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Posted by JonKatz on Monday May 08, @10:33AMfrom the Is-technology-driving-economic-markets-nuts? dept.
Irrational Exuberance -- a provocative, even scary new book by Yale economist Robert J. Shiller -- is sending shock waves through Wall Street. Shiller argues that the techno-fueled stock-market boom is based on emotion, rumor, pyschology and herd instincts (like excitement about the Net), rather than on any rational facts or data -- and that it can't last. In fact, he writes, technology may be driving the market mad. If he's right, the market has to fall, and technology companies will be among those most significantly affected. (Read More).
The conventional wisdom has it that technology is only good news for the American economy: Productivity and profits are rising. Investors, newly empowered by digitally-acquired information and transactional software tools, are enthusiastically pumping capital into companies they think will grow in value. And lots of these investors believe that the likeliest stocks to increase in value are technology companies. The tide of easily-available information allows them to feel well-informed and well-prepared, and reduces their fears of overpaying.
"Because knowledge once gained is irreversible," Federal Reserve Chairman Alan Greenspan told economists in a recent speech, "so too are the lowered risk premiums."
But in Irrational Exuberance, published by Princeton University Press, Shiller argues that stock markets are being driven by psychology and emotion -- in particular by an "irrational exuberance" fueled not by information but by impulse, herd behavior, dinner party chatter, intuition, media hype, fear of being cut out -- everything, in fact, but reason. Thus, he explains, there is a growing unease about the alleged, techno-driven Long Boom underway in American markets.
By historical standards, Shiller says, the U.S. stock market has rocketed to astonishing high levels. But if the history of high market valuations is any guide, the public may be profoundly disappointed with the market performance in the years to come.
This isn't just an economic issue for profit-hungry stock trawlers. How the market is valued affects the economic, political and social policies questions of society at large (and affects technology industries in particular). If a stock's value is exaggerated or climbs artificially high, then the country may invest too much money in business start-ups and too little in infrastructure, research, education, and other forms of "human capital." Thus if people lose faith in the market's future, they may associate that disappointment with technology.
The explosive growth of the Net and Web in the second half of the 90's has affected how Americans view the economy in general, and markets in particular, writes Shiller.
The Mosaic browser first became available to the public in l994. That date more or less marks the beginning of the Web, but only a few people had access to it. Large numbers of Web users didn't appear until l997, marking the very same years when the NASDAQ stock price index took off, tripling to the beginning of 2000, and price-ratio earnings entered unprecedently high territory. Net technology, writes Shiller, is unusual because it's a source of entertainment and preoccupation for so many people. It conveys, he argues, the sense of a changed future, of mastery of the world, which makes it plausible for people to assume that it also had profound economic importance.
"But we may question what impact the Internet and the computer revolution should have on the valuation of existing corporations," writes Shiller. "New technology will always have an impact on the market, but should it really raise the value of existing companies, given that those existing companies do not have a monopoly on the new technology?" The notion that existing companies will benefit from the Net revolution is belied, he argues, by the stories of E*Trade.com, Amazon.com and other upstarts, who didn't even exist a few years ago. What matters for a stock market boom isn't the reality of the Internet, but rather the "public impression" that the revolution creates.
This is a risky way to approach markets, he argues.
It also distorts the way people -- especially Americans -- view technology. The fixation on technology as force for wealth and economic growth is yet another distraction from the growing list of critical technological issues -- corporatization of technology, genetics, nano-technology, bio-tech, AI, supercomputing -- and other issues and concerns that are rarely discussed in mainstream media or political forums.
Shiller cautions that we might also become complacent in maintaining savings, improving the Social Security system or providing other social safety nets. We might also lose the opportunity to use our improving financial status to create slutions to real risks many Americans face -- to their homes, schools, cities and livelihoods.
This irrational exuberance (and its resulting complacency) is not only driven by the national obsession with computing technology, but affects the future of technology in a particularly direct way. The Internet, for all the hype, is still in primitive, nascent form. Some of the new technologies computing may spawn -- genetic research, nano-technology, bio-tech, supercomputing, AI -- will require vast amounts of capital that only a healthy stock market environment can generate. The collapse of this market, or doubts that it will grow and prosper, could have a devastating impact on the development of these new technologies.
Shiller warns in his book that a long boom may not be in the cards. By l999, he writes, the Dow Jones industrial average had more than tripled in five years. But personal income and gross domestic product each rose less than 30%, and almost half that increase was due to inflation. Corporate profits rose less than 30%. The size of the stock market's gains, he therefore cautions, may be unwarranted and unlikely to persist.
The mainstream media, as usual, has been far from helpful, lurching from one hysteria -- sex and thievery online -- to another -- dot.com investment hype. When it comes to grasping the impact of technology on society, the public has from the first stirrings of the Internet, pretty much been left on its own. One of the conclusions it has reached is that anybody with a computer and a modem can be a savvy, well-informed and ultimately profitable investor. This idea is at the core of the "irrational exuberance" Shiller is writing about. It it's true, we're in for many good and prosperous years, at least in terms of the economy. If it's not, and this feeling is illusory ...
Contemporary technology has, without a doubt, challenged historic ideas of how the economy works. Computing in particular is not only changing commerce, but revolutionizing access to markets by individual market investors, thus changing the markets themselves. The atmosphere surrounding technology is super-heated. It seems that half the country is buying tech stocks, the other feeling as if it should and could. E-trading has been in part responsible for the explosive growth in Americans use of the Net in the past two years, and also in the expectations of many Americans that technology is synonymous with growth and wealth.
Most of the current generation of technology leaders and workers has never really known recession, depression, or even much in the way of serious reversal. Unless people begin to invest in diverse and different ways, that could change, says Shiller.
He pleads for the expansion of the number and variety of securities and markets for them, to allow people to protect themselves against major economic risks. He favors new "macro-markets" that would include markets for long-term claims on national incomes for the world's major countries, and for truly diversified global portfolios, instead of limiting investors to securities that are claims on corporate profits, as is the case now.
"A doctor in Des Moines could take a short position in medical incomes and a short position in expensive Des Moines single-family homes," writes Shiller, "therefore effectively insuring against risks to both sustenance and shelter. At the same time, the doctor could buy securities linked to incomes around the world and to real estate around the world." These macro-markets would be bigger than current markets and far more diverse in the risks they present to people.
Irrational exuberance seems the right term for the atmosphere surrounding tech-driven markets. Millions of Americans are now using the Net to break open access to markets, even as they've driven prices up, they have clearly exposed themselves and their futures to risk.
It's almost impossible to pick up a newspaper or magazine without seeing more hype about the techno-boom and the wealth it's generating. This is dangerous, Shiller warns; it's a serious mistake for political and business leaders to acquiesce in such high stock valuations. It thus follows that it's not a good idea for the rest of us either.
"All of our plans for the future, as individuals and as a society, hinge on our perceived wealth," he warns, "and those plans can be thrown into disarray if much of that wealth evaporates tomorrow."
If you want, you can purchase this book at fatbrain.com.
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The latest installment of Geeks in Space is up at The Sync. Listen to CmdrTaco, Hemos, and Nate talk about the latest events to happen - or not happen in the computer world. Perhaps you are seeking Emmett's series of articles about making music with Linux. These articles include We're Getting There, Mastering, Bandwidth, and Synthesis and Notation And Alphabet Soup. For something different, try reading the Jon Katz essay Showdown With The Pinkertons about his encounter with the Pinkerton Special Services Group. Also, be sure to check out Katz's feature on Napster and Metallica, entitled Metallica's "Justice" And Napster Update: 05/02 05:10 by CowboyNeal: |
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| And...? (Score:1) by greysoul (greysoul@greymatter(dot)org) on Monday May 08, @10:36AM EDT (#1) (User Info) http://www.greymatter.org |
| Hasn't this happend a few times already? -GreySoul Q. What's it take to get a story posted on /.? A. Add "Oh, and it's runs linux" to every story, relevant or not. |
| Re:And...? (Score:1) by greysoul (greysoul@greymatter(dot)org) on Monday May 08, @10:40AM EDT (#3) (User Info) http://www.greymatter.org |
| ok, the clarify now that I have post #1... I have always felt that 'net stocks are unstable and volitile...that's what makes them fun, but so many people have their lives staked on this, when it does fall ... it's not a happy day, last summer that guy in Atlanta went crazy, he was a technology day trader wasn't he? we've already seen how hard a slip in MS stocks can affect wallstreet, this has been happening in a smaller scale for years now. While I dont predict a one day all out bottoming out of tech stocks, it does have a dominoe efect, which just proves the herd mentality. But for now, I know that I gots money in the bank, and the money in stocks cant really hurt that (for me)....tradeing is a risk, it's high stakes gambling on an international level, make sure you're out before the dealer pulls out his gun and shoots everyone :) -Doug Q. What's it take to get a story posted on /.? A. Add "Oh, and it's runs linux" to every story, relevant or not. |
| Fall yes, crash probably not (Score:1) by frode on Monday May 08, @10:49AM EDT (#24) (User Info) |
| I work in finance (bonds not stocks but anyway), the market has corrected and may correct again the point is the no-profit, pure story compaines are an will contnue to go out of bussiness, not all at once but slowly over many months. Also the market conditions are making some companies reexamine going through with an IPO so less are entering the marketplace. So while a great amount of money may be lost it won't be in a great crash but through a prolonged corrective period, perhaps leading to a bear market. Frode z Mortal men should not give up wives, sleep, and death for any service, lest the face of failure become too abhorrent to be endured - S.R.Donaldson |
| Re:Fall yes, crash probably not (Score:2) by Zoltar on Monday May 08, @11:48AM EDT (#139) (User Info) |
| Amen to that my brother. The good companies will grow and adapt and thrive(long term), the bad companies or the fly-by-nights will die. There will be lots of ups and downs in between. This is a brave new world, the computer revolution has begun and it's going to forever change the world. We have to realize that alot of these insane company market-caps are based on future earnings. The ones that don't have future earnings will die. It's plain and simple. So the moral to the story is: invest in good companies and if your investing in tech stocks don't put in any money you are going to need in the near future. |
| Re:Fall yes, crash probably not (Score:1) by tibbetts (t i b b e t t s @ a c m . o r g) on Monday May 08, @02:36PM EDT (#251) (User Info) http://my.voyager.net/tibbetts/jason |
The good companies will grow and adapt and thrive(long term), the bad companies or the fly-by-nights will die. There will be lots of ups and downs in between. While this sounds like common sense, the reality is that even one company in a hundred is stable enough to survive a market crash, there are tens of thousands of people who invested in the other 99. So what difference does it make that one company survived? Those tens of thousands of other people are shit out of luck, and given the fact that over 50% of Americans own stock in one form or another today, that's a recipe for a massive depression. It's one thing to be smug; it's another to be starving. "Don't put your heart out on your sleeve/When your remarks are off the cuff." -- Elvis Costello, "Riot Act" |
| Re:Fall yes, crash probably not (Score:1) by Zoltar on Monday May 08, @03:00PM EDT (#256) (User Info) |
| While this sounds like common sense, the reality is that even one company in a hundred is stable enough to survive a market crash, there are tens of thousands of people who invested in the other 99. Actually I was responding to a post which claimed that we would likely see many market corrections leading to a bear market, not a crash. I personally don't believe that a "crash" like the one leading into the depression will happen. However a bear market will happen at some time, and yes, the companies who are not generating revenue will eventually die. Over the long term the market has always come back from corrections so if you buy the Coke's and GM's you will do just fine. If you invest in the high-risk get-rich-quick stocks then you better know your at risk when you go in and you better be prepared for the worst. |
| Re:And...? (Score:1) by phosgene on Monday May 08, @01:08PM EDT (#206) (User Info) |
| Indeed it has happened before. I'm reading The Great Game by John Gordon which is a history of the US stock market. I don't know what Schiller's theories are but this sort of things has happened many times in the past. Most people remember 1929 because they've heard of that but the same type of thing (but not for the exact same reasons) occurred at least a couple of times before that (at least twice in the 1800s, for example). To me this "technology" boom isn't that different from the railroad stock boom or that of oil and steel company stocks before. |
| Re:And...? (Score:1) by LooT on Monday May 08, @01:18PM EDT (#212) (User Info) |
| It seems to me that our culture is progressing spriritually as well as metaphysically and psychologically where it is now coinciding with our advances in technology. No doubt we are living in a great time but who can say when it ends? why should it even matter so long as we focus on yourselves and our own evolution. We have most recently progressed emotionally due to heroic tales that tell us vitures of helping society with ourselves (i.e Star Wars). just ask joe campbell |
| When it ends empires fall (Score:1) by 42821128607675 (42821128607675@atdot.org) on Monday May 08, @06:29PM EDT (#283) (User Info) http://www.stratfor.com |
| If ecconomic success ends empires have a nasty tendency to fall. That is what is rather bad. Technology can impact our lives in small ways but only within the boundaries of what man thinks of as a tool and how he relates to his tools. If you really look at it my life will never change as long as I think of tools a certain way. I oftentimes think of tools as a power medium and as a means unto themselves. Quite nice. A very relevent corrolary is with Richard M. Stallman who has some rather interesting ideas about emacs being the focus of a religion (I do have to admit it works quite well although not to the level of a religious experience). If our progress falls so too does our empire. Humanity could exist but it would be broken, fragmented, and generally not a nice place to live in. A good look at this is in the series The Gunslinger by the author Steven King. He weaves a nice tale about what a potential world would look like when technology and it's advances start to fail. Essentially all people fall into a feudalistic framework and have difficulty in regaining their former power because of a vicious cycle. What is power if not for the furtherance of power. Power is a gift in it's own right and a means unto itself. |
| Re:For those not invested, crash is good time to b (Score:1) by Xenu on Monday May 08, @04:04PM EDT (#269) (User Info) |
| Nothing like a market crash to do some serious bottom feeding, then dump the stock after the market recovers. That sounds nice, but what if you get a market like the early 1930s, which just goes down, down, down, for years. |
| I only have one thing to say (Score:1) by Neuronix (igotfucked@yahoo.com) on Monday May 08, @10:42AM EDT (#5) (User Info) |
| Duh. |
| same thing with the railways 100 years ago (Score:1) by martin on Monday May 08, @10:42AM EDT (#6) (User Info) http://members.tripod.co.uk/~martindyn |
| Looks like this guy has read Anthony Trollop's "The Way We Live Now". If you replace railways in Trollop's book for 'Internet' in this book you see some striking similarities between then and now. |
| The sky is falling! The sky is falling! (Score:1) by BryanM on Monday May 08, @10:42AM EDT (#7) (User Info) |
| The author is right about everything, taken in moderation. Fears of a tech stock collapse a la the Great Depression are a bit silly and chicken-littlish. Does the author care to point out that this unprecedented era of economic growth coupled with low inflation can be attributed entirely to these technology companies whose stocks are so wildly inflated. I'm sure he'd love to see P/E ratios around 8.0 as they may have been 40 years ago, however 40 years ago a little $1500 box couldn't do the work of 10 white-collar employees! The market is purely supply and demand. As long as their is supply in the form of cash, stocks will continue to rise. When the cash dries up, they will fall. |
| Re:The sky is falling! The sky is falling! (Score:1) by Oarboat_7 on Monday May 08, @10:59AM EDT (#50) (User Info) |
| Does the author care to point out that this unprecedented era of economic growth coupled with low inflation can be attributed entirely to these technology companies whose stocks are so wildly inflated. Is there proof, or is this something that one sees coming from "Visionarys" of the "New Economy?" A $1500 box does the work of 10 white-collar employees? Don't be silly! |
| Re:The sky is falling! The sky is falling! (Score:1) by NullAndVoid (moc.lluBtib@feik) on Monday May 08, @11:47AM EDT (#136) (User Info) |
| The market is purely supply and demand. As long as their is supply in the form of cash, stocks will continue to rise. This reasoning (if you can call it that) is exactly why we're in a bubble. The stock market is not about supply and demand (not in the long term anyway), it's about ownership of companies. The price you pay for a company should be based on what it is likely to earn. When you get a bunch of people investing in companies based on "I want to own a hot .com stock", you get into situations where people are paying $1.20 for $1.00 of value, in the hopes that someone else will pay $1.50. This doesn't make the intrinsic value of the company go up. I'm sure he'd love to see P/E ratios around 8.0 as they may have been 40 years ago, however 40 years ago a little $1500 box couldn't do the work of 10 white-collar employees Uhh, do you even know what a P/E ratio is? Here's a hint: the "P" stands for "Price", and "E" stands for "Earnings". A P/E of 8.0 means you are paying $8 for each $1 a company earns. Company A made $100 in 1960, so with a P/E of 8.0 they were worthing paying $800 for. You are saying that company B.com now makes a profit of $1,000, thanks to the wonders of technology, so you think paying $80,000 is a now good deal. Wanna buy a bridge? Some swampland? I got some genuine Rolex watches for you, $10 each! I have to hope you're trolling, but the fact that the market is where it is today suggests that there are people who really are that ignorant. party online |
| it's all itulip.com now friend (Score:1, Insightful) by Anonymous Coward on Monday May 08, @03:49PM EDT (#265) |
| I don't think you have ever been through a total collapse. Remember Asia three years ago? Could it happen here? Japan is still technically bankrupt even after ten years and billions in bought US securities. Russia has still been under since 1991. China faces revolution if the state companies go bankrupt in the next few years. Pile on US re-financed stuff /mortgages/credit card debt/ margins from Ameritrade/retirement money/higher interest rates-- what do you get? Limitless growth globally? The stockmarket will reflect a reversion to the mean. All the Y2k nuts who stockpiled may have been right afterall. |
| Well... duh! (Score:2) by plopez on Monday May 08, @10:43AM EDT (#12) (User Info) |
| Anybody with a little common sense has already drawn that conclusion. Do you really need a finance or econimics degree to figure this out? One need only to look at the Dutch tulip craze to see the pattern.... |
| Re:Well... duh! (Score:1) by aphrael (burble@aphrael.org) on Monday May 08, @01:58PM EDT (#235) (User Info) http://www.burble.org/aphrael |
| One need only to look at the Dutch tulip craze to see the pattern.... Do you know of a good book on that? |
| Re:Well... duh! (Score:1) by libertas on Monday May 08, @04:52PM EDT (#272) (User Info) |
| Extraordinary Popular Delusions And The Madness Of Crowds By Charles MacKay (1841) http://www.litrix.com/madraven/madne001.htm |
| Katz, have you looked at the NASDAQ recently? (Score:1) by friskyotter on Monday May 08, @10:44AM EDT (#13) (User Info) |
| Down as much as 35% of it's 52 week high, currently somewhat higher but still waaaayyyy down. Wait, hold on, I'm about to predict LAST YEAR's super bowl winner.... its, its, the RAMS! ...disciplining the ronkeys since 3/2000... |
| Re:Katz, have you looked at the NASDAQ recently? (Score:1) by aphrael (burble@aphrael.org) on Monday May 08, @02:00PM EDT (#239) (User Info) http://www.burble.org/aphrael |
| Down as much as 35% of it's 52 week high, currently somewhat higher but still waaaayyyy down. Wait, hold on, I'm about to predict LAST YEAR's super bowl winner.... its, its, the RAMS! Er ... sure, NASDAQ is down from its high. But its PE ratio is still insane by historic standards, and the DOW isn't down significantly (although its PE ratio is insane as well). Maybe we're at the start of a "soft landing". But I wouldn't bet on it. |
| he sounds like many other old-style investors.. (Score:1) by sashae (sage at mtv.com) on Monday May 08, @10:45AM EDT (#14) (User Info) http://subtle.org/se |
| ..in that (from the way Katz described it) technology is all hype, and that investors who are buying in now are setting themselves up for a fall. To my mind, internet-age technology is fundamentally changing the way that we need to look at companies and their valuations. Coca-Cola, 3M, and other old-economy companies do not have the huge growthrates that companies like Nortel and Nokia show.. Nortel grew revenues 48% this past first quarter. Compare that to Daimler-Chrysler, which grew revenues 17% in the first quarter. Both of these are huge companies, yet Nortel almost triples their growth rate. Yes, I think some stocks are overvalued, but the recent crushing losses on the NASDAQ took care of a lot of the high-flyers with no tangible business like pets.com, drkoop.com, etc. A Cisco, a Nortel, a Nokia.. these companies are going to continue to have unbelievable growth rates over the next ten years as the internet becomes more and more part of our day-to-day existance. I personally would like to be a part of that. -s ---- noi non potemo aver perfetta vita senza amici -- Dante |
| Re:he sounds like many other old-style investors.. (Score:1) by Oarboat_7 on Monday May 08, @11:09AM EDT (#67) (User Info) |
| I don't think anybody is implying that 'technology is hype.' I think there's a certain amount of credence in the assertion that all this "New Age, All The Rules Have Changed" crap is hype. If you can't tell the difference, report to the detox center. You've had waaaay too many of the purple berries. |
| Re:he sounds like many other old-style investors.. (Score:2, Insightful) by palmakazi (bigbootie@yoyodyne.org) on Monday May 08, @11:41AM EDT (#126) (User Info) |
| Coca-Cola, 3M, and other old-economy companies do not have the huge growthrates that companies like Nortel and Nokia show.. Nortel grew revenues 48% this past first quarter. Compare that to Daimler-Chrysler, which grew revenues 17% in the first quarter. Both of these are huge companies, yet Nortel almost triples their growth rate. Agreed. However, growth comes at a very high cost, namely profitability. The primary purpose of any business is to make a profit. I think the bottom line is, don't panic, invest wisely, be patient, and diversify your holdings between risky companies that show little or now short term profit potential, and more stable companies that have historically shown a profit. And, if you stand to lose the baby's milk money in the market, you have no business being there. I agree with the author that much of today's investing is based on "emotion" and "herd mentality". Too many idiots throwing their life savings at the market in a purely speculative manner hoping to cash in on the next great dotcom. I think of the person I know who has a wife and kids, a new BMW and had to borrow $50K from his parents to cover his margin calls during the correction a few weeks ago. I shudder. Is this the "average" investor?
