Wall Street Pundits are such Weenies

[ewmayer]

From today's CNN/Money section (boldface emphasis mine):

The Dow Jones industrial average (down 71.24 to 10,930.90, Charts) tumbled about 0.7 percent. The last time the blue-chip index finished below the key psychological 11,000 mark was March 9.

Good lord, talk about gratuitous use of excitement-connoting verbiage - "tumbled" referring to a movement of less than one percent? Next, we get a thrilling reading-the-tea-leaves exercise in bogus numerology. I can see how, say, 10,000 might have some symbolic importance to decimal fetishists, but 11,000 as a "key psychological mark"? What is this, Wall Street meets Spinal Tap? Of course we immediately are reminded that 11,000 is in fact such a key psychological mark that it's been nearly 2 months since that occurred. Historic, that - definitely something to tell your grandkids about, in between bedtime stories about your wild youthful adventures in the fixed income fund sector.

But, I guess there's only so many ways to jazz up a boring routine article on what the DJIA did on any given day not involving truly massive market movements. *Yawn*

The first time Ernst's mersenneforum.org post count finished above the key psychological 1000 mark was on 7 June 2006, when it rocketed up by a whopping 5 posts...

[R.D. Silverman]

Originally Posted by ewmayer

From today's CNN/Money section (boldface emphasis mine):

<snip>

Good lord, talk about gratuitous use of excitement-connoting verbiage - "tumbled" referring to a movement of less than one percent?

I used to work for an economic/econometric consulting company
(Data Resources Inc., later bought by McGraw Hill)

We used to tell a joke about economists:

If you laid all the economists in the world end-to-end, they still
wouldn't reach a conclusion.....


If one listens to the usual news report given by some "market expert" as
to WHY the market moved one way or the other yesterday, it consists
of total nonsense. It is all made-up garbage *after-the-fact*.

The market has two underlying factors that control it.

(1) Mass psychology
(2) Insider trading.

Just to cite a bit of market craziness: When I started working for RSA,
it reported a 30% growth for the first half of the year of 1997. This
included a growth in profits as well as revenues. The same day, the
stock plunged by 40%. Here we have a company that was very profitable,
and growing quite rapidly, and the stock plunged. Why???

The explanation is that market *expectations* were for 50% growth and
that the company did not meet that "target".

The price of a company's stock is NOT tied to how well it is doing, how
profitable it is, or its long-term outlook. It is tied to the *short-term*
expectations of investors. This situation is ridiculous. The price of
stock and the value of the company should depend on one thing only:
how well it is doing.

The market is a crapshoot (except for insider trading). All the so-called
"analysis" done by cretinous "analysts" is just marketing spin.

And a lot more insider trading goes on than ever gets revealed.

BTW, RSA is currently being investigated by the SEC for possible
wrongdoing regarding the way it gives stock options to its senior
level people.

[Spherical Cow]

And I saw a recent news editorial claiming that global warming could be slowed or delayed if everyone would just become strict vegetarians- Vegans, to be specific. One of their supporting statistics was that out of the total energy usage by the agricultural and food industry, "...a FULL 28% of the energy was used for meat products!" Leaving a MERE 72% of the energy for lettuce, fruit, and vegetables, I guess. If they had just explained why the rabbit food needs more than 3/4 of the food industry's energy, I might have been convinced.

Unfortunately, putting a strong, descriptive word in front of the statistic, even if that word doesn't make sense or is never explained, is all it takes to convince many people.

Norm

[ewmayer]

Originally Posted by Spherical Cow

"...a FULL 28% of the energy was used for meat products!" Leaving a MERE 72% of the energy for lettuce, fruit, and vegetables, I guess.

Now see, a real statistics-spinning anti-meat-eating propagandist would have put this in terms like "Only a fraction of agricultural energy use goes to non-meat products..."

Of course the fact that that fraction might be close to 1 doesn't occur to most people. Mathematician John Allen Paulos has written several books on this kind of widespread (and easily exploited) math illiteracy: perhaps the best-known are:

Innumeracy : Mathematical Illiteracy and Its Social Consequences

A Mathematician Reads the Newspaper

[Uncwilly]

Don't you know that all of the food produced in New Zealand is organic? Well if you are a chemist it is. Then again so are 'road apples'. And wheat germ contains chemicals.

Ban Dihydrogen-monoxide!

[xilman]

Originally Posted by R.D. Silverman

We used to tell a joke about economists:

If you laid all the economists in the world end-to-end, they still
wouldn't reach a conclusion.....

The version we knew at Oxford was:

It all the students at St. Hilda's were laid end to end, no-one would be in the least bit surprised.

Strangely enough, this is now ever so slightly topical again. http://news.bbc.co.uk/1/hi/england/o...re/5054126.stm to see why.

