Ironic. Growing mobs are descending on Wall Street protesting the huge amounts of money being made by insiders and professionals. Let’s have a look at Apple, and the lack of transparency on its inner workings, and how Steve Jobs protected his health problems, and how that effected Apple’s stock price. Rumors caused it to jump around, while only insiders (call them friends) had the knowledge of how and when to jump in with leveraged trading.
In less than 45 minutes yesterday, just before the usual dreaded down day close, Wall Street, as expressed by the Dow, went up 4%!
45 minutes? A concerted effort by market makers (aka “they”) is what this was. A scientific forensic investigation should be mounted to find out how it is that a huge market can act with all participants in concert with each other.
An article in the NY Times magazine caught my eye. All about the clown antics of a certain Booyah Bozo by the name of Jim Cramer. You will be aware of him if you have hours to kill in front of the TV set, and own a set of securities of diminishing value.
In the old days, we used to go down to our broker (most often Merrill Lynch), and waste hours watching the tape go by, with a cup of coffee and a newspaper. And, of course, trade information and rumors. Outright promotion by the broker was a no-no.
So what’s changed?
Today the New York Times printed an op-ed article with the headline The End of the Financial World as We Know It.
It tells the story of how a gentleman by the name of Harry Markopolos, a savvy expert on the workings of the stock market and hedge funds, an investor himself, and having nothing to gain except perhaps an unwanted label, figured out that the now infamous Bernard Madoff, ex head of NASDAQ, could not possibly claim such consistently high returns for his clients. The promised profits have revealed themselves to be losses, perhaps as high as fifty billion dollars. But too many people were making money, and nobody seemed interested in helping to bring the good times to an end. Meanwhile, what had been preoccupying the country’s legislators in Washington, where regulatory solutions lie, appears to be how best to vote themselves a raise.
It’s much like the U.S. Civil Justice system, which is what this site attempts to probe, where the public can’t afford to hire a lawyer. Conflicts of Interest are similarly embedded in a system where supposedly neutral judges are drawn from the ranks of highly biased and profit-motivated lawyers. Again, the ol’ boys network. It’s time a sea change took place there too. Judges are judges and lawyers are lawyers, they have different mind-sets, and they should be kept apart and trained differently from the very beginning of their careers. Judicial regulation is lacking there too. And again, the Chief Justice in Washington’s preoccupation appears to be how best to vote raises for judges.
Anyone notice that the stock market is not behaving normally? The up moves are being cut short, not achieving their promise, and all of the technical rules are being breached? And the hoped-for bounces are all dead cats?
The only people making sure money now are the advisors, who risk nothing, except perhaps the cancellation of subscribers. They used to try and forecast the future, now they just shrug their shoulders and tell you what happened yesterday, as if we didn’t know.
And Mad Money Jim Cramer, who has successfully taken the stock market into showbusiness, for all the world like Pee-wee Herman having a ball in his CNBC Playhouse. Except he has lost tons of money for his “booya” fans. Well, you already know what I think about him! Mad Money.
And the money-making short sellers and put option buyers. Who is promoting those activities to the public? NOBODY, that’s who. Meanwhile, incredibly, the S.E.C. “uptick” rule promulgated by the Securities Exchange Act of 1938 to rein in the professional short sellers, the bear raiders, that inflamed the 1929 stock market crash, was eliminated on July 6th. Read my views here.
So who is promoting long buying? Let’s start with the President of the United States, who last year sought legislation to allow pensioners to take more charge of their funds, and as loyal Americans, buy into American industry.
And how about the IRS? Rules. You can’t play the short side in a pension fund. Try and do it, and your broker won’t let you. Even in non pension funds, try to short many stocks, and your broker will tell you “no stock is available to borrow.”
The stock market today is a crap shoot. Be honest, NOBODY KNOWS ANYTHING. Just like Hollywood.
Just like Vegas, the odds are still in favor of the bank. On Wall street, the bank is the specialists, the market makers, the day traders who walk the floor, and other insider professionals.
Until and unless things change, you should stay in cash (if you have any left), and enjoy a flutter on the Lottery along with a good night’s sleep in your home (provided you are not about to be thrown out by your mortgage lender or an angry spouse.)
THERE IS NO SECOND PUBLIC!
This market maxim was well established years ago, first propounded by a true market guru, Joe Granville.
He pointed out that there’s “smart money” and there’s the public. Imagine a game of cards, there’s the pro card-sharper with the poker face, and there’s you and me, fresh to the table. He deals the cards, we pick them up and bet. And lose. And when we’re quite broke, he picks up the cards and your counters, and is ready to deal again to a fresh bunch.
And so the cycle is repeated. That’s the game, that’s how to think about it, don’t kid yourself.
Cramer, a professional, is self-confessedly (tho’ “mad”) smart money. He’s selling to you and me, the public. But to whom will WE sell to collect his magic numbers? The myth?