A herd is eventually led to slaughter....
|
| Re:he sounds like many other old-style investors.. (Score:1) by sfstich on Monday May 08, @12:00PM EDT (#149) (User Info) |
| Coca-Cola, 3M, and other old-economy companies do not have the huge growthrates that companies like Nortel and Nokia show.. Nortel grew revenues 48% this past first quarter. Compare that to Daimler-Chrysler, which grew revenues 17% in the first quarter. Both of these are huge companies, yet Nortel almost triples their growth rate. Do you think Nortel - or any tech stock you choose - could sustain a 50% growth rate for a longer time? They can at the moment, but this will continue for 1, 2, or maybe 3 years at most, when the corresponding markets are saturated. The stock valuations, however are very often based on the expectation that these growth rates will be sustained far longer. When it becomes clear that this can't be true, the stock prices will obviously start to slide down to a more sensible PE rate like 20-40 (even this is way higher than the 'PE' - rate of bonds, which is about 15-20 at the moment) A Cisco, a Nortel, a Nokia.. these companies are going to continue to have unbelievable growth rates over the next ten years as the internet becomes more and more part of our day-to-day existance. I personally would like to be a part of that. I would doubt that these even these companies can sustain the growth for as long as you think. In the long term (~10 years maybe), the growth in their revenue can not greatly exceed the growth of the GNP which is at about 6% in the US at the moment IIRC. Another point that will impede the high growth rates of these companies is the fact that the rate of savings in the USA has actually become negative in the last years, so the average US consumers spends more money than he or she earns. It is hardly possible to sell them even more. |
| but do 'dot coms' make a profit (Score:1) by DABANSHEE on Tuesday May 09, @07:58AM EDT (#315) (User Info) |
| Look at Amazon.com, worth billions, but most pundits doubt it'd ever make a profit. Really 'investing' in tech stocks is not much different to investing in pyramid schemes. In that the value is based on demand & nothing else, & the secret is to jump ship before everyone else. |
| Is this news to anyone? (Score:1) by Ars-Fartsica on Monday May 08, @10:45AM EDT (#15) (User Info) |
| Was there ever any expectation that 90% of these web companies would last? It would appear that the general public are the only ones still clinging to the myth - most VCs and tech workers understand full well that only a few .coms are going to survive. It would appear that tech funds have already largely reflected this....its only the Newsweek crowd in Middle America who still need convincing. |
| Re:Is this news to anyone? (Score:1) by mtnbkr on Monday May 08, @10:55AM EDT (#43) (User Info) http://foresthazards.virtualave.net |
| The majority of all new companies fail. Why should .Coms be any different? Usually, they fail due to lack of funding (profits) and/or mismanagement. It's surprising how many people forget this simple rule of entrepreneurship, especially the people that make their living working with such businesses. Chris |
| Re:Is this news to anyone? (Score:1) by flibbertigibbet on Monday May 08, @08:13PM EDT (#290) (User Info) |
| Yes, but I think he is drawing this conclusion in connection with all the money flowing into that market. |
| Makes sense (Score:3, Interesting) by Waav (maudy@ualberta.ca) on Monday May 08, @10:45AM EDT (#16) (User Info) |
| This looks really neat, and quite reasonable. I've been claiming for quite sometime now that the tech stocks are going to cause serious problems on the stock market in the very near future. I believe that this is a result of what Shiller refers to as herd mentality. The same phenomenon that has led to the insane IPOs is going to bring the market down. At some point some number of people are all going to bail on tech stocks at approximately the same time. The 'herd' who are trading from their home computer will nearly instantly begin selling their stocks. We've seen this happen already a few times in the last six months to differing degrees. I find it very likely that the biggest 'crash' is in the imminent future. |
| Re:Makes sense (Score:2, Insightful) by quarkoid on Monday May 08, @11:02AM EDT (#55) (User Info) http://www.debau.ch/ |
| The 'herd' who are trading from their home computer will nearly instantly begin selling their stocks You seem to be labouring under the impression that Joe Punter and the are worth their current prices. Not because of what they're doing now, but because they're taking up the market share, ready for world domination in the future (OK, a little strong, but you get the picture). A foot in the door now will save megabucks in the future, both in terms of development costs and in terms of keeping customers. Shops will shut and more effort will be put into selling on-line. Perhaps not next year, or in five years, but maybe in ten this'll start hitting. What does concern me, is the depression which will happen when retail jobs do start disappearing more quickly. Nick. |
| Re:Makes sense (Score:1) by flibbertigibbet on Monday May 08, @06:30PM EDT (#284) (User Info) |
| Your assertion that monetary policy is primarily responsible for the business cycle is false. I would also note that supposition stating that Laissez Faire approaches can actually work, are either convenient lies or stupidity as result of propaganda - depending on who you ask. |
| I just mentioned this yesterday to a friend. (Score:3, Insightful) by Carnage4Life on Monday May 08, @10:46AM EDT (#18) (User Info) http://www.25hoursaday.com |
| a provocative, even scary new book by Yale economist Robert J. Shiller -- is sending shock waves through Wall Street. Shiller argues that the techno-fueled stock-market boom is based on emotion, rumor, pyschology and herd instincts (like excitement about the Net), rather than on any rational facts or data -- and that it can't last. Duh. Most people realized this in 1999 and if they didn't then they would have after the dot com massacre of a few weeks ago. All it takes is one question to make people realize that the market is no longer fueled by hard facts but emotions and rumor. Q: Why does the fact that MSFT is being split up mean that the shares of Yahoo, Oracle, Red Hat, Amazon, Sun etc. should all fall 10 to 25 per cent? A: There is no logical reason that can be backed up by financial data or hard facts. But there are several emotional reasons why this could occur, chief of which is "If MSFT shares are falling then the shares of the stock I own will fall as well, I better sell.". "Real programmers read slashdot but don't post, they are too busy writing code." - Carnage4Life |
| Re:I just mentioned this yesterday to a friend. (Score:2, Interesting) by binarybits on Monday May 08, @11:14AM EDT (#76) (User Info) http://www.tc.umn.edu/~leex1008 |
| Actually, there is a reason. The stock values of many of these firms is based heavily on the expectations of future earnings. The lesson of the Microsoft case is that if a company is too successful, it will be punished. Therefore, the breakup of Microsoft sets a precedent that hurts the prospects for other high-growth stocks. More government regulation is a bad thing for the industry, and the antitrust case is government regulation. The market is reflecting this. |
| Counterpoint (Score:3, Interesting) by Carnage4Life on Monday May 08, @11:35AM EDT (#122) (User Info) http://www.25hoursaday.com |
| Actually, there is a reason. The stock values of many of these firms is based heavily on the expectations of future earnings. The lesson of the Microsoft case is that if a company is too successful, it will be punished. FUD, FUD, FUD. Cisco (CSCO) is America's most valuable company and can be considered more successful and monopolistic than MSFT in every sense of the word. MSFT was punished not for being to successful or even for being a monopoly but for using it's success unfairly to damage competitors. Cisco (as well as Intel after making deals with the DOJ) is more successful than MSFT and is a technology company, yet it is not being harassed by the DOJ because "crush the competition by any means necessary" is not their guiding principle of operation. "Real programmers read slashdot but don't post, they are too busy writing code." - Carnage4Life |
| Re:Counterpoint (Score:1) by binarybits on Friday May 12, @06:54PM EDT (#322) (User Info) http://www.tc.umn.edu/~leex1008 |
| FUD I wish people would stop using this word out of context. FUD stands for "Fear, Uncertainty, and doubt." As in "if you buy a non-Microsoft product, you never know what bad things will happen." FUD is designed to get people to buy the dominant product due to the fear that the alternative has unseen downsides, the uncertainty about the products quality, and the doubt that the product will work as advertised. My statement says nothing about Microsoft's products or those of its competitors. It might be pro-Microsoft propoganda, but it isn't FUD. Please use the word in its appropriate context. Cisco (CSCO) is America's most valuable company and can be considered more successful and monopolistic than MSFT in every sense of the word. I think a large part of the reason Cisco hasn't been targeted is that it's not as high-profile as Microsoft. People see the Microsoft logo every time they start up their computers, and software developers' lives revolve around changes MS makes to its API's. Cisco may be just as ubiquitous, but neither users nor developers deal as directly with their products. A cisco router sits in the background minding its own business. And so no one is pushing the DOJ to go after them. I don't particularly want to get into another long discussion of the merits of antitrust law. Even most defenders of antitrust will concede that once a company gets a large enough market share, the rules change and the company isn't allowed to engage in various "unfair" activities. Whether you agree with these restrictions or not, they *do* reduce the payoff for starting the next Microsoft. Yet it is not being harassed by the DOJ because "crush the competition by any means necessary" is not their guiding principle of operation. This is and should be the guiding principle of any company. That's what competition is all about: you try to take as much market share as possible from your competitors, and you use any non-violent means at your disposal to do it. It's oxymoronic to expect companies to compete but not compete "too hard." All companies try to crush their competitors. If they didn't, their competitors would likely crush them. That's the way the free market works. |
| Re:Counterpoint (Score:1) by flibbertigibbet on Monday May 08, @03:58PM EDT (#267) (User Info) |
| You are obviously not aware of the economic definition of the term 'monopoly'. |
| Re:Counterpoint (Score:1) by flibbertigibbet on Monday May 08, @04:03PM EDT (#268) (User Info) |
| There is plenty of evidence: - DOJ case and findings - halloween documents - the palm e-mail You can come back and cry liar or idiot when you, yourself can assert your reasonable opinion and data. |
| Re:Counterpoint (Score:1) by flibbertigibbet on Tuesday May 09, @01:45AM EDT (#309) (User Info) |
| simpleton |
| E-Bay Correlation? (Score:1) by Racher on Monday May 08, @10:46AM EDT (#19) (User Info) |
| I wonder if all the madness during the ending of E-Bay auctions is similar to this. You know, people paying several dollars over the street value for various items... I must admit I have almost been caught up in this at times. Then I slow down and realize that I don't need to pay $180 dollars for this 8 port switch when I can go and get a new one at the store for less. If ignorance is bliss, then why aren't more people happy. |
| Big changes ahead? (Score:1) by laetus (laetusNOSPAM@netscape.net) on Monday May 08, @10:47AM EDT (#21) (User Info) http://www.emuse.net |
| Sure. Maybe. It could be irrational exuberance, or it very well could be as many people suspect great new opportunities to invest in technologies that will change the world as we know it (web, telecom, nanotech, biotech, etc.) Sure, valuations are sky high. Just like they were when the automobile first hit. There were tens of automobile companies in America that people invested in, thinking, "Wow, this is great new technology that will change the world." It did (do you own an auto?). But not all those early auto companies survived. In fact, look at the Big 3 in America. Consolidation happened as the market matured. Consolidation will happen to all the aforementioned technology markets. The trick is to invest in those companies who will do the consolidating and survive in the end. Then we can be back with our lives and Newsweek can stop reporting abou the stock market and begin reporting about more salient issues like, what is Brad Pitt wearing today and what new disgusting fad have teenagers picked up to screw with their parents heads. |
| The PollMastah Strikes Back (Score:1) by PollMastah (polls@poll.booth.com) on Monday May 08, @10:47AM EDT (#22) (User Info) http://www.slashdot.org/pollBooth.pl |
Opinion poll: tech stocks will ...
Let's make Slashdot polls happen once a day! Join the Slashdot Poll Suggestion Club |
| Economic Forcasting 204 (Score:4, Insightful) by dsplat on Monday May 08, @10:49AM EDT (#25) (User Info) |
| The market goes up and down. We refer to this as business cycles, booms and busts, or expansion and recession. The easiest bet to win is that the next recession will happen. This author at least has the guts to give reasons and work some numbers. But nothing about that prediction is revolutionary. And none of it should be any more alarming than the arrival of any previous recession. And that appears to be part of the message. We have not seen the end of business cycles. They are driven, in part, by human emotions: greed and fear. Technology is far from eliminating those. Personally, I look on the possibility of a serious correction in the markets as a buying opportunity. The secret is to find the companies that are fundamentally strong. Their stock prices will take a hit too. But they will come back, faster and stronger than the rest. If you are worried about whether good companies will be able to get funding, go find them and supply it yourself. Buy their stock. It could make both you and them rich and successful. Slight disorientation after prolonged system uptime is normal for new Linux users. Please do not adjust your browser. |
| Long term trend is always: UP! (Score:1) by PanDuh (panduh@orgsyn.com) on Monday May 08, @12:36PM EDT (#181) (User Info) http://www.originalsyn.com |
| Personally, I look on the possibility of a serious correction in the markets as a buying opportunity. The secret is to find the companies that are fundamentally strong. If people are going to use history as an indication of future performance (which is what this guy Schiller is doing), then you will see that the long-term trend of the stock market is BULLISH. Unless the planet suddenly regresses back to the Middle Ages, technological advances will always provide greater levels of production, output and efficiencies that will drive businesses upward. Despite all the crashes, recessions and busts for whatever reasons, the market has continued to climb higher and higher, and chances are, it will continue this trend. If you put your money in a properly diversified portfolio that includes the top companies of several different industries, (such as the S&P500 index stock) you should be good for the long-term - and thats all it boils down to. Everything else is a crapshoot. |
| Re:Long term trend is always: UP! (Score:1) by Ru610 on Monday May 08, @07:46PM EDT (#288) (User Info) |
| Ah, the sweet smell of unsound induction: All frogs must be green because all the frogs I have seen so far were green. In any introductory philosophy course you will learn that there is at least something wrong with induction (read Hume). But somehow people who talk about the stock market seem absolutely confident that induction will work for them anyway. |
| Cautious Optimism (Score:2) by ch-chuck (uce@ftc.gov) on Tuesday May 09, @06:45AM EDT (#314) (User Info) |
| that used to be the buzz-statement during the 80's, anytime a talking head was asked almost anything re: the future, they were "cautiously optimistic". Personally I enjoy reckless abandon to irrational exuberance .... ;) Beware the naked Samurai ! |
| Individually yes collectively no (Score:3, Insightful) by logicnazi (gerdes@invariant.org) on Monday May 08, @10:50AM EDT (#28) (User Info) |
| The fact that the market is acting irrationally with respect to individual stocks should come as no surprise whatsoever to anyone who looked at the 3com palm valuations. The more important question is the technology sector as a whole overvalued. I think it was cringely who pointed out that a simple analysis suggests it is undervalued. Technology and internet sales should in the future account for a sizeable percent of all transactions. Therefore comparing against the total amount of sales in the US the total valuation of internet stocks isn't very large. The question at hand is then will the internet market be filled by a few big companies or many many small stores. If the former then the valuation for amazon.com and similar stores is not to high as they will probably control all of the internet market (the internet equivalent of GE or something). If on the other hand the low cost of entry into the market opens them up to little stores then they are tremendously overvalued. Fortunatly for them it does appear that the internet will come to be dominated by a few big companies in each area. Unlike conventional stores there are no underserved areas to strat a new company in. If I start a new brick and mortar store I automatically get a certain customer base of those people closer to my store than to the other. People may be dribing around and happen to stop in. The web on the other hand has no such features. If I happen to see another book store online it is no more trouble to click the bookmark for amazon then to enter this other store. Furthermore much more than conventional stores people wish to shop the same places online as there friends do. This is augmented by the efforts of these online stores to set up programs benifiting those whose friends are also members (gift lists etc..). As people seem to neglect price differences under a dollar or so the competition on the internet seems an unlikely force to draw people to seperate vendors. In fact the major vendors have a size advantage which is not compensated for by any sort of local advantage as every web vendor is an international seller. In truth it wouldn't be that surprising if one gnereal purpose retailer ended up serving 90% of the internet orders. As such the high internet prices can be viewed as a bet that this vendor is going to become the powerhouse or at least one of them. rot 13 my email xor with the first 20 letters of the king james bible and run crypt to mail me. |
| Re:Individually yes collectively no (Score:1) by tjansen (tim@tjansen.de) on Monday May 08, @11:46AM EDT (#131) (User Info) http://www.tjansen.de |
| Will there be any stores in the future? Sooner or later someone will create a global system where you can compare prices directly, and this will ultimately force manufacturers to sell their goods directly. "Real-life" shops might have a chance to survive, because they offer an exhibition of products the make it possible to pick the product up immediately. But online, there will only be no use for shops. Competition will remove all middlemen between the customer and the manufacturer. Only those that offer extra-service, a real benefit to the customer have a chance. (I want to be able to correct my comments after posting them.. sorry for my typos) |
| Re:Individually yes collectively no (Score:1) by Detritus (jlimpert@acm.org) on Monday May 08, @12:32PM EDT (#176) (User Info) |
| Do the manufacturers want to sell goods directly to the public? Selling small quantities and holding the customer's hand is expensive. Many manufacturers would rather ship a truckload of goods to a wholesaler or retailer, and let them deal with the end users. |
| Hardly new.. (Score:3, Interesting) by MosesJones (steve@DeSpamnetworked-gaming.co.uk) on Monday May 08, @10:51AM EDT (#30) (User Info) http://www.networked-gaming.co.uk |
| Look at the South Sea Bubble of 250 years ago for yet another example that a) Stockbrokers are like sheep b) people are greedy The market _relies_ on the sheep and herd mentality to get by. Economics is a psuedo-science that postulates theories that cannot be used. The Best Economics theory is by an ex-Head of the London School of Economics after the disasterous use of an economic theory by Margret Thatchers goverment... "Any economic theory that is used to determine policy shall cease to become valid". In other words folks it doesn't work at all. I laugh out loud when I hear of yet another wonder theory in the field of economics, remember Hedge Funds ? The great way to make a profit guarenteed.... didn't work did it ? The tech sector is a classic example of economists and brokers attempting to proscribe generalities to a broad sector. Most "reports" place Sun, Microsoft, IBM and Oracle in the same bag as Boo.com, etrade.com and various other .com only enterprises. There is NOTHING wrong with IBM et al, they are not bubble companies, they have relatively low P/E ratios and are solid as a rock. However when the market plunges expect them to take a hit. And when they do... buy them. Parts of the tech sector are over-valued, but not ALL of the tech sector is over-valued. The easiest way to get shot is to carry a gun -- Atticus Finch |
| Re:Hardly new.. (Score:2, Interesting) by ucblockhead (sburnapSPAMSUXlinux@attSPAMSUX.net) on Monday May 08, @11:06AM EDT (#64) (User Info) |
| You can find many examples of this sort of behavior in the classic book on the subject Extaordinary Popular Delusions and the Madness of Crowds As you imply, this is not a new thing. This sort of thing has gone on for centuries. (Hell, likely millenia.) It is caused by the unfortunate tendency of the human animal to let optimism override good sense when it comes to profit. Anyone wanting to invest in tech should read the above book. (Hell, perhaps I should have when I invested in Corel. Perhaps I would have sold instead of watching all of my profit vanish. But that's another story...) What is really interesting about all this is that there are other areas of the market that seem undervalued, because all of the money is chasing tech stocks.