Paul

[ewmayer]

Originally Posted by xilman

Strangely enough, this is now ever so slightly topical again. http://news.bbc.co.uk/1/hi/england/o...re/5054126.stm to see why.

ST HILDA'S COLLEGE TO ADMIT MEN ==> DAMMIT! LET SCHOOL GET LES-DIAN

[ewmayer]

The latest steaming pile of bogus-numerology hooey, courtesy of CNN/Money:

So far this week, the Dow has lost more than 300 points. Technical strategist Mark Newton at Morgan Stanley says he's watching several key support levels on the S&P 500 and the Dow to gauge how vulnerable the market is to a further downdraft.

Hmm, so impressive-sounding terms like "support level" and the evocative "downdraft" surely must have some sound economic basis, right?

Like other technical experts, Newton uses tools like past highs and lows, advance-decline ratios and support levels to predict the direction of the market. Going into Thursday's trading day, he saw a key level for the S&P 500 of 1245 (the May low for the S&P), which the market dipped below less than three hours into the trading day.

So you use the "support levels" which you discern based on the direction of the "chicken entrails" to predict the "key levels" of the, um, "support levels" and their vulnerability to various vaguely-specified meteorological phenomena? Oh yeah, I'm gonna give you all my money real soon.

The next stop down, he says, is 1230. "If we get below there, that will cause a real deterioration in the technical structure," he says.

The "technical structure" of the tea leaves, the monkey knuckles, or the chicken entrails? Details ... we need details.

In terms of the Dow, he sees key short-term support levels at 10,735 and 10,684. "It really needs to hold where it is now and stay above 10,500 - that's the trend line support from the lows in October of 2004."

Damn pussy market, allowing itself to shamelessly backslide like that and threaten the "support levels" predicted by various "technical experts" based on their "analysis" of "trend line support" and "advance-decline ratios."

Like Bob said, it's all flummery used to cloak the real dynamic:

"Give us all your money, and after we make a killing insider-trading using knowledge not available to poor suckers like you, maybe, just maybe, there'll be some crumbs left for you - after we take our management and trading fees, of course."

[Spherical Cow]

Excellent! Between Bob Silverman's economist joke (and Xilman's variation thereof), and your "steaming pile of bogus-numerology hooey", this is the most entertaining thread in weeks! Is there some kind of "Best Thread Award"? If so, I hereby nominate "Wall Street Pundits are Such Weenies".

Norm

[ewmayer]

More from the New York Times on the insider-trading-dominates-Wall-Street angle, in this case with respect to the role of the vast and poorly-regulated hedge fund industry:

http://www.nytimes.com/2006/10/16/bu...l?ref=business

Hedge Funds Draw Insider Scrutiny

By JENNY ANDERSON
Published: October 16, 2006

In early March, executives from Movie Gallery, a big movie rental chain, held a private conference call for their lenders to talk about how disastrous 2005 had been for the company. A string of Hollywood flops had kept customers away. More people were recording movies from television instead of renting them from a store. The executives said they needed more time to fix the problems, which included more than $1 billion in debt.
Skip to next paragraph

Most of the roughly 200 lenders were not bankers, but hedge funds. And what they heard was supposed to be confidential: it was inside information, as valuable to investors as a tip about an imminent takeover.

During the next two days, though, Movie Gallery’s shares were heavily traded, and its stock plummeted 25 percent.

A coincidence? Regulators are not so sure. The Securities and Exchange Commission is now looking into whether any of the hedge funds on the private call with Movie Gallery took their inside knowledge of the company’s struggles and traded on it. Movie Gallery announced earnings results to the public nearly two weeks after the private conference call.

The Movie Gallery case provides a window onto the growing power of hedge funds in financial markets, and raises questions about their role in how information flows on Wall Street. Hedge funds have become a dominant force in the New York and London stock exchanges, and now account for roughly half of all trading in those markets. But they also have recently become major players in the more opaque debt market, which includes bonds as well as loans, and is more than one and a half times as big as the stock market.

[jasong]

Sorry to cut in in the middle of the thread, I didn't think my question warranted another thread.

Question, then I'll get out of everybody's way:

Factoring in inflation(opinions are definitely allowed :) ) What's the highest the stock market has been? Also, how high would the stock market be if you took that old number and applied inflation(or deflation) until now. THAT would be a number to get excited about.

In other words: Let's pull a number out of a hat and say the highest the stock market has ever been was 50 years ago at 5200(these numbers come from thin air) and that inflation had a constant rate of 3.5%. So in order to compare it, we would do 5200 *1.035^50.(Actually, approximating would be just as good)

Mind you, I'm not asking anybody to do any complex math. I'm just asking, when was the stock market at it's best, and where would the stock market have to be, right now, for people to be in the same wonderful situation.