One might do well shorting his recommendations after a few days, which he or his professional friends may be quietly doing somehow, who knows, the S.E.C should look into this, but they don’t seem to care.
And he’d do well to take care of his voice.
I’ve been watching the lad, and I think that what he’s doing is, he’s CREATING A SECOND PUBLIC. In other words, as an extension to Granville’s principle (see above), and never before possible before the stock market of the showbiz on TV, he has subdivided the public into two parts, those that watch and follow him, and those that do not. A sort of link between the smart money and the dumb public. The “Booya” (Cramer) money crowd. They buy in, and sell to the unwise (or, perhaps, the shorters). Works well in a bull run.
I would like to see what happens when another ’87 hits us, all unawares which it always does by definition, and causes forced selling. Forced selling? That’s being forced to sell your precious holdings, perhaps your life savings, perhaps just your retirement account. In the 20’s it was margin calls, then the banks. In the 80’s it was the uncontrolled cashing out of mutual funds. This time it will be the cashing out of real estate refinanced mortgages, if it happens. Like a tsunami, it will be unstoppable. Has it started? Are we in free-fall as in ’87, or slower, hesitated by multiple “dead cat” bounces as in the seventies? Or a decade long deterioration, as in the thirties? Or not.
When it comes, as it must eventually, the public will be looking for a scapegoat, and it won’t be Martha. I think Mr. Booya, with perfect timing, will have run off into the hills by then, hoping to be quickly, and quietly, forgotten. No such luck, in today’s litigious world.
Well, I bought his book, and watch to see how he is dealing with this “correction”, or major downturn, maybe, that we’re going through right now. He’s into “education”, and ignores his obvous failures, and avoids comment on any speculative inquiries from callers, just presses buttons which give off noises, and keeps thrusting his book at the camera, then contemptuously tosses it away (a masterly stroke of book sales promotion), in between breaking up furniture and destroying equipment, like some deranged mental patient. Schtick? I wonder. This is “stock market meets showbiz” all right. Perhaps 95% of his investment advice.
I see his modus operandi.
First off, he does not subscribe to chart based market technical analysis. Second, he never advises to sell short. Nor to buy penny stocks or companies in trouble.
This is a “look ma, no hands!” approach.
After a good fifty years of playing this hobby of mine (and I have never handled money outside of my family), I can say this:
As William Goldman famously averred in his analysis of Hollywood in his book “Adventures in the Screen Trade”, NOBODY KNOWS ANYTHING!
The same can be said of the stock market, and is the best place to start.
1. Built within the price of a stock at any given moment is everything there is to be known, the pros (buy) and the cons (sell), the details being hidden from knowledge.
2. A study of the line squiggles on a vertical line bar chart (open/high/low/close/volume) on a daily/weekly/monthly basis will reveal that these are not aimless wanderings, but instead contain a roadmap of the stock, its history of course which marks its character, but which, like a human being, may also offer its possible future. Again, like a person, many are entirely unpredictable, but many more are susceptible to having their palms read, giving clues to their future.
3. There is always a time to buy, and a time to sell. And also a time to sell (somebody else’s) and a time to buy (cover). There is a time to buy losers, penny stocks, sell short blue chips, and so on, and Cramer knows this, but he’s not about to tell you.
4. Further, a study of the averages may give rise to a strong apprehension of a major turn in the bull/sideways/bear movement, and then one learns that almost all stocks will conform to that pattern.
5. Use a computer and the internet. If you cannot, or don’t want, to do this, stay away from trading.
6. So, on a computer, either study then play the market as a hobby using the many free indicator tool services for clues (e.g. short interest reports, insider buying/selling, message boards, commodity futures etc. etc.). And DON’T buy advice. You will find that none are trustworthy and have their own agenda. Just like the law.
Which leads me to saying, getting back to Cramer, that the day may come when a class action is filed against him and CNBC on the grounds that viewers were advised to sell, and so lost money, or bought and then lost money. And no amount of pleading that viewers were warned with disclaimer upon disclaimer will immunize them. To take an extreme metaphor, imagine being confronted by a polite footpad, who, tipping his hat, says “excuse me, but I am about to rob you, rape you, and then possibly kill you. So blame yourself for ignoring this disclaimer, it will be your fault, not mine.”
Finally, if you don’t have the time or the stomach for this (remember, I’m now forced into retirement and I’m old and have little to lose), then buy into the fundamental approach which is earnings and management based, (JNJ for safety and income comes to mind) and buy and hold and forget about it, except for taking a peek every now and again. But then of course, you don’t need Cramer, and he won’t any longer have a buy buy buy sell sell sell show. And he won’t be able to tell you that he already owns a stock in his “charitable trust” account, so buy it and help drive up the price.(BTW, want to open the books, Cramer? Let’s see the costs and salaries and other overhead expenses, fully categorized. Your book profits go in there too?).