|
| Re:Hardly new.. (Score:1) by aphrael (burble@aphrael.org) on Monday May 08, @01:55PM EDT (#231) (User Info) http://www.burble.org/aphrael |
| Hell, perhaps I should have when I invested in Corel. Funny, i'm trying to *avoid* investing in Corel. Here's hoping the merger falls through *cross fingers* |
| Re:Hardly new.. (Score:2) by King Babar on Monday May 08, @12:44PM EDT (#184) (User Info) http://www.missouri.edu/~kingjw |
I laugh out loud when I hear of yet another wonder theory in the field of economics, remember Hedge Funds? The great way to make a profit guarenteed.... didn't work did it? It didn't? There have been some well-publicized failures, but the last I checked there was no indication that Hedge Funds as a whole were losers. But it should be pointed out that Hedge Funds were based on economic theory that actually suggested not that you could always make a profit, but that you could neutralize certain kinds of risks. This thinking starts with the assumption that prices contain all the information we have about the prices of securities, and that in general arbitrage should (therefore) be impossible, since if there were any inconsistencies between the prices of certain securities, the market would quickly suck them dry. As it turns out, there are some short-lived inconsistancies to exploit, and that's where Hedge Funds try to make their money. The problems arise when you try to leverage your ability to make these kind of gains (use borrowed money to make the investments needed), and when you depend on a lack of outside manipulation of the underlying values. The latter is where some of the biggest disasters have happened: some non-market force has intervened to set or keep a particular price, invalidating your expectation that two securities would inevitably come to be worth the same thing within a given temporal interval. Things take longer than "they should have", somebody calls a loan or two, and boom. But the amazing thing about Hedge funds is that they don't depend (theoretically) on the long-run perfomance of anything, so that they should do okay in any setting. Except settings where a non-market force can irresistably keep a price differential open. Babar |
| Re:Hardly new.. (Score:1) by Stu Charlton (stuartcharlton@hotmail.com) on Monday May 08, @02:18PM EDT (#247) (User Info) |
| I thought that the general consensus among mainstream economists is that the stock market IS being irrationally exhubrent and is threatening the long term sustainability of the current expansion. Translation: they're cheering Greenspan on. "Come on, Al! make it a 50 this time!" Research theories from academics don't typically represent the day in and day out reality that applied economists deal with. [Applied economists are typically financiers, finance politicians, clued-in managers, consultants, and the odd techie who happens to have an economics degree.. :) ] -Stu |
| Re:Hardly new.. (Score:1) by ucblockhead (sburnapSPAMSUXlinux@attSPAMSUX.net) on Monday May 08, @11:38AM EDT (#125) (User Info) |
| People are no different today than they were 250 years ago.
|
| Re:Hardly new.. (Score:1) by ucblockhead (sburnapSPAMSUXlinux@attSPAMSUX.net) on Monday May 08, @01:05PM EDT (#202) (User Info) |
| Investors are no different today then they were 250 years ago, either. They just like to pretend they are as they pump money into the latest bubble.
|
| Re:Hardly new.. (Score:1) by Detritus (jlimpert@acm.org) on Monday May 08, @12:16PM EDT (#161) (User Info) |
| I recently read a book that pointed out that speculative booms, and crashes, have followed every major advance in technology. Two of the examples given were railroads and radio. Investors threw money at everything that moved, in the hope of getting rich. Most of the new companies failed or were acquired at cheap prices. |
| Old News? Common Sense? (Score:2) by Seumas on Monday May 08, @10:54AM EDT (#36) (User Info) http://www.seumas.com |
| I don't mean to sound contrite, but is this really surprising to anyone? Didn't anybody learn anything from 1929? Granted, it was a different time and a different scenerio, but you don't need to be an economics major to realize that people choose their investments much the way they choose their dish at an ice-cream parlor. The goal has never been to invest in a company for their goals or their achievements, but for the potential perception the market may eventually have for them. The market brings to my mind the warm fuzzies of Richard Smalley and the I'm Okay, You're Okay skits from Saturday Night Live. The only thing that matters is that you keep telling yourself that you're a good person, a winner, a success and that, gosh darn it, people love you. And, in a nutshell, that's how the market of the last decade (at least) and this next decade ebbs and flows. Through self-pride and reinforced self-delusion. |
| Re:Old News? Common Sense? (Score:2) by jbarnett (jbarnett@NOSOAMaxil.netmate.com) on Monday May 08, @11:17AM EDT (#90) (User Info) http://axil.netmate.com/~jbarnett |
I don't mean to sound contrite, but is this really surprising to anyone? Didn't anybody learn anything from 1929? Sorry I wasn't alive then. What was it like? The way I was taught to invest has been learned though listening to drunks at a bar, which now that I think about it, someone that drinks heavily from a major finicial lost probably doesn't give good advice on the stock market... Anyways, what I have always been told, is that you should invest for the long term, not none of these, dump a couple bucks in VALinux IPO and bail out early. (sure it works, but...). If you invest for the long haul, sure there is going to be up's & down's, but after 10 yeras, there will be a whole lot more up's than anything else. Invest in strong companies that will be here in ten years. A rule of thumb I was told was "Ask yourself, is this company going to be around in 100 years? Are they going to pull a profit every year (not matter how little of a profit)?" Look at GM, Coke-a-Cola, IBM, these are all strong companies, sure they aren't sexy start ups, sure they don't pull a billion dollars a day, but they will be there, and they will make money though the years. Tech companies can do this, but it wouldn't be as sexy now would it? "Science is like sex: sometimes something useful comes out, but that is not the reason we are doing it" -- Richard Feynman |
| Re:Old News? Common Sense? (Score:1) by Prof_Dagoski (dagoski@umich.edu) on Monday May 08, @11:31AM EDT (#115) (User Info) http://www.academic.umich.edu/~dagoski |
The big reason for the 1929 collapse was reckless use of margin to buy stocks. You had investors racking a debt that was worth more than their assets just so they could bet the stock would climb. Stocks fell--not crashed--, and lenders started calling the debts, causing the investors to sell off everything to pay the lenders back. Then the stocks crashed big time. Meanwhile, today we have much tighter regulations to prevent this scenario, but the simple fact remains: Most investors are stoopid. And now we have more investors than ever. I wish I knew what that kind of mass stupidity would do. If I did, I could make a fortune. Until then, even a conservative stock investing program makes a lot more money than any kind of interest bearing instrument. So, what's a person with a savings to do? |
| Re:Old News? Common Sense? (Score:1) by Dinosaur Neil (ksavage@ix.netcom.no.spam.i.com) on Monday May 08, @12:20PM EDT (#166) (User Info) |
Most investors are stoopid. P.J. O'Rourke summarized this neatly in his Eat the Rich book; "You buy stock because you think other people will think this stock is worth more later than you think it's worth now. Economists call this - in a rare example of comprehensive economist terminology - the 'Greater Fool Theory'." I think I'll re-read this instead of picking up a new book that states the same thing without being deliberately funny... "That which we win cheaply, we esteem lightly." - Thomas Paine |
| Re:Old News? Common Sense? (Score:1) by flibbertigibbet on Monday May 08, @07:52PM EDT (#289) (User Info) |
| Not to mention flaws in CPI and the GDP deflator. |
| Re:Old News? Common Sense? (Score:1) by EnVisiCrypt on Monday May 08, @11:46AM EDT (#133) (User Info) http://www.envisua.com/ |
| I know it's offtopic, but it's Stuart Smalley... I'm "..like those hip musicians in their complicated shoes.." -Costanza |
| Re:Old News? Common Sense? (Score:2) by Seumas on Tuesday May 09, @06:25AM EDT (#313) (User Info) http://www.seumas.com |
| Um. I was talking about Richard Smalley, the 1996 Nobel Laureate in Chemistry, Richard Smalley. Okay. No I wasn't. ;) |
| Re:Old News? Common Sense? (Score:2) by Seumas on Tuesday May 09, @06:20AM EDT (#312) (User Info) http://www.seumas.com |
| Why should you? The behavior of your market can't be blamed on you. Well, my public education apparently should not be blamed on me either. *grin*. Yes, I meant trite. That'll teach me to preview my post while I'm on the phone with three different people with downed servers! :P |
| Surprise! (Score:2) by swordgeek (spamlist@um......go.com) on Monday May 08, @10:55AM EDT (#41) (User Info) |
| Well I only read the first paragraph, but I think it gives me a good idea of the rest of the article. I certainly can't imagine that this is news to anyone. Tech stocks have traditionally been high-risk, high-return. In recent years, things have gotten totally out of hand. Almost the entire market valuation of computer-related stocks (especially the "dot-coms") is now based on air and hype. The companies aren't designed to be stable, and in many cases, not even to generate a profit. (possibly not even offer a product, which is really sad) Ultimately, there's going to have to be a severe revaluation of the market. If it happens in a short period, it's going to be close to a full blown crash. Expect the Dow-Jones to drop 50% or more in a single day if panic sets in. In the meantime, some people are going to get stinkingly rich on the market instability. That's what the stock market is all about! So, um....where's the news again? "People who do stupid things with hazardous materials often die." -- Jim Davidson on alt.folklore.urban |
| Money talks (Score:1) by Wreck (leonard@dc.spam.net) on Monday May 08, @10:58AM EDT (#44) (User Info) |
Anyone who believes this, ought to be very happy. Any time you can identify irrationality in how the market is working, you can make money off of it by merely buying and selling stocks or other financial implements rationally. In this case, it is argued that the stock market is "too high". OK, if the stock market is too high, that must mean that some specific stock(s) are too high. Identify the most extreme ones. Short them. There; you should be a millionaire in short order. Be sure to go way out on margin, you want to lever every bit of money to get the greatest return. Now, to Mr Katz and anyone else who really believes that the markets are valued wrong: why are you not out earning zillions? Could it be you don't really believe what you are saying? Could it be that talk is cheap? Could it be that money talks -- bullshit walks? The stock market is unlike other domains where pundits get to flap their jaws all the time to no apparent effect. In the stock market, you put up or shut up. Have you ever noticed why stock analysts on news shows are always so much more wishy-washy than, say, political commentators? That's why. Jon, how much have you earned in the stock market lately? |
| Re:Money talks (Score:1) by aphrael (burble@aphrael.org) on Monday May 08, @02:04PM EDT (#240) (User Info) http://www.burble.org/aphrael |
| Now, to Mr Katz and anyone else who really believes that the markets are valued wrong: why are you not out earning zillions? Insufficient capital to play. I've got less than $10K in the bank at the moment; while I could earn some with that, it's not going to make me a millionaire. |
| Government regulation the only option?? (Score:1) by jamesbulman on Monday May 08, @10:59AM EDT (#46) (User Info) |
| The vast amount of reactionary trading which is done by private individuals can only lead to a damaging effect on the markets in the long run. Companies are being forced to make ill-advised decisions purely to satisfy investors who have no real concern for the companies involved, other than short termism profiteering. One possible solution is for government regulation to mandate minimum values for trading, outside of the reach of small investors. Another solution could be to delay trading by 48 hours on small trades, minimizing the "herd" effects. |
| Ever heard of the SEC? Trading already regulated (Score:1) by Ars-Fartsica on Monday May 08, @11:07AM EDT (#66) (User Info) |
| The government can't, won't, and shouldn't eliminate risk. The best they can do is make sure you know up front what you are getting into. Most disclosure forms from .coms are riddled with warnings. If you don't heed them, your losses are your own issue. |
| Re:Government regulation the only option?? (Score:1) by jeillah on Monday May 08, @12:08PM EDT (#155) (User Info) |
| It's not the individual trading 10 shares of E-Bay that cause the wild fluctuations in the market. It's the big fund managers and other institutional investors driving the market way up one day and down the next, making money either way. It's the little guy who pays for it. It's just one more way for the rich to screw the masses out of their money. |
| Re:Government regulation the only option?? (Score:1) by aphrael (burble@aphrael.org) on Monday May 08, @02:07PM EDT (#242) (User Info) http://www.burble.org/aphrael |
| One possible solution is for government regulation to mandate minimum values for trading, outside of the reach of small investors. Another solution could be to delay trading by 48 hours on small trades, minimizing the "herd" effects. Thereby allowing only the "big boys" to play, and ensuring that if the stock market *does* take a dump, the small investors will get screwed the most. I'd be more in favor of increasing the margin-backing requirement (you're only allowed to have a certain percentage of your portfolio out on margin; i'd decrease that percentage); this would protect people from the behavior most likely to hurt them if the market dumps. |
| Daytraders weighted too highly (Score:1) by magarity on Monday May 08, @10:59AM EDT (#47) (User Info) |
| The book in question is giving entirely too much emphasis to the daytrading community who make technology stocks bounce wildly. You have to realise that the VAST bulk of monies in the US stock market are controlled by professional mutual fund managers. These people are NOT given to hysterical trading as they are looking after other people's money and on a decades long time frame. Sure, technology stocks may or may not be volitile and this causes big news, but they do not make up the majority of companies listed. The entire economy does NOT ride along with the Wall Street indices. Remember, the stock market crash in 1929 lead to the run on banks and it was failure of a lot of banks and everyone losing their money that way which brought on the Great Depression. It was NOT the crash of the market itself that ruined the show. Today we have FDIC to keep the banks afloat, and really, I don't think anyone is going to be running to the bank to draw out cash money in case the bank fails. As a populace we have MUCH too much faith in the banking system (even if we don't really LIKE our individual banks). All in all, the tech stocks are horribly overvalued, IMHO, but so what? In the big picture and in the long run, they'll settle out to what they are 'supposed' to be, even if it is a rocky ride for some individual daytraders. Meanwhile, trade in your options ASAP and invest your money in a variety of stock types and you'll be fine. |
| Herd mentality, what a joke (Score:1) by Madness_ on Monday May 08, @10:59AM EDT (#48) (User Info) http://www.f-64.org/ |
| McPhail in _The Myth of the Madding Crowd (Social Institutions and Social Change)_ confronts this notion of the crowd acting in a herd-like mentality much like that of cows or sheep and shows that it is an error caused by incomplete understanding of crowd dynamics. If this Yale expert really knew what he was talking about he'd have read the research and known that the herd mentality theory of crowds has been dead for years. If he's wrong about that what other B.S. is he cranking out. http://www.f-64.org/ |
| Re:Herd mentality, what a joke (Score:1) by flibbertigibbet on Monday May 08, @05:42PM EDT (#280) (User Info) |
| I read the book. It is unrelated to analysis of macroeconomic aggregates and indicators, and fails to introduce any new theory in its applicable field. IMO, his individual in the crowd assertion is a good start, but fails to describe sufficiently in the economic system, a) bounded rationality and imperfect information: * the individual is only one unit in the game * the individual is most likely not aware of or does not understand many macro-economic factors * the individual may not care, as the individuals goals have nothing to do with macroeconomic stability * the individuals goals may be parallel with good business practices and investment, but are not always. The individual unit exists in the game to profit. * macro or even micro economic factors may be too complex to understand without detailed analysis and information consumption b) a so called "herd" effect can be explained by: * imperfect individual information when investing * the goals of the individual or investment company to profit not parellel with business reality, and therefore only being a conduit to perceived profit instead of business investment * the role of the media in stirring up fear and uncertainty, or conveying relative good times. This can effect the air in the investment community. * human uncertainty and emotion with other players in the game can create "irrational" behavior given a complete perspective that the individual doesn't have -- and even if the individual does have complete perspective, there is risk at hand, which may magnify small uncertainty * groups of individual units acting to personal rational behavior may create a situation where, for example, stock r attracts N individuals looking to profit, and stirring up hype and interest may be conductive to that cause. It just might not be conductive to future growth and earnings in stock r. c) new industry and future predictions: * if the guessers, media and visible players state that that technology/stock group x will be the next big thing, then many will come and invest. Why? Imperfect information, the air created by media and big players being conductive to profit and growth, * the individual units are most likely above all interested in personal profit. This rational behavior may not coincide with macro health. * the individual does not know what other units are thinking, and may therefore think that, for example, that shorting stock {a,b,c,d,e and f), even though we may or may not know anything about it, or even know the business model is riddled with uncertainty, but not care, because of short sighted individual interest.. This is very simplistic, of course. To actually understand in detail, one would have to isolate all major players, their goals and statistical behavior, and apply said model from findings to various cases. IMO, there is no question of a herd effect, as repetition of uncertainty in the mass media and then drops in prices will create fear. The individual unit is actually acting rationally - its just that uncertainty, as in bounded rationality through imperfect information in self and others creates the environment. A recent example is the Microsoft anti-trust hoopla: Anti-trust make findings. Mass media reports across the board that it will have no effect on Microsoft. Therefore there is a rally in the stock, and uncertainty is held at bay. Or, for example, Redhat or VA Linux: There is sufficient hype and newness in linux and open source; people jump in, either guessing it will be the next best thing, or just looking to profit from one of the new gigantic IPO's, inter-related with the air over the 6 months prior that tech stocks are the next great thing - which creates a flood of buys and a completely inflated stock price. Whether most believe the hype or not, this is what happens. It's actually possible that none of them do -- they may just want to make a quick buck. It's simple really. Another example: It's not like people are thinking of macro-economic effects such as inflation and their money possibly being worth less when spending all their money and filling all their credit cards, possibly creating a situation where there is more demand than supply in certain markets, resulting in rising prices... Or conversely the opposite in savings.. |
| -Yawn- (Score:1) by Reality Master 101 (RealityMaster101{at}hotmail{dot}com) on Monday May 08, @10:59AM EDT (#49) (User Info) |
Are stocks overvalued? Probably, which is why we had the "black week" a month ago. But we are not living in 1929 when everyone was leveraged at 10x your money (i.e., for every dollar you invested, you where borrowing nine dollars). These idiots have been writing these books for the last 10 years, and this guy is more of the same. Crashes will happen. That is certain. But it is extremely unlikely that we will see the kind of environment we had in 1929. We simply have a much stronger economic foundation. -- |
| Re:-Yawn- (Score:1) by magarity on Monday May 08, @11:44AM EDT (#129) (User Info) |
| While extreme leveraging was a major factor in 1929, the legal limit today is still 2x. And then a lot of those daytrader places have schemes in place that allow 100% leveraging, which is illegal. For more info see section 2187 of: http://www.federalreserve.gov/boarddocs/supmanual/bhc/2000_bhc.pdf This is a Federal Reserve Banking Supervision report from Dec, 1998, and presumably they have made a serious attempt to crack down on the daytrading houses, but the 2x limit remains as far as I know. |
| Demographics... (Score:1) by BMazurek on Monday May 08, @11:01AM EDT (#52) (User Info) |
