Stock Market is not the Balance Sheet (Profits) of a Company that has to go up all the times. Stock Traders, atleast big ones, make money even when the market plunges.
Lot of people asked my opinion for last week’s sudden Market Crash across the world and equally spectacular recovery. Honestly, they were difficult questions and I avoided it. I was not very sure for the reasoning’s not because of genesis but the Timing’s. Last week I read and heard lot of Pundits and intellectuals of stock market giving various GYAAN but none so appealing than what I read today in the New York Times. I will come to that but here is what I feel is the 4 root-cause reasoning for the crisis in future. Why American Centric approach? Well, it is still true that when America sneezes, world market catches cold, with few exception..
• Americas Trade Deficit beyond control over Trillion Dollars
• Americas War Expenses running into billion of dollars
• Americas Subprime mess
• Emergence of powerful new markets viz. (BRIC) Brazil, Russia, India and China
I firmly believe that Stock market like Forex Market is a Zero Sum game for average investors unless companies that are being traded in the market, are producing new stuff and finding new markets. It is also naive to say that we are not seeing new discoveries or inventions or companies are not hunting for new markets (point 4), but the proportion or out-put is far less than the speculation Volumes in the market. And that is the recipe for crisis.
Now question is Timing and who was really responsible for it…
Mr Ben Stein – Lawyer, Writer, Actor and Economist has given a very interesting analysis on why Markets gyrates and who is the culprit. His theory has good standing as we now know why American and Asian Market recovered within 48 hrs with exception in Europe. A single Jérôme Kerviel, a former trader at Société Générale could bring losses over 7.00 billion to the largest French Bank, is difficult to digest, but it is true.
Ben coins a term “Financial Realism,” or what might more accurately be called “Trader Realism.” The theory says, 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.
He narrates an example (based on his now diseased Trading friend’s first hand account). long ago 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.
This is what traders do all day long. 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.
According to Ben, Traders 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.
So, this is the answer for “Timing” for last weeks crash. 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. 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.
What is the way out or long term solution then? Well, as long as there is greed in the Stock Market and there is hefty Bonus for Investment Bankers / Trading Brokers to Rollin money at any cost, this trend will continue for long time to come. Markets will go up or down at the whims of these Traders with no exception. And one thing’s for sure: With the traders running things, it won’t be a good time for amateurs like you and me until the Traders cry “Switch!” and the market starts to rise. Looks like, they have switched it “On” again.
So, Cheers go into the market and make money. You are safe till Nov 2008 !!!
Manish Jaiswal
CEO – Bonsai International Group
http://www.insurancemall.in/
http://www.buynowindia.com/
http://www.newsandreviews.in/
Lot of people asked my opinion for last week’s sudden Market Crash across the world and equally spectacular recovery. Honestly, they were difficult questions and I avoided it. I was not very sure for the reasoning’s not because of genesis but the Timing’s. Last week I read and heard lot of Pundits and intellectuals of stock market giving various GYAAN but none so appealing than what I read today in the New York Times. I will come to that but here is what I feel is the 4 root-cause reasoning for the crisis in future. Why American Centric approach? Well, it is still true that when America sneezes, world market catches cold, with few exception..
• Americas Trade Deficit beyond control over Trillion Dollars
• Americas War Expenses running into billion of dollars
• Americas Subprime mess
• Emergence of powerful new markets viz. (BRIC) Brazil, Russia, India and China
I firmly believe that Stock market like Forex Market is a Zero Sum game for average investors unless companies that are being traded in the market, are producing new stuff and finding new markets. It is also naive to say that we are not seeing new discoveries or inventions or companies are not hunting for new markets (point 4), but the proportion or out-put is far less than the speculation Volumes in the market. And that is the recipe for crisis.
Now question is Timing and who was really responsible for it…
Mr Ben Stein – Lawyer, Writer, Actor and Economist has given a very interesting analysis on why Markets gyrates and who is the culprit. His theory has good standing as we now know why American and Asian Market recovered within 48 hrs with exception in Europe. A single Jérôme Kerviel, a former trader at Société Générale could bring losses over 7.00 billion to the largest French Bank, is difficult to digest, but it is true.
Ben coins a term “Financial Realism,” or what might more accurately be called “Trader Realism.” The theory says, 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.
He narrates an example (based on his now diseased Trading friend’s first hand account). long ago 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.
This is what traders do all day long. 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.
According to Ben, Traders 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.
So, this is the answer for “Timing” for last weeks crash. 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. 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.
What is the way out or long term solution then? Well, as long as there is greed in the Stock Market and there is hefty Bonus for Investment Bankers / Trading Brokers to Rollin money at any cost, this trend will continue for long time to come. Markets will go up or down at the whims of these Traders with no exception. And one thing’s for sure: With the traders running things, it won’t be a good time for amateurs like you and me until the Traders cry “Switch!” and the market starts to rise. Looks like, they have switched it “On” again.
So, Cheers go into the market and make money. You are safe till Nov 2008 !!!
Manish Jaiswal
CEO – Bonsai International Group
http://www.insurancemall.in/
http://www.buynowindia.com/
http://www.newsandreviews.in/
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