There’s so much to investigate in the unregulated professional investment advice business, but isn’t, and one watched poor old ex-pro stock market enthusiast Martha Stewart being made a scape-goat, and go to prison basically because she took professional legal advice, which I go into elsewhere. Martha Stewart.
All of the foregoing is just my opinion, my humble opinion, of course. That’s my very own legal disclaimer.
Short selling, as anyone who plays in the arena of the stock market should know, is all about borrowing somebody else’s stock, selling it in the hope that the price will drop, and if it does, buying it back, and pocketing the difference and, of course, returning the stock to its rightful owner.
For some reason, this attitude is considered by some to be downright un-American, and should be banned – especially if you make a profit. Of course, if you get “squeezed” because it went in the opposite direction, then, well, you just got what you deserved, say these folks. And the sky’s the limit as far as the extent of your loss, and you will just have to buy back and replace the borrowed stock.
There is a decided bias on the part of the government to encourage investors to only be “long” the market.
Today’s investors are constantly reminded of this fact, especially by none other than the taxing authorities who actually discourage short selling by banning it as a practice on tax-deferred pension accounts. I am told that if you try this, you will be taxed on profits, cannot offset losses, and will be taxed on those same profits again upon any distribution, and possibly risk the continued legal status of the account. Given that the average business person is probably investing his own investment funds via a tax-deferred account, perhaps aggressively, he is bound to the long side of the market.
And now, we have President Bush himself advocating that the small investor should get involved with the stock market, long side only, of course, with his Social Security reforms in mind.
Is there a danger to this built in bias, and if so what is it?
Panic, in a word.
We know about 1929, and more recently, we remember 1987. And the panic resulted in what is called “forced selling”.
At one time it was the holders of large almost unlimited margin accounts, as in the twenties (perhaps old Joe Kennedy knew this back in 1929, when, it is said, he was short of a lot of Chicago’s Yellow Cab stock, and rode the market down to the bottom, and lay the foundation for his family’s bullish prospects.)
In the eighties it was said to come from mutual funds, where the holders were taking out their money faster than the funds could sell their stock.
Now I believe the danger is from pension fund holders, forced to cash out because the value of their holdings has dropped dramatically and they need the money, and they didn’t or couldn’t hedge their bets.
If this is true, and it is demonstrably true, it should be obvious that stocks stop dropping when buyers come in. Of course these buyers could be the “smart money” who got out when the going was good, and now see an opportunity.
But the buyers will also be, in great numbers, those short sellers who have to buy in, whether they like it or not, and thus help to provide the cushion needed.
I believe one should try to separate oneself from any idea that one side is better than the other. To that end, I like to up-end my charts, and look at them with fresh eyes from the opposite direction as though everything is on the long side (a bit tricky these days where it’s all kept on a computer!)
And then set aside funds to hedge or play the short side outside of the pension account, a place where nobody can complain. And think about purchasing put options, where the risk is not unlimited.
The very patriotic investor can still stand tall, in the knowledge that, as you say, he or she is helping to prop up the market, buying back in, during a severe correction.
No B/S here!
I started being interested in this when confronted with my first wife’s inherited money back in 1959. What happened then is best expressed in a submission I made to the owner of the TC2000 chart service, a gentleman named Don Worden, who published it on November 17. This is what I said.
November 2, 2004
I guess we’re about the same age, I was 72 yesterday. Probably went through the same period of discovery. My first wife was left 20 thousand dollars, and she didn’t trust me, gave half to a rich broker who as a fundamentalist bought only Underwood, said it was being taken over by Olivetti, which would become the IBM of Europe. Well it didn’t, and he killed himself and we avoided that solution.
The other half I played with, I bought Darvas’s book “How I made 2 million Dollars in the Stock Market”, which impressed me with its technical approach. I particularly liked how he described that when he didn’t sit in front watching the tape he made money, and when he watched the tape he became a loser. After about 5 years of trading, mostly on the short side (it was the sixties, what rash ones we then were), I finished up about even. When my wife and I parted company, I gave her all our money in shares of Syntex, the new birth control drug. Told her to put it in the bottom drawer and wait. A year later, the holding was worth 2 million dollars. But later, at our divorce hearing, it was revealed that she had never trusted me, and had sold out all the shares the day after I gave them to her!
I remember the day Kennedy was assassinated. I went down to my brokers and watched the tape. It dutifully declined. But the next day it shot up. Seems the market didn’t like Kennedy’s attempt to turn back US Steel’s price increases.
I love the market, because it doesn’t sell b/s. Other voices everywhere tell you what’s what, what to do, and why, and the market quietly goes about its unsentimental business telling it like it is, and it’s always right (eventually). The challenge is how to read it.
The only sage advice I ever saw was that of J.P. Morgan who when asked his secret, famously replied “The market will fluctuate.” So, timing is all. And your charts are the only method I’ve found that tells the story and presents the clues and continues the fascination, at least for me.
Long may we all survive. Thanks.