When talking about this subject, I can't help but consider the effects of demographics. As described in David Foot's book Boom Bust & Echo 2000, the baby boomers, by far the most influential demographic cohort, have entered their saving years. They see retirement not that far off. As a result, they are investing their money, which means high demand for investments. But if supply fails to increase at the same rate, simple economics dictates that prices must rise. Although the book is based upon Canadian demographics, the author does note that the demographic profile of Canada and the United States are somewhat similar. Definitely an amazing read for anyone who is interested in investing. |
| Greenspan never.. (Score:2) by medicthree on Monday May 08, @11:02AM EDT (#54) (User Info) |
| This is slightly OT, but worth mentioning anyway since the book is titled "Irrational Exuberance." A few years back, there was a widely circulated rumor that Alan Greenspan had said that there was "irrational exuberance" in the market, and that to a certain extent this was the reason for its success. It was, however, just that--a rumor. Greenspan never used that phrase, although he did make a statement which suggested something along the same lines. One of the primary sources disseminating news of his statement paraphrased him, and this in turn was picked up as though it had been a direct quote. |
| Re:Greenspan never.. (Score:1) by Fishstick (fishstick@!YUMMYSPAM!linuxstart.com) on Monday May 08, @11:21AM EDT (#97) (User Info) http://jburkhol.hey.to/ |
| Naw, those exact words came out of his mouth in front of the house finance committee in 1996. I saw the clip on CNN several times, it must be true! =) here's a link Ever been bitchslapped? |
| I'm not so sure... (Score:1) by TopShelf on Monday May 08, @11:25AM EDT (#106) (User Info) |
| Check out this story from PBS, it contains a direct quote at the top. I'll try and find a video or audio track of that speech, but I remember him speaking those words quite clearly. It is phrased in a hypothetical "how do we know when..." type of conjecture, but he knew exactly what sort of effect those words would have. He's a pretty clever fella... Cut the geek-speak. Let's talk Hockey! |
| Re:Greenspan never.. (Score:1) by markt4 on Monday May 08, @11:33AM EDT (#118) (User Info) |
| Actually, Mr. Greenspan first uttered the phrase "irrational exuberance" on December 5, 1996 during a speach at a black-tie banquet at the Washington Hilton. His exact words were "How do we know when irrational exuberance has unduly escalated asset values? And how do we factor that assessment into monetary policy?" Note he did not say that there was irrational exuberance in the market, nor that irrational exuberance was the cause for the markets' long run up. But he did imply that and within minutes of his speach the Tokyo stock market began to fall. |
| a hungry monster (Score:1) by sporkboy on Monday May 08, @11:03AM EDT (#57) (User Info) http://www.jerky.net |
| Eventually there will be no more money for the herds to throw at the stock market. Then we're in for it. And the CEOs and higher-ups who make out on the IPOs will be laughing all the way to the bank. |
| Re:a hungry monster (Score:1) by carlhirsch (carlhirsch@hotmail.com) on Monday May 08, @11:34AM EDT (#121) (User Info) |
| >>Eventually there will be no more money for the herds to throw at the stock market. Then we're in for it. And the CEOs and higher-ups who make out on the IPOs will be laughing all the way to the bank. We should be so lucky! There's legislation before the House of Representatives RIGHT NOW to start pumping money from the Social Security system into the stock market, probably via mutual funds. This would ensure that there was always new capital coming into the market perpetually. One of the reasons the "Long Boom" has happened is that so many people throw money into the markey via 401(k) plans. This would be the same thing, only on a much larger scale. I see two big risks from this. First, there is obviously a risk that when the possibly inevitable crash comes, the Social Security System will get burned big time. The second problem is that I'm extremely uncomfortable with this much mixing between federal and corporate funds. I'm distrustful of both groups, and it just gives me the heebie-jeebies. Unfortunately, it's almost inevitable that some portion of the Social Security fund's money will go into the market, given how scared everybody is that Social Security will go insolvent. There's too many congressfolks talking about it for it to not go ahead. I'm pretty sure George Dubya supports putting large amounts of the fund into the market. It's also possible that this won't be the economic train wreck I'm worried about. After all, the last time the US federal government pumped massive amounts of cash into the private sector (WWII to pre-'Nam Cold War) ended up jumpstarting the economy in a big way. Some South American nation or another (El Salvador? Chile)enacted a similar plan with okay results. It seems like most of the sites talking about this (www.socialsecurity.org, socialsecurityreform.org) are fronts for right-wing think-tanks. -carl We've got computers, we're tapping phone lines, you know that ain't allowed - Talking Heads, "Life During Wartime" |
| Re:a hungry monster (Score:1) by ucblockhead (sburnapSPAMSUXlinux@attSPAMSUX.net) on Monday May 08, @11:46AM EDT (#132) (User Info) |
| Chili. It was initially called a success, though I don't know how it is doing now since the chilean economy stopped growing so much a couple years back. |
| Re:a hungry monster (Score:1) by ucblockhead (sburnapSPAMSUXlinux@attSPAMSUX.net) on Wednesday May 10, @12:05PM EDT (#321) (User Info) |
| Uh.....isn't 3.5% less than 7%? Isn't 1998 a couple years back? <P> Those who will not reason, are bigots, those who cannot, are fools, and those who dare not, are slaves. -George Gordon Noel Byron (1788-1824), [Lord Byron] |
| Re:a hungry monster (Score:1) by Maxintern9 (butt@stinky.net) on Monday May 08, @12:47PM EDT (#187) (User Info) http://www.toshistation.com/funk/Dm.htm |
| Dubya isn't the only one supporting this. Pat Monynihan and Bob Kerry, two Democratic Senators, also think it's a great idea. Your fears of "The Social Security fund crashing" are unfounded. Looking at the long term, the absolute worst 20-year return on the stock market index was over +3% a year. That period covers the Great Depression. But the best possible return you will get on Social Security is just over 2%. And you probably won't get that. So our worst (unlikey) case scenario sees an large benefit to those who invest in the broad index funds rather than the Ponzi-scheme Social Security system. Of course, the average Real return on indexes is closer to 10%, which would be much better. |
| This is like predicting that if I let go of a rock (Score:2) by hey! on Monday May 08, @11:04AM EDT (#58) (User Info) |
| it will drop. Saying the current climate cannot last is a bit of a timing game, isn't it? There's a reason its called the business cycle, after all. That said, the old name for a recession -- a "panic" really captures the nature of an economy in which productive resources increasingly go idle why people's needs and wants increasingly become unmet. Everyone can see this is a bad thing. Now thanks to Mr. Greenspan, we have a phase for the opposite thing -- "irrational exuberance". I suspect that it's a good thing while it lasts. ---- I've lost my faith in nihilism. |
| The coming crash? (Score:3, Insightful) by jayhawk88 (rockchalk88[AT]yahoo.com) on Monday May 08, @11:05AM EDT (#60) (User Info) |
| My roommate likes to preach on about how the stock-market is going to crash hard, and usually I just ignore his rantings. However, two interesting items caught my eye in some magazine the other day: 1. Buying stock on margin call's of 50% is now becoming common again. The last time margin calls were this high was right before the '29 crash. 2. The number of individual investors has gone way up over the past 10 years, thanks in large part to internet and day trading. Again, this is what happened right before '29. My biggest fear about the stock market is not whether internet/technology stocks will go up or down, it's what happens to Joe Investor when they do. People who are not seasoned investors are now putting a significant portion of their money into stocks, internet or otherwise. What happens if tech stocks start to tank across the board? Old pro's will recognize this as a perhaps inevitable market correction. They may sell, or they may wait it out. Likely the experienced trader can afford to take a little hit to the bottom line, so they don't panic. Joe Ameritrade, on the otherhand, see's all his lovely $80/share stocks suddenly hovering around $20/share. Perhaps he panics, figures he'd better sell everything while he can, and starts to drive the price even lower. A major hit to tech stocks would start to affect other industries as well, dragging the entire market down. It's not hard for me to belive that a major, sustained downturn of internet/technology stocks would have a long-term, adverse affect on the market and our economy in general. We may not be talking 10 year depression, 30% unemployment, 30's style crises here, but for all of us dependent on information technology for jobs, times might be rough indeed. Brother, can you spare some bandwidth? Will code for food? ;) |
| Re:The coming crash? (Score:1) by Fishstick (fishstick@!YUMMYSPAM!linuxstart.com) on Monday May 08, @11:33AM EDT (#119) (User Info) http://jburkhol.hey.to/ |
| You know, this is exactly what I think when I see that Datek online commercial, you know the one where all the internet investors break through the gallery glass and coming storming onto the trading floor? I did not see that as a positive image, for the exact reason you give. Seasoned professional traders might indeed be better able to understand and weather a correction. An online investor probably less so. For some reason, the mental image of thousands of individual investors breaking the glass over the trading floor and pouring down into the pit during a sharp downturn in the market makes me very uneasy. Ever been bitchslapped? |
| Re:The coming crash? (Score:2, Interesting) by maraist (maraist@hotmail.com) on Monday May 08, @12:16PM EDT (#160) (User Info) http://udel.edu/~maraist |
| Resession is acomming. The severity is yet to be determined. Thankfully there are a couple guards against a full blown American style depression. First of all, the money supply is being controlled more effectively than back in the day. There may still be more bugs in the Fed's monitoring system, but they at least wont sit idlely by as M1 declines like they did in the 30s. Next, banks have all sorts of regulations which limits how much they can "bet" on the stock market. Unfortunately ( and at no worse possible time ), many of these restrictions are being lifted so that the poor banks can compete in this very same "Irrationally Exuberant" market. Thankfully only the soundest of the banks are being allowed, though I'm sure their hurt interests will have outreaching effects. We may see bank failures / mergers, but this was already in the wind throughout the 90s ( lots of regulations have been put into place that all but encourages this ). So long as banks do not contribute to the contraction of the money supply. What I can see happening, however, is that people pulling out of the market ( those that are lucky at any rate ) will hold their money in the form of cash. This is just as bad as making runs on banks, at least in terms of the money supply. There would, of course be the serious drying up investment funds, but even though this will reduce the total amount of money ( mainly M3+ ), it will not immediately mean the loss of revenue ( unlike a bank failure ); merely the loss of earing assets and expansionary policy. Growth will probably become negative for a while, but I don't necessarily see massive amounts of firm failures. Just the growth dependant ones ( such as new firms still in debt, still waiting for a profitable quarter ). Of course consumer confidence will be seriously shaken and consumption will decline. This will add to the cycle and further the recession. The good part is that we can deal with these sorts of recessions. Assuming that the Fed acts promptly and lowers rates sufficiently and people don't panic world-wide ( foreign makets pulling out, people defaulting on loans, etc ), then we'll be able to pull through. The stability of the market is going to be shredded cheese for a while though ( unless you stay away from tech, et. al ) |
| Re:The coming crash? (Score:1) by jayhawk88 (rockchalk88[AT]yahoo.com) on Monday May 08, @12:48PM EDT (#189) (User Info) |
| the money supply is being controlled more effectively than back in the day That's true: Greenspan and the boys have shown they'll raise the Fed rate as high as they need to cool down the economy. How far will they have to go, though? They whack it up 1/4 point, the market hiccups for a couple of days, then just keeps chugging right along. There would, of course be the serious drying up investment funds This perhaps suggests another problem: what happens to all those 401k plans out there if the market receeds? Will people choose to draw their money out early (and take the penalty) if they think the slide will be severe? What happens to business if half their employees suddenly decide to cash in their retirement chips? I agree with you that the government is better equipped to handle a "controlled recession" than back in the 30's. It better happen soon, though, before the economy get's so high we can't control the fall. |
| Re:The coming crash? (Score:1) by PanDuh (panduh@orgsyn.com) on Monday May 08, @01:16PM EDT (#209) (User Info) http://www.originalsyn.com |
| Next, banks have all sorts of regulations which limits how much they can "bet" on the stock market. Unfortunately ( and at no worse possible time ), many of these restrictions are being lifted so that the poor banks can compete in this very same "Irrationally Exuberant" market. If you're referring to the Glass-Steagall Act, it was repealed because it was obsolete, and it didn't work. The U.S. was the only nation with a law restricting banks from engaging in investment activities, while countries like Germany, U.K. and Japan set their banks loose to do whatever business they wanted. It hobbled the U.S. banks' ability to compete in its own country against foreign banks. The Glass-Steagal Act was part of a knee-jerk, reactionary reform, that really didn't need to be implemented. Besides, banks have been finding loopholes in the Act (like creating holding companies) and have been exploiting them for decades. There would, of course be the serious drying up investment funds, but even though this will reduce the total amount of money ( mainly M3+ ), it will not immediately mean the loss of revenue ( unlike a bank failure ); merely the loss of earing assets and expansionary policy. Growth will probably become negative for a while, but I don't necessarily see massive amounts of firm failures. Just the growth dependant ones ( such as new firms still in debt, still waiting for a profitable quarter ). I for one am glad that I own foreign stock. The globalization of markets is a stabilizing force, and I think fund managers that are sufficiently diversified will be able to weather any major downturns. |
| Re:The coming crash? : goverment cannot regulate (Score:1) by ltaesch on Tuesday May 09, @02:17PM EDT (#319) (User Info) |
| goverment cannot regulate individual behavior, just institutions... regulations applies to banks, and other "institutionals". up to recently, this was the main channel for individual to go trading (via funds). brokers were then for minimal well off people. But: a) this is changing with online broker, and the race to market share produce lots of ads , that brings more people to these direct channels. b) these "new" people are not "educated", and dont have a lot to play., but there is more of them. in case of a major "adjustment", this means more will be hit, and badly, as they are not as reactive than professionals. c) these "mid class" player are also the consumer of our economy. if they loose too much of their savings->panix mode-> low consumption-> recession. d) since 91 (last "small recession"), the tech is driving our "brave new economy". these supplies are not first utility, like food. in case of recessions, buyers cut these high tech items first, which drives the tech industry in a recessiv market, e) so they (tech industry) cut wages and jobs, which in turn reduce the demand by mid class, their customers, and employees. f) the restart of our economy since the 90s is pushed by the internet, that helps distribution ( of non tech industry). this in turn kicks off the demands for techs (that supplies the non tech). a small recession in non techs may stop the growth of techs... g) a lot of techs have build their plans on continual growth. put a brake on this, and they lay off badly (see linuxcare) h) linux industry may ( will) take over the software industry, but also reduce the classical profits sources, until some realise and adjust. this is a factor to start the spiral down. h) MS capitalisation going down may also start the spiral down. conclusion: -goverment can regulate banks and funds, but have no effect on individuals -this middle class individual are attracted by the new online "gaming", but may suffer badly when market readjust -then they spend less, and goverment can do nothing about it. -and the first cut of their expense will be hitech goods, industry which most probably employs them, or worse, IT companies which supplies this industry. -(i.e they have fired themselves...without knowing it). -big people losing money may rise a smile, but when a lot of people loose money ( too quickly), this is an "economy" readjustment. last time, (87-91), it tooks 3-5 years to restart... |
| hold the front page (Score:3, Insightful) by Cally (cally@zpok.demo_NOT_THIS_BIT_n.co.uk) on Monday May 08, @11:06AM EDT (#61) (User Info) |
| http://finance.yahoo.com/q?s=^IXIC&d=5y NASDAQ: five year chart http://finance.yahoo.com/q?s=^IXIC&d=1y NASDAQ: one year chart It certainly looks like a big correction could come any day now. Oh yes. |
| Re:hold the front page (Score:1) by MattXVI (mattmcg3spamtrap@yahoo.com) on Monday May 08, @11:20AM EDT (#95) (User Info) http://www.arstechnica.com |
| Wow, you should get a job at one of those huge brokerages! Call Schwab! Tell them "I'm Calley and I called to tell you the correction is coming any day now! Short the stocks! Short!" You'll be a hero to millions. "When I'm singing a ballad and a pair of underwear lands on my head, I hate that. It really kills the mood." |
| Re:hold the front page (Score:2) by Cally (cally@zpok.demo_NOT_THIS_BIT_n.co.uk) on Monday May 08, @01:08PM EDT (#205) (User Info) |
| Irony: it's sorta like coppery, but a bit darker ? Camaron de la Isla 'When I sing with pleasure, my mouth tastes of blood' |
| Re:hold the front page (Score:1) by msanto on Monday May 08, @11:58AM EDT (#146) (User Info) |
| This posting confuses me. Why is it mod'ed up to 3? If it's for the links it should be Informative not Insightful. If it's for the commentary, well, that's what the article was saying. And what's up with the post itself? My sarcasm tags must not be working because it seems like he's saying "look at the gradual curve on the charts, it's not very steep". Of course not, it's a logrithmic chart. Try: http://dynamic.nasdaq-amex.com/dynamic/IndexChart.asp?symbol=IXNDX&desc=Nasdaq-100&site=na sdaq&sec=nasdaq&months=84 has the ecomomy grown 10x in 5 or so years and is the growth accellerating like the stocks were? Remember, the book was published 3/2000, before the last correction! -maybe it really did have a big impact on Wall Street, kind of a self-fulfilling prophesy. |
| Re:hold the front page (Score:1) by msanto on Monday May 08, @12:17PM EDT (#162) (User Info) |
| sorry, Here's the link http://dynamic.nasdaq-amex.com/dynamic/IndexChart.asp?symbol=IXNDX&desc=Nasdaq-100&site=na sdaq&sec=nasdaq&months=84 |
| Re:hold the front page (Score:2) by Cally (cally@zpok.demo_NOT_THIS_BIT_n.co.uk) on Monday May 08, @01:05PM EDT (#201) (User Info) |
| Of course it's a log scale. Oh look there's just been a big correction and the market now appears to be back on the long term trend line. I was going to indulge in a long Katz rant but then I thoughtr, what's the point ? The idea that tech stocks are wildly over-valued isn't exactly a big secret. The phrase "irrational exurberance" itself was comes from Alan Greenspan[1], who's been trying to talk it down for at least 3 years AFAIK. |
| Re:hold the front page (Score:1) by PanDuh (panduh@orgsyn.com) on Monday May 08, @01:28PM EDT (#219) (User Info) http://www.originalsyn.com |
| And what's up with the post itself? My sarcasm tags must not be working because it seems like he's saying "look at the gradual curve on the charts, it's not very steep". Of course not, it's a logrithmic chart. Well, sparky, I think Cally's trying to point out that we're currently experiencing a correction as we speak. Remember, the book was published 3/2000, before the last correction! -maybe it really did have a big impact on Wall Street, kind of a self-fulfilling prophesy. Naaah. There have been bears yelling that the market was overvalued and that the bubble would burst when the Dow was at 5000 in 1996. Its been four years and the Dow has more than doubled in value since then, suddenly the market corrects, and we consider these bears to be "market gurus"? I don't think so. When you flip a coin, 50% of the time, you are going to be right. |
| wealth creation impossible without risk (Score:1) by P.J. Hinton (paulh@wolfram.com) on Monday May 08, @11:10AM EDT (#68) (User Info) |
| It's an inevitable fact of life -- nothing ventured, nothing gained. Every form of investment carries with it a degree of risk. If this is scary to you, Mr. Katz, perhaps you should buy gold and hole it up in a vault somewhere. -- P.J. |
| Woah (Score:2) by lovebyte (lovebyte2000@yahoo.com) on Monday May 08, @11:12AM EDT (#71) (User Info) |
