, sellers, supply, demand, prices, and market operatives also change. Micro changes can be impossible to understand but fundamental rules guiding macro fluctuations do not change. Fundamental rules sometimes appear to be forsaken, but eventually return to control. Micro and macro variances are related and set the stage for each other.

Mechanical and technological tools also change, but these only impact the speed of application of fundamental rules.

Successful participants learn fundamentals, apply them to their activities in specific markets and enter the arena knowing they will win and lose many times. Success is earned by those who expect both in reasonable proportions and avoid being wiped out by a few consecutive mistakes.
Inter-connected Markets
Now You Compete With Your Car For Food
Pilgrim's Pride, the largest US chicken processor, announced that it is closing a North Carolina chicken processing facility. This move is another verification that farming, energy, and food are closely connected.
Credibility -- Rate & Liquidity
Insurers include MBIA, Ambac, Security Capital Assurance, Financial Guarantee Insurance:
The monoline bond insurance industry was created in 1971 by Ambac. Over recent decades the monoline insurers have grown through expansion into structured products.
Ratings agencies include Moody's, S&P, & Fitch:
Ratings agencies monitor insurers for adequate financial strength. Over recent years, the ratings agencies have broadened their monoline business to include the additional products being handled by the insurers.
Financial markets have lost confidence. Individuals have lost confidence. Investors and speculators are pulling back from risk. They no longer slough off the potential for risk. They no longer "know" that nearly any risk is worth the gain because gains have now turned into losses. Investors and speculators are rushing toward high quality.
Once lost, confidence is difficult to re-create. It is often more difficult and takes more time to re-build confidence than it took to build the bubble resulting from past arrogant over-confidence.
Consider your own personal relationships to understand financial markets.
Correlation Trading:  A Technique
Correlate price changes and patterns against corporate, geo-political, and economic news and fundamentals with constantly overlaying re-interpretive modifications.  Read More
Early 2008:  Markets around the world continue to ebb & flow but with inordinately large swings. Relief rallies are brief and transient. The trend is downward.  Read More
Around the world, financial institutions managed and operated by experts using computer models have built investment portfolios so intertwined that a relatively small group of delinquencies & defaults is bringing the global credit market to a standstill.  Read More
Regarding Today's Market Sell-offs:
The down move has not been finalized and encompassed enough stock market participants. Speculators continue to hold profits and maintain some certainty that the down move will end and soon reverse. Stock holders are waiting. They are confident that the down move will terminate and an up move will start. They are certain the up-trend will resume. They believe the recent months of selling are a pause in the up trend.
In 1929 RCA stock was over 520. Within two years, at its low, RCA had fallen to less than 5.
Interest rates are one of the powerful forces impacting financial markets. Even today's rapidly declining interest rates have not ameliorated equity price declines nor un-seized credit markets. Interest rates must be factored in to decisions and anticipated to have significant impact upon prices.  Read More
Economics is understood by only a few intelligent and contemplative people. Many people believe they understand economics. Many people believe economic realities can be obtained using complexly-derived quantified data and methods. True comprehension of economic realities and trends requires integration of macro and micro observations, understanding of phases and trends across cultural and technological periods, and quantification of observations that are often relative in time and to nationalities, industries and societies.
Employment Prognosis
Thousands Of Jobs Will Not Return In The Next Years
There is an irony. Improved efficiencies attained during the 1990's have decreased the need for labor. Instead of realizing the labor savings, many companies hired excessively in the fallacious belief that additional people would magically provide additional growth. These companies failed to understand that excess employees inhibit efficiency and ensure unwarranted costs.   Read More
Success in markets is measured by the accuracy of predicting the next price movement and then acting to profit from that movement.  Conceptually a market sets the next price using the following formula:

Next Price  =  (Net Market Participant Psychology  +  Active Economic Fundamentals)  X  (Current Price)
The investment axiom that is always valid: Caveat Emptor
UnderstandingMarkets.com is offered only to provide thoughts, observations, comments and opinions.  Visitors should understand that it is the wide variety of thoughts, observations, comments and opinions that "make a market".
Always use caution before and after making an investment.  Always watch your investments and know who and what sources to trust and not trust.
UnderstandingMarkets.com is offered strictly to provide thoughts, observations, comments and opinions.  UnderstandingMarkets.com reserves the right to edit, reformat, modify and reject any submitted information to improve communication between users.  UnderstandingMarkets.com is intended to be used for general & professional observations.  UnderstandingMarkets.com will not post submissions of a personal or psychological nature.
Users of UnderstandingMarkets.com agree to hold harmless UnderstandingMarkets.com, all employees and affiliated individuals.  Neither UnderstandingMarkets.com, its employees, nor affiliated individuals makes nor implies any promise of reward to any user of this site.  Each user understands and agrees that no promises nor prizes will be awarded nor issued by UnderstandingMarkets.com.  All submissions become the property of UnderstandingMarkets.com.

This site is on the highway of

Always useful, mapped and paved with information.SM
Copyright © Technology America Corporation, 1996-2010 USA
All Rights reserved