| I was just looking at the NASDAQ index while reading this from Jon Katz and boom. The NASDAQ is down almost 2%! Is Katz being read by everyone? M$Windows users have RSI, Unix users have AWK |
| So? (Score:1) by SealBeater (briareos@remove_this.phuct.net) on Monday May 08, @11:13AM EDT (#74) (User Info) |
| The author states that: "stock markets are being driven by psychology and emotion -- in particular by an "irrational exuberance" fueled not by information but by impulse, herd behavior, dinner party chatter, intuition, media hype, fear of being cut out -- everything, in fact, but reason." What I wanna know is how is that different from how people bought stocks before the advent of computers? There might concivably be a danger but I don't think opening doors for everyone to have a hand in the economy is a bad thing. What are we supposed to do, not buy tech stocks? Wall Street has always been a prime example of "herd behavior". Last, not even economists "really" know how the economy works. -- Its survival of the fittest...and we got the fucking guns!!! |
| I've been saying this for years... (Score:3, Insightful) by The Man on Monday May 08, @11:14AM EDT (#77) (User Info) http://foobazco.org |
| Let's face it, it doesn't take a PhD in economics to recognize that a situation in which stock valuations have no relation to present or future earnings isn't going to be good. We've already seen a lot of air out of the tech market, but unfortunately it wasn't enough. Companies with no earnings and no prospects still have market caps in the 8 or 9 digit range... this is absurd. Others like Yahoo! have earnings but PE ratios well over 100. Ask yourself: if a heavy-equipment manufacturer had revenue, earnings, and growth identical to Yahoo!, would you pay $150 a share for it? Another problem that isn't mentioned in the text (though it may be in the book) is that there is way too much money in the form of pension funds and other public and private "forced" investment. This causes a localized inflation in equities markets as too many dollars chase too few viable investments. "Why would you buy Amazon???" "Gotta buy something..." So here it is, on the record and read-only: my target for the NASDAQ index bottom, whenever it's finally reached, is...2000. And I hope it kills all the idiot investors who seem attracted preferentially to unprofitable companies. Please, don't sue me if you use this for advice. In that case, you're an idiot as I have no qualifications. |
| You're overlooking growth (Score:1) by Tim Macinta (twm@alum.mit.edu) on Monday May 08, @12:19PM EDT (#165) (User Info) http://www.twmacinta.com/ |
| Ask yourself: if a heavy-equipment manufacturer had revenue, earnings, and growth identical to Yahoo!, would you pay $150 a share for it? Of course you wouldn't, but that doesn't mean Yahoo is overvalued. The big difference between Yahoo and a heavy-equipment manufacturer is the rate of growth. Heavy-equipment manufacturers have been around for quite a long time and as such the market for their products is pretty well saturated and growing at a linear (I'm guessing here) rate if at all. Yahoo, on the other hand, has an exponentially growing market and their earnings have seen commensurate growth. The market factors this into the price of their stock by giving them a higher price to earnings ratio than companies with less dramatic growth. Now, whether or not a P/E ratio of 100 is too high is another question which I am not going to attempt to answer, my point is that Yahoo's P/E ratio should definitely be higher than traditional companies with the same level of earnings because their growth rate is much greater. |
| What Yahoo have you been looking at? (Score:1) by Tim Macinta (twm@alum.mit.edu) on Monday May 08, @03:39PM EDT (#261) (User Info) http://www.twmacinta.com/ |
| Oh, because it's on a web page it's something new and great with huge growth? Not really, it's the other way around, anybody can do what yahoo does. There are tons of other search engines just like yahoo out now that have shown this. Oh brother... I can't believe I have to explain this in Slashdot of all places. Are you aware of the tremendous growth in number of users that the web and internet have been experiencing over the past several years? It's practically following its own version of Moore's law doubling every few months (I don't know the exact numbers off the top of my head). When your target audience grows at an exponential rate so does your business, at least when you're on top like Yahoo is. The target audience for books, magazines, and other traditional media is not growing anywhere near as fast as the number of internet users - you have to have been under a rock for nearly the past decade to think otherwise. Even if Yahoo's percentage of marketshare remains constant among search engines they will experience tremendous growth by shear virtue of the fact that the market pool of users is growing rapidly. (I would argue that Yahoo's percentage market share will increase over time due to their highly successful branding efforts, but that is a totally separate issue and not necessary to see why they will continue to experience high growth). |
| Clarification:What Yahoo have you been looking at? (Score:1) by Tim Macinta (twm@alum.mit.edu) on Monday May 08, @03:44PM EDT (#264) (User Info) http://www.twmacinta.com/ |
| To clarify, when I say that Yahoo will continue to experience tremendous growth I am referring to their revenues, not their stock price. A P/E ratio of is really frickin high even for a copmany in hyper-growth and I'm not going to venture a guess as to what the actual value should be (perhaps 100 is reasonable - I don't know). |
| Technology stocks are over valued (Score:2) by Izaak (isaac@glaci.com) on Monday May 08, @11:14AM EDT (#78) (User Info) http://www.glaci.com/gridslammer/ |
| The main message of this book is obvious to anyone who really takes a good look at the current market. Technology stocks are way over valued and prices are being driven by hype more than anything else. It is still a good idea to put some of your long term investing into the market (dollar cost averaging and all that) but always hedge your bets by diversifying and puting money into some *safe* investments. My formula is: I try to always fund my IRA or Keogh when the market has just had a big correction (i.e. I bargain hunt). I keep an emergancy *warchest* of funds (at least three months of income) in a money market index account. I keep some less liquid funds in the highest yield CDs I can find (currently around 8 percent). I invest in real estate by buying rental properties or investing in a real estate trust. Currently I own one duplex and part of a future residential subdivision. A good rule of thumb is that your percentage of investment in the stock market should slide in an inverse ratio with your age. Something like: 100 - age = percent to keep in the market Depending on the level of risk you are willing to live with, you might pick a different number than 100 to subtract from. This system seems to work for me, but I am not a financial expert, so take it with grain of salt. :-) Later, Thad |
| Well, duh! (Score:1) by imagineer_bob on Monday May 08, @11:14AM EDT (#79) (User Info) |
| There was a Forrester report that came out recently and conculded that most "dotcoms" were vapid and shallow, and that most of their Management lacked experience. This was exactly my experience when I spent two years at a dotcom. There's no substance to most of these companies. The valuation can't be based on potential, because there's no potential there. Just a pile of inexperienced managers directing the cheapest "Web Programmers" (i.e., green-haired kids with piercings) they can scrape up. I've seen teams staffed entirely with people who have had no or negative experience. They would conisder someone who's career consited of 3 months at Netscape (on a cancelled project and was let go), 4 months at iVillage (and let go after being on a failed project), and 5 months at Tripod (and let go after having been on a faile project) as havint 1 year experience. In fact, a person like this has never been on a project from start to finish, and has no idea how to get something out the door. One of my managers was an admitted pedophile, who still runs that company--from Jail! I don't have 1 cent invested in any dotcom anymore (though I do have a pile of worthless options!) -- ib |
| 1337 (Score:1) by Remote (jesus at oliveira dot com) on Monday May 08, @11:15AM EDT (#81) (User Info) |
| This has been said before, but Katz still has not found the "1" key in his keyboard. Previous sig consumed by flames. |
| stating the blindingly obvious.. (Score:2) by Chilles on Monday May 08, @11:15AM EDT (#82) (User Info) |
| Well, *duh* This is what everybody with a bit of sense in her or himself knew since somwhere in '98. If you look closely at the companies making up the NASDAQ, you'd find that their value is based largely on the fact that somewhere in the near future investors expect them to grow as large as microsof or AOL. Now that might have been possible in 1997 or so (for companies to grow as large and dominant as Microsoft or AOL) but not anymore. So we have a large body of tech companies (in wich we all own stocks) that, to justify their combined value have to grow significantly faster than the market they're in. Problem is, their combined value already makes up a large part of the market. So right now a large part (I'd say more than half) of the market has to grow way faster than said market. Which, of course, is mathematically impossible. Of course we are not stupid, so we just "fail" to notice that and keep pouring our money (which is based on the value of our stocks or stock options) into tech stocks to get more money to put into stocks etc. etc. etc.... This of course only goes as far as the point at wich somebody says: "hey, but wait a minute, what are the odds of those companies actually growing to twice the size of microsoft?" Which, appearantly, is right about now. (the funk soul brother :) So: "run everybody, run and hide while you can, or you'll get splattered by the remnants of exploding soap bubble economies and soap in your eyes sucks." Basically this Shiller guy gave the game away. He's a traitor! All investors run to your attorneys to be the first to file suit against him for your damages, that should at least keep the second most important part of the american economy running. *sigh* back to lawschool again, and I was just beginning to enjoy this internet thing..... |
| Check out Economic Reporting Review! (Score:1) by scottysocialist on Monday May 08, @11:15AM EDT (#84) (User Info) |
| Mainstream economic reporting about the "boom economy" and other issues often reports material in a critical and unbiased way. Not to mention that in this so-called "boom", median real wages for U.S. workers are less than they were when Richard Nixon was president. Economic news is presented with a bias towards the investor class and a bias against people who work for a living. And even if you own stock or have a 401k plan, the majority of middle-class and upper-middle-class people depend on their wages and their salaries and do not live off of the profits of their investments. This gives us very different economic interests than the very rich. Mainstream economic reporting does not often speak to our interests, and often contains misleading distortions to serve the interests of the rich. As an antidote for this biased reporting, I recommend "Economic Reporting Review", an e-mail publication that looks at mainstream economic reporting and points out the distortions and the real facts. It is a joint project of Fairness and Accuracy In Reporting and the Center for Economic and Policy Research. Here is a relevant excerpt about the over-valued stock market: ...the current price to earnings ratio for broad market indexes such as the S&P 5000 is more than 30 to 1. This is more than twice the historic average. The Congressional Budget Office projects that corporate profits, after adjusting for inflation, will decline by approximately 4.0 percent over the next ten years. This implies that stocks are over-valued by close to 50 percent. Hope you find this useful! |
| Re:Check out Economic Reporting Review! (Score:1) by Maxintern9 (butt@stinky.net) on Monday May 08, @12:51PM EDT (#190) (User Info) http://www.toshistation.com/funk/Dm.htm |
| Economic news is presented with a bias towards the investor class and a bias against people who work for a living.... Aside from your Stone Age definition of "work", are you aware the "investor class" in America is around 95 million people? |
| Re:Check out Economic Reporting Review! (Score:1) by scottysocialist on Monday May 08, @02:45PM EDT (#254) (User Info) |
| Surely you don't believe there are 95 million Americans who don't have to work, but rather can live off of their investments? If you re-read my post you'll see what I meant. And we do have much different interests, obviously on whether wages go up or down and also on other things, like inflation. People who are owe money, whether it's from student loans, a car loan, or a mortgage benefit from modest inflation since the money they have to pay back is worth less than the money they borrowed. Most mainstream econ reporting makes it sound like we are all hurt equally by inflation and that Alan Greenspan is somehow looking out for "the nation's interests" or "the economy" instead of looking out for the well-being of a small number of the population. |
| Re:Check out Economic Reporting Review! (Score:2) by Xenu on Monday May 08, @04:25PM EDT (#271) (User Info) |
| Inflation is good for the masses? Can I have some of whatever you are smoking? I've lived through inflationary periods in the USA. They hurt the poor and working classes more than the wealthy. Prices always go up faster, and more often, than wages. Interest rates make mortgages unaffordable. Anyone on a fixed income is truly screwed. |
| Oh, how original (Score:1) by AlphaHelix (mpgordon@SPAM?WHAT'S.SPAM.uiuc.edu) on Monday May 08, @11:15AM EDT (#85) (User Info) |
| Why does this warrant coverage when some Yale weenie decides to pronounce it? Everybody's been saying variations of this for five years now. Eventually, one of them will be right, not because they said something different, but because they'll say it just before the market crashes, and then they'll herald themselves as a prophet, and they'll win a "Nobel" award. How exciting. * mild mannered physics grad student by day * * daring code hacker by night * |
| Re:Oh, how original (Score:1) by AlphaHelix (mpgordon@SPAM?WHAT'S.SPAM.uiuc.edu) on Monday May 08, @05:11PM EDT (#274) (User Info) |
| You'd be a much better physicist if you bought yourself a TECHNICAL book on finance (which means more than what is sold to commerce and MBA students) and read it. Oh, you mean a book like Options, Futures, and Derivative Securities? In what way do you see learning about the Black-Scholes equation benefitting me as a physicist? Perhaps you'd be a better whiny MBA if you stuck to whining about things that you actually understand. For what it's worth, I disparage the "Nobel" prize for economics because it's not a real Nobel prize. If economists want to be self-serving, they should at least choose to do so in a way that isn't blatantly misleading. |
| Changing markets, proposed solutions... (Score:1) by rkent (rkent(at)acm.org) on Monday May 08, @11:17AM EDT (#89) (User Info) http://cc.kzoo.edu/~k96rk01/ |
| Contemporary technology has, without a doubt, challenged historic ideas of how the economy works. Computing in particular is not only changing commerce, but revolutionizing access to markets by individual market investors, thus changing the markets themselves. I think this is the crux (or one of the crux-es) of the matter: the market itself is being changed by the expanded access to it. Sounds like Schiller's book is something of a Jeremiad about how the market is being "ruined" by this emotional approach. In a way, I guess it is. I think untrained traders (read: e*trade clients) do use more emotion than reason in picking stocks. How else do startups gain 700% on opening day? The thing is, this is nothing new. Companies always push their image not only to gain new customers, but also to woo investors and push up their initial valuation. The SEC "quiet period" is designed to combat this, but it still happens. So, what can we do about the stock market turning into a giant horsetrack? well... [Schiller] pleads for the expansion of the number and variety of securities and markets for them, to allow people to protect themselves against major economic risks. He favors new "macro-markets"... And the cool thing is, this is already happening. The German and British stock exchanges have already announced that they're merging. And also partnering with NASDAQ to form a 24-hour "world market". That last one sounds especially intriguing, although I don't know that it'll prevent the phenomenon that Schiller is talking about. There would be no "after the bell" anymore when you could announce profits, for one thing :) "We are the most ripped-off company around..." - Bill Gates, 1980 |
| You call this news ? (Score:1) by Camelot on Monday May 08, @11:20AM EDT (#94) (User Info) |
| I'm not surprised that the revelations about the truth behind the driving forces of the stock market came as a surprise to Jon Katz. As for others, I would think that any educated person who follows the stock market closely would regard this as common knowledge. This is how the stock market works. "Shock waves".. oh yeah. Jon, I hope the next "shocking" thing you learn has something to do with "water" and "electricity". Please. &cam; |
| Joe Bob Investor and the tech world (Score:1) by gempabumi (my.inbox@is.a.blackhole.net) on Monday May 08, @11:21AM EDT (#96) (User Info) http://imexis.com/anna_angus/ |
| The NASDAQ has gone off the charts for three reasons: 1. Hype. The internet is the ultimate hype machine. People really become consumed by things they read, and that makes the internet so much more powerful than television. Added to this is the fact that people can actually contribute and see their own words published on the web. It build a big "you pat my back, I'll pat yours" system where no website is going to give negative press to the Internet. It was interesting to see the damage control in the Tech rags after the NASDAQ tumbled. (btw, Katz is a great example of this - a real ally for the tech world, like it or not) 2. Joe Bob Investor. It used to be the case that the stock market was a game restricted to the very wealthy. You think of the atmosphere portayed in movies like "Trading Places". But now, everyone's rich and everyone who's not rich has figured out that the 2% savings account is a crock. So, anybody with $0.02 lying around is playing the game. This is a mass influx of wealth into both the NYSE and NASDAQ. And as the tech stocks are the apple in everyone's eye, they get the lion's share. 3. Potential Future Value. OK, this term gets way overused. But wrt some companies, it has merit. The companies that build the infrastucture for the net are building solid, perisitent revenue streams that will bring in cash for years to come. Certain b2b opportunities work much more successfully on the net than anywhere else. That said ... The NASDAQ has taken a bath for three reasons: 1. Potential Future Value. Right back at you. One of the great mysteries is the advertising-backed web site. There are two kinds of such sites that make a profit - Yahoo!, and small sites that are made on shoestring budgets on shared servers with skeleton crew staffs. Everything in between is just some silly VC's nightmare. I don't know how many times I've seen ad-backed sites launch with a multi-million dollar advertising campaign. Obviously, these people didn't do to well in high school math. "Let's see, or launch campaign will cost $2,000,000 ... err, at $0.002 a pageview, we'll make that back in about a billion page views - great! let's do it." There is a major misundestanding of the economic fundamentals of the situation. They don't care about that, of course, because they're just trying to seduce ... 3. Joe Bob Investor. What's that saying about a fool and their money? Here's a proposal - I'm building an online grocery delivery service. Will you give me a hundred million dollars to get it going? Oh sure, except that ... HAVEN'T YOU EVER REALIZED THAT PEOPLE WILL DRIVE TO THE NEXT TOWN TO SHOP BECAUSE THEY KNOW THE SHAMPOO IS $0.02 CHEAPER. WTF?!? Anyway, VC's ares tumbling all over eachother so fast that they don't have time to think about what outrageous deal they are going to flush their money into next. But, they do have very good source of information, but in the tech world it's hard to tell the difference between information and ... 3. Hype. The ultimate form of expression on the web is the personal home page. Ridiculous, I know, but just look around. Philip Greenspun was here last week - you ever see his homepage? It's 20 gigs of material singing the praises of Philip. There's nothing wrong with that - I learned more from his homepage than I've learned anywhere else on the web. Take a look at other influential web figures - does the term megalomaniac come to mind? Humility and personal homepages just don't mix. This has carried over into how companies market themselves and from there into how everybody talks about the Net. Everything is always the newest, fastest, coolest, most advanced, most reliable, most whatever. And we all have trouble living up to those claims sooner or later ... Where will the NASDAQ go from here? Nowhere but up baby, and don't let me hear you tell otherwise ;) g |
| Shiller and Greenspan (Score:1) by ZoneGray on Monday May 08, @11:28AM EDT (#110) (User Info) |
| This morning's Wall Street Journal has a front-page article that puts Shiller's theories in better perspective. Since it's subscription-only, I won't bother to post a link. But it's front-page both in print and online, and worth reading. Shiller participated in a meeting with Fed Head Alan Greenspan and others in 1996, Shiller taking the side that the market had become irrational. This meeting led Greenspan to pose the oft-repeated QUESTION as to whether "irrational exuberance" had become the driving force in the market. The Dow was at about 4000 back then. The article goes on to explain how attempts to prove Shiller's theories failed, how Greenspan's thinking has evolved since then, and how gains in productivity have proven to be real. And of course, the market has soared since then, despite repeated highly-publicized warnings that it is a "bubble." Of course, the market might undergo further correction, but there seems little chance that it will return to the levels of 1996, which Shiller thought were overvalued even then. Unfortunately, Shiller joins a long list of public figures who continue to be listened to, even after they've been proven wrong. It brings to mind the case of Robert McNamara; he was CEO at Ford when they introduced the Edsel, and LBJ was so impressed that he brought McNamara to Washington in the early 60's to run the Vietnam war. On the basis of that record, he wrote a bestselling book a couple of years ago. |
| Re:Shiller and Greenspan (Score:1) by aphrael (burble@aphrael.org) on Monday May 08, @02:12PM EDT (#245) (User Info) http://www.burble.org/aphrael |
| Unfortunately, Shiller joins a long list of public figures who continue to be listened to, even after they've been proven wrong *Proven* wrong? That's a slightly strong statement, isn't it? The thing is, we really don't *know* if we're experiencing a speculative bubble or not. Certainly it seems unlikely *to me* that the value of companies in the US increased by *500%* in the last ten years (based on the value of the DOW, you would assume that was true). But that doesn't mean we're experiencing a bubble; something else might be going on. Nobody knows for sure; most economists seem puzzled and confused. |
| He doesn't have to be right, he just has to say it (Score:1) by prairieson on Monday May 08, @11:30AM EDT (#113) (User Info) http://www.hci.net/~jpcramer |
| "Irrational Exuberance" and "herd mentality"? Well, if anyone should know about these things, Greenspan should. It might just seem that he's been leading Wall Street around by it's nose for a while now. I often wonder how many times, when he says that the market is going to go up or down, going to do this or that, that it happens as a 'self-fulfilling prophecy'. I'm not saying that he controls the stock market by any means, but he can, intentionally or not, have a major influence on trading, just because he's Alan Greenspan, and he's 'in charge' so he must be right. Mooooo! If it ain't broke, you're not trying. -Red Green |
| I don't really understand... (Score:5, Insightful) by rlk (rlk@alum.mit.edu) on Monday May 08, @11:32AM EDT (#116) (User Info) http://www.tiac.net/users/rlk |
| On the one hand, Shiller claims that the markets are being driven more by emotion than by any reasonable measure, and that it can't last. I agree with that. When even the most solid high tech/high growth firms are trading at multiples of 100 (price/earnings) and well-established bricks and mortar retail chains that cannot realistically expect high growth at 40, something seems out of line. Traditionally, conservative companies have traded at 10-15, and growth companies more like 20-30. I'm also concerned about a lot of other parallels with the late 1920's -- everyone's into playing the market, people talking about fundamental transformations of the economy, seemingly very low inflation in the price of material goods (as opposed to assets), increasing inequality, and such. But then Shiller recommends more of the same medicine -- expansion of the financial markets, "to allow people to protect themselves against major economic risks." In an irrational boom, this would only add fuel to the fire. Yes, the doctor in Des Moines could take a short position in medical incomes and in Des Moines real estate (which amounts to shorting against the box, a conservative way of locking in a profit). But is that what the doctor would really do? I doubt it. More likely, one of two things would happen: 1) The doctor would go long on both positions, as a way of leveraging his income. 2) Even if he shorted, the price of these securities would continue to rise in the short term, squeezing him (forcing him to cover his short position by buying the securities at a loss). The net effect is that our hypothetical doctor is more exposed, not less exposed, to risk. (There's also the little matter of what underlying assets these securities really represent. If they're merely trading instruments, with nothing backing them, then they're simply a form of betting and aren't hedging anything at all. Traditional options actually give the holder an option to purchase or sell a particular asset. Common stocks, while the connection is a bit more tenuous, do represent the ability of the issuing corporation to pay dividends, buy back its own stock, and otherwise benefit the shareholder. For this kind of scheme to work, a pool of doctors would have to pledge some fraction of their future income as ultimate payment on the security. That implies that they expect that income to be less than the price they write the option at. Uh huh.) We've seen the trouble that even sophisticated corporations specializing in financial services have gotten themselves into with derivative securities. Other companies have gotten themselves into trouble because they think they're hedging against some risk, where in fact they're doing nothing of the sort. And Shiller expects individuals to do better? If people systematically make mistakes -- and part of "irrational exuberance" is that people are consistently taking an overly optimistic view -- then there's a lot of potential for, shall we say, adverse consequences when things turn. Positive feedback (leveraging is a way of accomplishing this) is incredibly dangerous. It's even worse if people think they're hedging (applying negative feedback to their portfolios) when they're doing nothing of the sort. One of the things that fueled the crash in 1929 (whether it fueled the depression is another matter, but it's hard to see how it helped) was margin calls that led to what might be called a "death spiral". As the market dropped, people who bought stock on margin (with loans from their brokers) faced "margin calls" -- they had to pony up more cash because the value of the security was insufficient collateral for the loan. If they couldn't come up with the cash, they had to sell in order to raise the cash. The selling, of course, only drove prices down further, closing the feedback loop. Bad news. If the amount of the loans were less as a fraction of the value of the securities bought, there would be less risk of this because the market would have to fall further to trigger the margin calls that fueled the rout. I think that Shiller himself is a victim of the exact irrational exuberance he claims to be concerned about. He's right to be concerned about the insanity of the high tech (particularly the internet) sector right now, but I'm afraid that he simply wants to drain the craziness into everything else. Allowing people to leverage their future income is potentially disastrous. What happens if their future income is insufficient to cover their bet? Or, for the bear, if their counterparty can't cover? Then even the supposed hedge turns out worthless, and even the bear loses. That, I think, is even more dangerous than the current high tech boom. Call me a fuddy-duddy (at 36!), but I want to stay WELL away from that kind of nonsense. |
| Re:short sales as insurance... (Score:2, Insightful) by PanDuh (panduh@orgsyn.com) on Monday May 08, @12:25PM EDT (#170) (User Info) http://www.originalsyn.com |
| 2) Even if he shorted, the price of these securities would continue to rise in the short term, squeezing him (forcing him to cover his short position by buying the securities at a loss). The net effect is that our hypothetical doctor is more exposed, not less exposed, to risk. I disagree. By short-selling Des Moines properties, and Medicine incomes, he is buying insurance, therefore he is decreasing the variance of his portfolio and hence his overall risk. If he gets squeezed out of his shorts, its cool, because his property and revenue will have gone up. If his property and revenue go down, its cool, because his shorts will have made money. Its really quite simple. |
| Re:short sales as insurance... (Score:1) by underwhelm (moseng@mninter_net) on Monday May 08, @02:12PM EDT (#244) (User Info) |
| If he gets squeezed out of his shorts, its cool, because his property and revenue will have gone up. Except he has to use his new equity and revenue to cover his shorts... cutting into his profit, netting him $0, or worse. Doesn't sound like a winning proposition to me. Unless you have a crystal ball beowulf cluster, you're better off not investing at all. I can't imagine shorting something unless there were a reason to expect it to decrease in value, because I expect every worthwhile investment to increase in value in the long term. The risk in shorting an investment is infinite, the risk in going long equals the initial investment; the benefits of the two are inverse. I don't need large brains to have a good time. |
| Re:short sales as insurance... (Score:1) by PanDuh (panduh@orgsyn.com) on Monday May 08, @06:02PM EDT (#282) (User Info) http://www.originalsyn.com |
| Except he has to use his new equity and revenue to cover his shorts... cutting into his profit, netting him $0, or worse. Doesn't sound like a winning proposition to me. Unless you have a crystal ball beowulf cluster, you're better off not investing at all. Of course the doctor's not going to hedge himself at full parity with shorts. Then it becomes a zero-sum position! (In fact, less than zero if you include transaction fees). Ideally, the doctor would short a certain percentage of his property values and revenues in order to offset a percentage of his losses -- should a loss occur. In this way, he has put a limit on how much money he can lose, but he has also put a cap on how much he can make if his property goes up. The moral of the story is that he has sacrificed reward in order to decrease his risk. Each person has a different threshold on how much risk they can take, and some people (however hard it may be to believe) are willing to forgo soaring profits, in order to prevent devastating losses. I can't imagine shorting something unless there were a reason to expect it to decrease in value, because I expect every worthwhile investment to increase in value in the long term. The risk in shorting an investment is infinite, the risk in going long equals the initial investment; the benefits of the two are inverse. Who do you think you are anyway, Karnak? How do you know that every worthwhile investment is going to increase in value in the long term? Uncertainty is inherent in every security. Yes. Technically a short sale has infinite downside. But a long position has infinite upside and they cancel each other out quite nicely, thus removing a great deal of uncertainty. Besides, I haven't seen many stock prices hit infinity lately, have you? |
| Re:short sales as insurance... (Score:1) by rlk (rlk@alum.mit.edu) on Monday May 08, @02:26PM EDT (#248) (User Info) http://www.tiac.net/users/rlk |
Well, it's not quite as simple as all that. If he's forced to cover his short position, he's just lost his insurance, at the most crucial point (when the market may be close to its peak). That kind of insurance (although I'm having trouble visualizing the exact kind of instrument this would be) is useful in relatively stable times (when systemic risk is low) for protection against individual catastrophes (e. g. the doctor becoming disabled). For times when systemic risk is high (economic turmoil), though, things can get dicey. What happens if, for example, the counterparty can't pay off the transaction? I pay a premium for insurance coverage, and then the insurance companies suddenly find themselves facing more claims than they have resources to pay. Now what? Well, insurance companies themselves can buy insurance. That's called "reinsurance". That's all well and good, but suppose things get so bad that the reinsurers go belly up? Now we're really in the soup. At this point, something that's supposed to blunt (negative feedback) the harmful effects of a catastrophe is no longer doing so. In fact, the mass claims from this one systemic catastrophe weaken the insurance companies' ability to pay off unrelated claims, which causes ripple effects through the rest of the economy. Now we're in a positive feedback cycle. The whole point is that in extreme circumstances, something that looks like protection may actually have the reverse effect if all of the effects are not carefully considered. This kind of thing is not intended to protect against individual misfortune in a stable economic climate, but rather a mass misfortune in a very unstable environment. The normal rules might not apply then. (You'll note that I cast this in insurance terms, because that's really what it is, in theory. I have real trouble figuring out who would issue such a security. I suppose a group of doctors would get together and offer bonds with interest paid from future earnings. That would certainly enable doctors to lay off some risk, which is the whole idea. But that would surely be an extremely high risk security, what with moral hazard and all that. I think that this particular example of Shiller's is weird.) |
| Re:short sales as insurance... (Score:1) by PanDuh (panduh@orgsyn.com) on Monday May 08, @04:12PM EDT (#270) (User Info) http://www.originalsyn.com |
| Well, it's not quite as simple as all that. If he's forced to cover his short position, he's just lost his insurance, at the most crucial point (when the market may be close to its peak). Substitute short sales with puts. Conceptually the same, just different instruments. Gradate the expiration dates of the puts so when one expires, the next one takes over. Downside is also finite. Now we're really in the soup. At this point, something that's supposed to blunt (negative feedback) the harmful effects of a catastrophe is no longer doing so. In fact, the mass claims from this one systemic catastrophe weaken the insurance companies' ability to pay off unrelated claims, which causes ripple effects through the rest of the economy. Yes, and if the world blew up, insurance companies would be screwed too. Unfortunately, the market consists of networks and channels than span both horizontally and vertically. If Microsoft were to suddenly go under, we should expect so would the exclusive Microsoft product reseller, as well as the software company that specializes in developing Microsoft applications. You can't grow the crop, if the soil ain't fertile. Since we don't get major global economic meltdowns too often, I would argue that, overall, insurance and insurance companies work to decrease risk more than they increase risk. I have real trouble figuring out who would issue such a security. Ginnie Mae, Fannie Mae, and Sallie Mae, just to name a few. The "Mortgage-backed securites", "Asset-backed securities", "Collateralized Mortgage Obligations", and "Real Estate Investment Trust" markets are what is driving the real estate market nowadays. By bundling up and issuing partial ownership on assets and returns, you are dividing and distributing the same total amount of risk as before, but to a much larger number of people. |
| Re:I don't really understand... (Score:1) by markt4 on Monday May 08, @02:35PM EDT (#250) (User Info) |
| (There's also the little matter of what underlying assets these securities really represent. If they're merely trading instruments, with nothing backing them, then they're simply a form of betting and aren't hedging anything at all. Traditional options actually give the holder an option to purchase or sell a particular asset. Common stocks, while the connection is a bit more tenuous, do represent the ability of the issuing corporation to pay dividends, buy back its own stock, and otherwise benefit the shareholder. For this kind of scheme to work, a pool of doctors would have to pledge some fraction of their future income as ultimate payment on the security. That implies that they expect that income to be less than the price they write the option at. Uh huh.) You can have securities with no underlying assets. Traditional options are frequently traded this way - for example, selling "naked" calls, which is selling somebody the option to buy from you at some future date a stock that you do not currently own for a fixed price. This may sound like pure betting, but there are sound, well-understood and thoroughly studied ways to make these into true hedges, and not bets. To give you an example that I am familiar with: Airline profits are very sensitive to the price of jet fuel. When jet fuel prices move up in sync with travel demand airlines can move their ticket prices up and maintain their margins. If jet fuel costs go up when travel demand is low, however, pricing pressure (competition) may not allow the airline to raise its prices. This can cut into the airlines profits. There are a couple of ways for the airline to hedge this risk that jet fuel prices may not move in sync with the airline business cycle. First, the airline could buy jet fuel futures. This would lock in the future price of jet fuel for them, but if fuel prices go down they get screwed (other airlines buying jet fuel on the spot market can undercut their price). A second route is to use a derivative investment to hedge the risk. One possibility would be to trade in what is known as a "basis" or "index" swap. In this type of deal the airline would agree to pay the counterparty in the deal an amount based on an index that follows its business cycle (something like the Dow Jones Transportation Index); the counterparty agrees to pay the airline an amount based on the jet fuel price index (presumably hedging their transportation costs). In this way, if the price of fuel is up when business is slow, the airline is okay because the basis swap makes up the difference. Likewise, if fuel costs go down when demand for travel is high the airline must make payments to the counterparty, but the airline is still making more money. There may be no physical assets underlying these trades, but there is a contractual obligation to pay. Yes, your counterparty could go bankrupt and not pay, but then that Fortune 500 company you just invested in could go bankrupt and make your stock worthless. All investment carries some degree of risk, otherwise there would be no point. |
| Re:I don't really understand... (Score:1) by lionrampant on Monday May 08, @02:40PM EDT (#252) (User Info) http://www.geocities.com/~athorne |
| Well, what do you expect? The guy IS an economist. Most economists argue for a market-based solution to every problem, so it comes as no surprise to me that a market-based solution is proposed here. I would hope that his book (which I haven't read) would go into a serious discussion of HOW to set up a world-wide market for these things. It seems awfully complicated to me, and doesn't strike me as the kind of thing that doctors in Iowa would want to get involved in. You can trust me. I'm with the government. |
| As an Investor and a technologist . . . (Score:1) by Badgerman on Monday May 08, @11:33AM EDT (#120) (User Info) http://www.seventhsanctum.com/ |
| Me, I invest. I'm one of those people that goes to http://www.fool.com/, doesn't buy the hot thing, changes his investments yearly based on mathematical calculations, and doesn't trust hype. I'm also a webmaster/programmer, so I tend to see both sides. A statement like this book is needed, sadly, because many people do not see all sides, nor have a sense of history. Not everyone is an economist, a technologist, or a historian, and their sources of information are limited. From what I've seen, the technoboom started AFTER the economy began to pick up, making me wonder if the economy fueled the Internet growth more that people realize. Perhaps technological hype and truth help perpetuate it, but people need to consider multiple factors in any economic boom. Is there benefit in the new economy? Sure. It's just competing with hype, misunderstanding, and wishful thinking. I've seen plenty of IT/Web projects pour huge amounts of money down technoholes when simpler and cheaper solutions would have produced better results. I've seen my fellow technologists take advantage of this hype, delivering terrible solutions for hideous fees. Will it crash? My guess is its going to be more of a forced landing as the air in the hype baloon bleeds off - and books like this help start it so it happens slowly, not in a disastrous crunch. I figure that, in about a year, values will be more sane and people will be looking for real value. Then again, this may be my OWN wishful thinking. "The Sage treasures Unity and measures all things by it" - Lao Tzu |
| Herd instincts and delicious irony (Score:2) by Zico (ZicoKnows@hotmail.com) on Monday May 08, @11:37AM EDT (#123) (User Info) |
Would that be at all like picking up some guy's book and falling for it hook, line, and sinker, then running to your computer to churn out an article to spread the book's wisdom for all to see? I mean, maybe it's the most fabulous book ever written, but you couldn't find one little point over which to disagree with him? Do you think you might be contributing to the herd mentality by showering it with praise while challenging none of Mr. Shiller's ideas? Jimmy Jones and L. Ron Hubbard could hardly have asked for any better PR than you gave Mr. Schiller. Irrational exuberance, indeed. Cheers, |
| Re:Herd instincts and delicious irony (Score:1) by Maxintern9 (butt@stinky.net) on Monday May 08, @12:35PM EDT (#179) (User Info) http://www.toshistation.com/funk/Dm.htm |
| Zico, you kick ass. I get so bummed reading all the yap yap crap here, and then find you kickin' out the jams. *high five* |
| What are these people buying??? (Score:1) by TopShelf on Monday May 08, @11:43AM EDT (#128) (User Info) |
| A far more widespread and disturbing trend that goes beyond just tech stocks is the dwindling amount of firms that pay dividends to shareholders on a regular basis. Look at a firm like Microsoft, which makes outrageous profits, but has never paid nor has any plans to pay any future dividends out to the shareholders. For many firms (at least the ones that are making profits), paying out dividends is seen as an admission that they can't do better for the shareholders than simply hand out the dough - far better to pour it into new ventures or acquisitions. So what exactly do these shareholders get? Without the prospect of participating in the profits of a corporation via a dividend, the value in a share of stock becomes whatever another person is willing to pay for it. That may be the company itself (via stock buyback programs), or the market at large. Do you see where this is going? "I've got your purple Furby right over here! Who's willing to give me $200 for it? Anyone? $190, then! Anyone willing to pony up $190 for this here purple Furby???" Purple Furby = share of non-dividend paying stock. Well, at least you can play with the Furby. Sure, there are some systemic causes of this problem - there are lots of investors who simply don't want dividends, since they are taxed as income in the year received, as opposed to a stock whose share price rises over time without incurring a tax hit until a sale takes place at a profit. And a huge number of companies can't pay dividends because, sadly, they just aren't making any money. The bull market of the last several years has been notable in the small number of firms that are accounting for a large portion of the growth, while the rest lanquish. The bottom line is that economic fundamentals have taken a back seat to optimistic speculation. I don't think we'll see an Armageddon, but we could have some lean years ahead in terms of stock market gains, even though the economy as a whole continues to chug along. Cut the geek-speak. Let's talk Hockey! |
| Keep in mind that most of these "irrationally... (Score:2) by dpilot on Monday May 08, @11:48AM EDT (#138) (User Info) |
| exhuberant" people probably use Windows, think that Microsoft makes great products, and wonder why the Department of Justice is persecuting such a great American success story. To be a little less flip, isn't a main point that a lot of people who don't know a heck of a lot about the technology they're investing in are doing so with a heck of a lot of money? Seems related to my first humor-impaired sentence, to me. The amount of margin purchasing bothers me WAY more. That should have been the ONE thing we learned from 1929, yet appears that we're heading back into the same track. By the way, 1929 was the last time the US Government ran a surplus, from what I've heard. We also had a president who said, "The business of America is doing business." The November election scares me. |
| Re:Keep in mind that most of these "irrationally.. (Score:1) by leachj on Monday May 08, @01:08PM EDT (#204) (User Info) |
| Actually according to CBO that last time we had a surplus was 1960. http://www.cbo.gov/show doc.cfm?index=1820&sequence=2&from=5 |
| This year's Y2K scare? (Score:1) by HMV on Monday May 08, @12:06PM EDT (#152) (User Info) |
| Seems all the people peddling survival wear this time last year need a new line, and they have found it either in impending weather/geological disasters or in economic crash or collapse. Greenspan's now-famous "irrational exuberance" phrase drew a large crowd of people waiting to see the train wreck. These hucksters are rarely chastized if the future proves them wrong, and they usually make vague enough claims either to postpone evaluation until people tire and forget or to find one or two tenuous points to claim "I was RIGHT!!!". Of course every economist will have a different outlook on the short-term prospects of the market, especially within the tech sector. Shiller has a sound foundation for his position, I'm sure. What was the quote back around 1929..."when cab drivers start giving you stock tips, it's time to get out." Now we have e-brokerages featuring hairdressers trading market advice in their commercials. Pretty interesting parallel. But just as irrational exuberance can lead to bad exposure, so can an irrational exit strategy. I have little sympathy for the day-traders and other hoping to make what has always been a long-term investment into their get-rich-quick plan. We are now into a new step in economic education in this market. First we learned that you can make money. Now we are learning that a few safeguards are necessary in order to protect that money and grow it over the long term. Not at all new principles but a new lesson for people who had until now not bothered to learn it. |
| Economists make weather forcasters look good (Score:1) by markt4 on Monday May 08, @12:06PM EDT (#154) (User Info) |
| Ask ten economists whether the stock markets are overvalued and why and you'll get fifteen answers. Bob Shiller and those who agree with him, such as Harvard's John Campbell, look at the current market valuations versus historical valuations and are flabbergasted. Surely this can only be the result of irrational exuberance. However, ... Professor Jeremy Siegel of the Wharton School of Business has said of stock market valuation that, "historical yardsticks for valuation have been rendered useless in the past." He believes that investors' understanding of the long-term stability of stocks could explain current valuations. Abby Cohen of Goldman, Sachs & Co. believes that such factors as our historically high productivity and rising profit margins can justify current valuations. Alan Greenspan himself did not say that the stock market was overvalued due to "irrational exuberance", but rather he asked, "How do we know when irrational exuberance has unduly escalated asset values?" His answer based on his words and actions recently seems to be: You can't know, except in hindsight. In my mind, only one thing is certain. If pure psychology could explain the behavior of the stock markets Warren Buffett would be the most famous psychologist ever. He's not. |
| Self fulfilling prophecies (Score:2, Insightful) by JayBonci on Monday May 08, @12:09PM EDT (#156) (User Info) |
| Ahh yes, the ingorant bliss of the self-fulfilling propehcy. This boom that we are feeling in the markets today is a very strong one. The momentum gained from this is in fact from a feeling of optimism that the current wave of technological improvements will usher in waves upon waves of greater socital change and prosperity. And how much of this so far has turned out to be false? We have seen the wide reaching impacts of greater technology: more jobs, lesser unemployment, and a greater ecomonmy. In our capitalist society, this direct translates into greater prosperity and ease of life on the household level. Companies like Intel, Microsoft, Apple, Sun, and IBM have seen and largely contributed to this gain? Why? Because their enthusiasm has spread throughout the marketplace. What i believe Mr. Shilling's folly to be is that he is assuming because of his pessimism and dissatisfaction with technology, that the markets innovation with the Web is somehow grossly unjustified. Right now, i will agree that there are surreal feelings of this prosperity, and thus comes with it a large doubt: "Is this boom for real?", or "Are we doing the right thing?" In such a situation, the market is justified in making a reality check, but i believe only to find out that yes, we have made considerable progress and the technology saturation is unbelievable to the extent that small changes and updates to our technology base will affect millions of people. Innovation is defined as the application of a new solution to a situation. TCP/IP is a perfect example. We have used this technology for years in the US. The government designed it so that information would not get lost on their networks. Today we trade stock with it! That is an innovation. The failure of the "dot-com's", as they are called, is that they fail to innovate. Companies such as e-bay, or e-trade, or amazon.com, have hung in there (sometimes very narrowly), because of that innovation. Mr Shiller, to you i say this: perception is reality in the sense that you are only as important as people think you are. The political and social ramifications of technology are such that it by default, makes it important to our lives. Technology needs time to mature, and its getting its day. People are starting to see the reality of the situation past the initial phase of excitement. The Microsoft trial, along with other checking factors, such as the dissatisfaction that you display, are going to weed out the strong from the weak. Afterwards, the few technology bases that will survive the boom will come out to be strong industry leaders. Investing in tech these days means investing in the velocity of our future. By making your statements you in essense say, we cant move as fast as we want to because we dont know whats going to happen long term. That is the very strength of innovation, the force that you seem to overlook so easily. --jay bonci |
| Re:Self fulfilling prophecies (Score:1) by JayBonci on Monday May 08, @06:31PM EDT (#285) (User Info) |
| Right, and the stock market still crashed because of bad faith. It could happen again. There is great merit to public opinion, and public trust. Thats what the economy is, correct? The dollar and the other international currencies are based vaguely on market performance, and the rest on opinion of the global community. Things are only worth what people want them to. The 20's before the crash in 1929 were a time of great prosperity. Luckily, i dont think that could happen again. Have faith, and much will happen... --jay |
| Great Comments (Score:1) by Nickbot on Monday May 08, @12:10PM EDT (#157) (User Info) |
| These are some very good comments. I'm surprised and delighted to see so many slashdotters with knowledgeable and insightful opinions on the stock market. Just one question: when will all these great comments be 'borrowed' and sold in Katz's new book, 'Voices from the Stock Market'? Praise the Force Field! Praise the Laser Project! Slackware Loon #19830573 |
| Re:Great Comments (Score:1) by flibbertigibbet on Monday May 08, @08:40PM EDT (#292) (User Info) |
| heh heh |
| It takes a book to see this? (Score:1) by supabeast! (supabeast@NOSPAMzombieworld.com) on Monday May 08, @12:20PM EDT (#167) (User Info) |
| Not a bad book review, but I have to wonder why it takes a book to figure this out. Takes the following points: 1: The markets go up and down. They always have. Sometimes they skyrocket, sometimes they crash. 2: It has been common knowledge that .coms have been burning up cash like crazy with no profits. Sure there are companies like ebay that can turn a profit, but what happens when big boys like Amazon.com and CDNow.com go broke later this year? Will investors be willing (stupid) enough to give these companies more capital through stock purchases? Not likely. These companies will go under, and will take the whole market with them just like Microsoft did just on the possibilty of a breakup (which would likely be GOOD for stockholders in the long run!). Anyone could figure this out by reading Doonesbury on a regular basis. It seems that a book like this is best fitting to suckers willing to pay for obvious investing tips, rather than just go to www.fool.com and read about the popular, most profitable long term strategy: BUY AND HOLD! Pika? |
| This is new? (Score:1) by PenguinX (brian@landsberger.com) on Monday May 08, @12:25PM EDT (#169) (User Info) http://landsberger.com |
| Study history, investment has hardly been fueled by what is the most sane, easy, or otherwise intelligent risks. Ever thought of the railroad? Damn, that was one expensive as hell thing to build and maintain. But gee, sure did change the world. The difference now is that we do not have just a Rockafellers, there are thousands and thousands of small investors. From day traders to people who invest in a 401k or simple stock plan. This book probably points out the obvious bullshit that has, and always *WILL* be the difference is now anyone can invest. More people = more emotion. Stuffy, pompous investors do not like the idea of the "average idiot" investing in the stock market. The only way that they can continue to make money is to influence the marketplace so that companies that they do not see having any intrinsic value will insta-fail, and ones that "produce value" will survive, grow, and end up making them money. Don't buy into the lies and utter BS. Average investor joe schmow does not want to learn about every company that they invest 500 bucks in, so of course the market is more lead by feeling now than in the past. But is that so wrong? As John Katz is so overbearing to point out every time that he can, corporate America is destroying the world - perhaps companies fueled by what the consumer wants & needs are the wave of the future... perhaps not -- only time will tell. Just think of it like this, how many people have actually saved money, and got useful information from companies such as Amazon, Yahoo!, etc. These companies will make what is due them (either more or less) as they change management strategies, and explore various methods for gaining a profit. We will see where the future leads on this. PenguinX-- http://landsberger.com |
| To quote... (Score:1) by gid-foo (gid-foo@telecom-digest.zzn.com) on Monday May 08, @12:27PM EDT (#172) (User Info) |
| the onion: "If we go into another recession, does that mean a bunch of stockbrokers will kill themselves like in the '80s? Because that was great." |
| Timely advice (Score:1) by Andy on Monday May 08, @12:31PM EDT (#175) (User Info) |
| This was timely advice...a month and a half ago. 100's of billions of dollars worth of exhuberance has been wrung out of the market already. |
| Two quick thoughts. (Score:4, Informative) by w3woody (woody@alumni.caltech.edu) on Monday May 08, @12:36PM EDT (#182) (User Info) http://www.alumni.caltech.edu/~woody |
| One: the market started increasing before the "net boom" started taking over the Nasdaq. Further, most net companies are invested on Nasdaq, not the Dow Jones. So while you can see the effect of the net boom by looking at the Nasdaq index verses the Dow Jones index, it doesn't explain fully why the Dow Jones has also been increasing in recent years. I will be the first to argue that there is a speculative bubble going on over the Internet. And I strongly suspect we're going to see a fairly large (20%? 30%?) correction on Nasdaq when that bubble pops. However, what most people who have been predicting a popping Internet bubble have forgotten is that a second thing is fueling the increase of the Dow Jones: lowered capital gains taxes has made it cheaper to invest in stocks. When capital gains were high, it was expensive to invest in stocks. Specifically, it was expensive to withdraw your money from a long-term investment and transfer it into another investment, or to withdraw the money and pocket it. In addition to income taxes, you were often hit up with a 30-35% capital gains. That means that if you were seeing a 10% rate of return, that the real rate of return was really 7%--better to put the money in a savings account where the return was maybe a point or two less, but guarenteed by banking insurance laws. When capital gains dropped, it made it more attractive to put money into stocks: now, the point spread between an insured savings account and a portfolio was much greater, and made the risk of losing your principle worth it--of course assuming a diversified portfolio. So when long term capital gains were cut in half, more people started putting their money into stocks. This made money on Wall Street "cheap", and increased the average P/E ratio of companies on the Dow Jones. And that drove the average up. Most people argued for a cut in capital gains because they wanted to see more money invested long term in our economy. What people forgot (and forget even now) is that when you do this, you don't grow the overall economy overnight--instead, you make it easier for companies to get capital. Hense, the increase in the Dow Jones. This is not "irrational exuberance"; this is a direct result of making it easier for established companies to raise capital in a capital market where money is cheaper to obtain. Expect this to collapse only if congress jacks capital gains up to 35%. Two: about technology "irrationality": we're already starting to see people figure this one out. A meeting I had with a Venture Capitalist (to help someone I know raise capital for his software development company) told me that he thought that many of the overhyped Internet stocks were incredibly silly, and he refuses to invest in new internet resalers. His rational was this: before the Internet, mail-order companies were fearcely competitive. The supply chain (that is, the chain of people between the manufacturer and the end consumer) in the United States was one of the most efficient in the world--in part because of a lack of entrenched monopolistic players or government regulations which causes supply chains in countries such as Japan to be enormously inefficient. And before the Internet took off, the supply chain was being made even more efficient--as were manufacturers--by such things as increased delivery efficiencies by players such as UPS or FedEx, as well as better stock management, stock prediction software, and "just in time" manufacturing and delivery of goods. The only two "inefficiencies" that existed in this supply chain is the 40%-60% markup at the retail outlet (which is required to maintain the store front as well as advertising), and for mail-order catalogs, the 15%-20% markup necessary to pay for advertising costs. And these aren't really inefficiencies: advertising costs are necessary as people who don't know about your product won't find it. So at best, the only places where you can squeeze cost savings out of the supply chain are in areas where competition amongst the various supply chain venders and other folks are really really good at it. At best, by computerizing the whole supply chain and fronting it with a web site to reduce advertising costs, the most you can hope to squeeze out of the process is perhaps one or two percent--a margin which makes the margins used by grocery stores seem absolutely outrageous. And many Internet business plans called for making a living on that 1 or 2%, including paying for extremely technically skilled experts, and paying for all this supply chain infrastructure that they said they were better at performing than people who have been doing it for 50 years. Already a number of Internet companies are backing off trying to make a living on creating more efficiencies, and emphasizing selection over price. For example, Amazon.com is really emphasizing the whole "best selection on earth" logo--in part because while their prices are good, they're not great: they do not factor in shipping and delivery costs which are traditionally part of the costs factored into buying books from a bookstore. How this will help the up and comming B2B web sites is beyond me--as these people are in essence saying they can make a living supplying what was originally the job of an MIS department over the web more efficiently, and skim the price differential. Yeah, right. This is what I'd call "irrational exhuberance." |
| Somehow the market must punish (Score:1) by Pinball Wizard (josheverist@yahoo.com) on Monday May 08, @01:56PM EDT (#232) (User Info) |
| those who try to sell below cost. All too many companies are willing to take their venture captital or stock money and use it to undercut prices in order to establish themselves on the net. This is obviously very unhealthy for the economy. Its my hope that VC's and investors realize that this behavior is insane and will only cause wildly fluctuating stock prices in the long run. If the internet can be a place that a company can set up shop and make a profit, it will continue growing. However, if the environment contiues to exist in such a manner as to totally squeeze profit, then it should be no surprise that the stocks fall and companies like CDNow go out of business. hypocrat, noun; A person representing an authoritative entity, such as a corporation, that behaves in a manner contrary to its stated policies. |
| Undercutting is just a form of advertising (Score:1) by MattW (ma++@ender.com) on Monday May 08, @06:42PM EDT (#286) (User Info) |
| The market does punish people who sell below cost: they lose money, and go out of business. Seriously, there are many ways to advertise. Several companies that rent and sell DVDs gave me some free -- I originally claimed probably 7 free DVDs from various online vendors. They served as a form of advertising. As an offshoot, I signed up for the "marquee" program at netflix.com, where you pay a flat $16 (roughly) and get unlimited DVD rentals monthly. Due to a hectic job, they make a fortune off me, no doubt - but on the other hand, I get to hold onto the DVDs I rent indefinitely, the packaging is convenient, etc. In the long run, losing money selling is a big advertising ploy, and it benefits consumers. You are essentially taking that VC money in the form of cheaper purchases. There IS a place where it goes bad: monopolies. If you permit a company to undercut other companies to the point of their going out of business, then you can jack up the prices and pillage the public. This is generally why Standard Oil was broken up. So long as monopolistic risks are contained, there is no reason to intervene. The market will eventually punish those who overdo the "giveaway" -- because people invest to make money, not give it away. |
| Re:Two quick thoughts -- four words. (Score:2) by Randym (randym@cyberspace.int) on Monday May 08, @01:56PM EDT (#233) (User Info) |
| it doesn't explain fully why the Dow Jones has also been increasing in recent years Baby boomer retirement funds.
|
| Consensus Reality (Score:1) by StormyMonday on Monday May 08, @12:46PM EDT (#186) (User Info) http://www.aginc.net |
| Economics is the best example I know of the Eastern philosophical concept that we "make our own reality". (The stock market, of course, is a microcosm of economics.) It works if and only if we all believe it works. Why does the US economy work? Because everybody believes it does. Why doesn't the Russian economy work? Because everybody believes it doesn't. All of the little formulas that the "conventional" stock market wonks will show you have no more basis in reality than the latest political poll -- it's what people believe right now, with no other basis. So, the new companies don't make a "profit"? So? Any corporate accountant worth his green eyeshade can make any amount of "profit" appear and disappear like magic. About the only thing a company can do with "profit" is pay taxes on it. Reinvest cashflow and the company grows, but no "profit". Of course, if a company "makes a profit", its stock goes up, because everybody knows that, the more "profit" a company makes, the more its stock is worth (consensus reality again). The rules changed in 1913 when the first income tax came in. The stock market wonks are just starting to notice. We will come out of this with a new set of rules, just as soon as everybody can agree on what they are. Whoever guesses right about the "new rules" will make *lots* of money .... |
| If Amazon.com went bankrupt? (Score:1) by Jimhotep on Monday May 08, @12:58PM EDT (#192) (User Info) |
| If amazon.com went bankrupt, would all the stockholders fight over all those bookracks? How much do you think the bookracks will sell for, they have been used. See what I mean? |
| So? (Score:1) by Dice on Monday May 08, @01:01PM EDT (#194) (User Info) |
| The market goes up, the market goes down. That's the way it is. It crashed in the 30s, we had a nice little party called WW2 which brought it back up again. The market is currently doing very well, or at least it was the last time I bothered to check. All this babble about 'e-commerce' and the 'new internet economy' is exactly that. It's just another way to sell stuff, it's not that big of a deal. Basicaly, what I think my point may be is that the populace in general (myself included) have absolutly no clue as to what's going on. Go around and preach about cataclysmic downfall and such all you want, I'll sit here and watch you get your feathers all ruffled. You don't know what's going to happen any more than I do, we'll both find out when the future finaly gets up off its ass and comes knocking at our collective door. The only differance is I won't have as high a blood pressure as you :) The Court is well aware that there is a substantial body of public opinion, some of it rational... - Judge Jaxon |
| Where were you six months ago? (Score:1) by john187 on Monday May 08, @01:16PM EDT (#208) (User Info) http://www.2ad.com/john |
| It seems any reasonable investor with only the minimum level of information has known much of this for years, however, in case you havn't noticed many of the stocks which were causing this trouble have retreated significantly in the last few months. There will always be companies that are valued higher or lower than perhaps their financials indicate they should be, but this is the nature of a speculative stock market. Investors are free to invest in the FUTURE success of a company or industry that is not reflected in the current financial performance. Likewise, investors are free to sell or go short on any position even if it's financials currently indicate future profitability. The inflation figure quoted in the article of 30% is ludicrous. If inflation was 30%, corn flakes that cost $4.00 in 1995, would now cost $17.93 to just break even. As far as industry valuation for Internet and technology stocks. Yes, some stocks are quite overvalued due to investor hyperactivity, however, some of the technology companies are good companies with good financials. There are quite a few examples of profitable, or mostly profitable pillars of the industry, they have been around and in the market for years, they provide good products for good value, and they have a demostrated track record of growth and performance. Some of these companies seem to be fairly appropriatly valued based on the current economy. If the current valuation is due to irationality in the tech sector, how do you explain the 10-15 year dow trend of 20-30% growth? I think we can explain a great deal of this with the IRA and the 401(k). These programs have shifted vast amounts of financial resources from government pensions into the stock market, and as more and more people enter the economy as workers with retirement hopes, more and more money enters the stock market. Still more growth comes from the social popularity of internet investing, and stock purchases as a whole, employee stock options, and more. These factors, in addition to investor emotionality, have driven solid growth for the past decade or so. The real question is, how much of the current value is based only on emotion and irrational hopes for an industry. I believe much less than this article predicts, but more than the current market indicates. Therefore, on a 2-3 year trend I would guess we will see a slight decrease in the current growth rate, but not quite a reversal in the growth trend. John |
| iTulip (Score:1) by Unanimous Howard on Monday May 08, @01:20PM EDT (#214) (User Info) |
| Lots of comments, but no mention of http://www.itulip.com yet.... |
| Any MBA grad student knows this (Score:1) by gelfling on Monday May 08, @01:25PM EDT (#217) (User Info) |
| You may have even written a paper yourself about the statistical non correlation between the overall economy and the markets' performance. A bubble is a bubble whether you call it the next technological revolution or latest tulip craze. Does anyone remember the 80's when moribund companies were valued more as dismembered chunks each to be sold off and ultimately dismembered again and sold off again, and so on? All invesment entails a degree of risk. What IS occuring now is that many companies with no direct experience in the dotcom world are going off and leveraging the hype. Anybody own Starbucks recently? A coffee shop on the net? WTF sense does that make? So in effect what happens is the nominal risk of going off into a new market with a new business model using technology you don't understand well and don't directly control tends to normalize. The risk to an AT&T converges toward that of monkeysoutmyass.com. With valuations this high even the basic dollar value associated with those two risks is roughly the same. So of course the market becomes more volatile. It is experiencing what you statisticians call autocorrelation. That is, my estimate of what a stock will do is based on my estimate of what other analysts think similar risk rated companies will do which is based on what some other analysts think my company will do. Typically wild swings in value are compounded by a lack of understanding whether today's earnings announcement for company A has any bearing at all on company B - - but hey they've both got dotcom in the name so let's treat them the same. Evident this is the importance of 'whisper numbers'. These are earnings and price estimates that are based on unfounded or unattributable information or sources or guesses about guesses about guesses. What you see happening with whisper numbers is that a company will announce projected next quarter earnings, the whisper numbers come in higher or lower. When the time comes for an accounting and that company announces that that quarters earning were in fact what they projected the stock price drops if the whisper number eg. 'the secret real deal' was higher. If the whisper number was lower than what the company publically projected then the market already hammered the price and the announcement of on-target earnings only reaffirms that market actually knew what it was doing in the first place. Rational? No. Now take the other case, the case of hype over substance. Each investment is evaluated in the context of that set of alternative investments that perform better or worse. For every stock you have to decide whether you think this given stock will outperform any number of other stocks given the investment goals you ascribe to. So if what you want is money market rate + 20% over the next 6 months you determine for yourself whether there is an acceptable likihood of that actually happening. If your goal is instant millionaire then you evaluate that stock in a group of other stocks you think are roughly equal in their ability to make you an instant millionaire. Now as most people know - the bigger you are the harder you hit. So being the first or nearly so in a market even if its only for a few months can give you enormous advantage. With valuations going up this rapidly the first Yahoo is already several billion dollars ahead of the second Yahoo. In fact the difference is so large that the net effect is to crowd out the investment in any other potential competitor. Investing in the second Yahoo is for VC's because for every 2 dozen companies they fund if one pays off even partially like a Yahoo then the loser dogs don't count. IS this rational - actually, yes it is. Now we move on to third case which is a side effect of the other two. That case is where post IPO companies of different maturities and expertise get dragged in the same direction, usually down, as the rest of the market independant of every other fact. This one is bit more complex because it introduces the effect of institutional investors. Say for example you have two stocks: monkeysoutmyass.com and mail.com. Both went public but one has a rational business model, good management, real earnings growth, generally good relationships with customers while the other company really is 5 guys and a business plan on a bar napkin, a lot of overtime, pursuasive pitches to the analysts and some seed capital. An announcement goes out about some market or sector or company not directly related to this but probably has some tangential effect. Institutional investors decide to rejuggle the portfolios because GiantHardwareCompany.com - a major player and someone who should know announces that next quarter earning will be lower than the previous quarter. Not lower than expected mind you - because this IS the expectation, but just lower, slightly. The reason could be something as obscure as difficulty in procuring controller chips from the one Taiwanese factory that just fell into the ocean from the last earthquake to something closer to home like consumers don't like or understand your recent marketing push to something mundane <and unstated> like our R+D head is going through a midlife crisis and cashed out and moved to Monte Carlo....well you get the point. Immediately the institutional investors pick from their category menus because making individual decisions about thousands of stocks is impossible. So small portions of whole sectors go into the sell basket driving the price down. Ergo your two companies described above both drop below the IPO price for no obvious reason. IS this rational? Sort of; at least it's predictable. Is the market full of hype, hot air, ignorance, herd mentality, misinformation? Yeah sure. And as long as banks are paying 2.2% on CD's while charging 8-9% on long term consumer debt people will continue to invest in the market because any other option is a GUARANTEED net loss factoring in the CPI and taxes. |
| Excellent Article on Greenspan and the Market (Score:1) by katmai450 on Monday May 08, @01:38PM EDT (#225) (User Info) |
| http://www.msnbc.com/news/404715.asp?0m=B21C Among other things, it notes that Greenspan has been surprised that the market has acted more rationally and correctly than the Fed has. |
| Reality/Market Schism and Is It Bad? (Score:1) by Indomitus (slashmatt@mattorama.net) on Monday May 08, @01:38PM EDT (#226) (User Info) http://mattg.spinn.net/ |
| From my non-economist chair I've always seen the stock market as seperate from the "reality" of businesses. I think what this "irrational exhuberance" and the rocketing of the market upward despite little or no earnings has blown the schism between the market and reality open to the point where people see the differences. Really, the market has never reflected earnings or anything of the sort, it's only reflected people's desire to own a stock and most of the people owning the stock cared about the P/E ratios and all that. Now that the masses are investing, the market has been opened to people who don't know a Price to Earnings ratio from a box of Rice Chex. This means that the "reality" of earnings and profit _really_ doesn't matter because it doesn't even figure into the calculations of thousands of investors. Most institutional investors see this as terrible but I wonder if it really is? Just because The Market is way out of whack with Reality instead of tenuously connected like it was before, does this mean anything? The important thing I think is that people realize the schism between The Reality and The Market and invest that way. If you know that your stock's price isn't related to the business's performance you can invest differently. You can begin to invest based on what you think others will do, rather than what you think the business will do. I hate to fall into the trap of applying the Open Source model to everything but I'm going to anyway. The old investors, the guy in the Datek commercial pleading "You don't see the quotes as the market is moving," are like the Closed Source software vendors seeing the new Open Source guys coming up. To them, the Open Source way is the death of software, the death of security, a new way that will never work. To the institutional investor, these New Investors with their Internet stocks and zero/negative profits are going to wreck havoc on the world but I don't think it will. I think the new investors are changing the ways things happen but if people see the change it doesn't have to cause anybody any sleepless nights or recessions. If any economists read this, I'm not one of you and I might not know what I'm talking about. But I don't think I'm the only one thinking this. I'm also trying to coalate my thoughts on this so if this was a bit rambling it's only because I haven't solidified my ideas yet. I welcome all discussion. You should visit SpinnNet. They give me money in exchange for code. |
| Of course it's a bubble (Score:2) by Animats (slashdot-replies@animats.com) on Monday May 08, @02:27PM EDT (#249) (User Info) http://www.animats.com |
| I've been saying that for some time. See my Downside.com. Of course there's a bubble. In fact, it's already burst; we're seeing a long, slow decline in most of last year's hot Internet stocks. We may or may not see a big crash where prices drop in a single day or week, but we are seeing a slow decline, a few percent per week. Schiller's "hey, let's have active markets in everything, so you can speculate in house price trends online, and that will fix the problem" is totally bogus. (But then, I'm only reading Katz's review, which may be wrong.) Meanwhile, I'm working on a new tool for Downside which does some simple cash-flow analysis for money-losing companies. Here's some early output: Analysis for AMAZON COM INC: That's when they run out of cash. Something drastic has to happen to a company in that situation. The options are dilution, taking on debt, bankruptcy, major cutbacks, or acquisition on unfavorable terms, all of which clobber current shareholders. It's not pretty. There is an endgame to the Internet mania, and it's not too far away. As I keep telling people, "Losing money on every sale and making it up on volume is a joke, not a business plan." |
| Re:Of course it's a bubble (Score:1) by Creosote (dsewell@azstarnet.com) on Monday May 08, @03:42PM EDT (#263) (User Info) |
Analysis for AMAZON COM INC:Better add a couple of days. I've been casually tracking the sales ranking of Irrational Exuberance on amazon.com for the last week or two--I work at a university press, and it's always fun to see a university press get a best-seller--and it had declined from #22 to somewhere in the #50s. But today it's back up to #16. Apparently its sales ranking got /.ed! ('Fess up: how many of you bought the book as a result of this thread?) |
| Re:Of course it's a bubble (Score:1) by Sara Chan on Monday May 08, @08:56PM EDT (#295) (User Info) |
| Why do you say that taking on debt will "clobber current shareholders"? Also, Amazon does not lose money on every sale. Their book division is now profitable. They lose money on other things (CDs, DVDs, etc.). This is consistent with Amazon's stated strategy: to gain as much market share as possible early on, even if it results in short-term losses, so as to get good profitability in the long run. In valuing Amazon so highly, the stock market it just saying that they believe that Amazon's strategy will be successful. |
| ...And "the Market" is not the economy, Jon... (Score:1) by reg_nad_kcin (reg_nad_kcin@nospam.my-deja.com) on Monday May 08, @05:22PM EDT (#277) (User Info) |
This isn't new, this is obvious to anyone who bothers to think about it. I would agree that the (false over-)valuation of stocks affects capitalization of R & D and perhaps sucks capital from more grounded, better deserving (less-technological) ideas/companies. HOWEVER - Those more-grounded companies are also producing products and profits and have sound marketing and business plans BEFORE they decide to go for an IPO or venture capital rounds. They will find capital when they need it. The bubble for tech stocks has already burst and will continue to burst as needed. Like Junk Bonds past this too will pass. I usually find you intriguing and somewhat ahead in your thinking, but this just strikes me as all-encompassing alarmist crap The statement Most of the current generation of technology leaders and workers has never really known recession, depression, or even much in the way of serious reversal. - that's patently crap. I'm 40. I watched severe recession in the 70's and the recession of the early 90's. I also remember Howard Ruff insisting that any day the sky would fall, dammit. This is the same horseshit. Vapor-Companies like petcrap.com and grocery_pitstop.com may be run by 20-somethings, but they are anomalies, not prevalent. Most of the statements say "IS" when they should say "WAS". Old news, Jon. Not very alarming. Shakeups, even a recession soon, sure, but there is also real value created in this mess, and that will persist and level things out. |
| Circularity and irony (Score:1) by Zigurd on Monday May 08, @05:35PM EDT (#278) (User Info) http://www.phonezone.com/telirati |
| Schiller's reasoning is circular, and making a potential crisis out of "irrational exuberance" lends a shade of irony to his proposed solution: more, and more sophiticated, derivatives. His nod to solving social problems (with the the taxes on the derivatives, I suppose) gives him the PC stamp of aproval as opposed to us hard-hearted sort that think putting their own kids through college comes first. "Hey, you! You'll hurt yourself on Datek. Come listen to my plan, it'll only cost another 2% of GDP in taxation, and you'll feel safer." Yeah right. |
| The stock market might not be too high (Score:1) by Sara Chan on Monday May 08, @05:42PM EDT (#279) (User Info) |
| Shiller's book is not concerned with proving that the stock market is overvalued. Rather, Shiller explains how the market came to reach levels that he assumes are overvalued. There are, though, reasonable arguments against this assumption. Following are two examples. * Over the long run, stocks are not much riskier than bonds. Yet historically, bonds have paid much lower yields (or rates of return) than stocks. Why? Stupidity (by long-term investors). Higher stock prices imply lower stock yields; so nowadays stocks and bonds have similar yields. Hence stock yields (and thus prices) have simply moved to levels at which they are fair relative to bonds. (The bond market is ten times bigger than the stock market, and is not generally believed to be severely misvalued.) * Computers and the Internet are leading to the development of a "new economy" that is much more efficient than the old economy. Hence company profits will tend to be bigger; thus stock prices should be higher, on average. In fact, no one really disputes this; the only question is "by how much?" Yet Shiller does not really address this question; instead, he weakly points out that people have assumed before that there was a big change in economic/business efficiency and have been wrong. Yes, the optimists were wrong in the past; this, however, does not mean that they are wrong now. None of this proves that the stock market is now correctly valued: there are counter-arguments to the above. Shiller’s assumption that stocks are too high might be right--but Shiller does not make a good case for it. |
| "Irrational exuberance"--In the dow (Score:1) by QQQuartius on Monday May 08, @06:53PM EDT (#287) (User Info) |
| Lets look at this rationally, shall we? 5 year earnings growth targets by analysts have historically been accurate, though in high growth stocks they tend to undershoot. But lets assume they DO NOT undershoot, but that they are at least accurate in stocks that CONSISTENTLY beat earnings estimates. Ok, now lets compare IBM (a reasonably priced dow stock, with CTXS (a reasonably priced nasdaq stock). CTXS has a 2004 p/e of 13.7 IBM has a 2004 p/e of 13.3 CTXS will be growing at about 25-35% yearly, by a conservative estimate, in 5 years, given that in the next 5 years it will grow by 43% annually. I would therefore say that, over the long run, CTXS is cheaper than IBM. And IBM is one of the more reasonably priced dow stocks. Remember PG? That was scary, but very predictable. Some are even worse... SNE... Or there are better growth examples... However, I don't mean to send the message that all NAS stocks are undervalued, and all traditional, "old economy" stocks are overvalued. There is a mix, but I would say that the best bargains can be found in the NASDAQ. Everyone here realize that by modern--at any one time, MSFT was never undervalued, or even at the average? Yet I would rather have held it for the past 14 years than anything else... Well, almost. HISTORICALLY, actually, every single stock--without exception! is overvalued, badly. It is all just a matter of returns. Way back when, you could get better returns. Now, you can still get returns, just not GREAT returns. The balance, inevitably, must be found by if you can CREATE THE MOST WEALTH by making a new buisiness--That is, if creating a new buisiness is a better investment than investing in stocks. Effort, and hours spent, are of course factored in. Apart from this proving that this fundamental is out of whack, ONE CANNOT SAY THAT THE STOCK MARKET IS OVERVALUED, except in relation to another CURRENT market. Remember a few things: 1--The people that called the bear market were, for the most part, calling it a year ago. I laugh. 2--The people that called the bear market were, for the most part, calling it to drop substantially further just as it bottomed. (More bear fund managers were shorting at the bottom than at the top). I laugh. 3--One cannot take on NAS stock and use it as a representation of the very diverse whole--One of the most common techniques employed by the bears. 4--The fundamental attribution error--The NAS did not necessarily go down because it deserved to. If you want some Q's answered, you may email me @ Quartius@hotmail.com Or go to clearstation.com , click on recommends, and look up QQQuartius ... I have none now, since I think many of my favs might go lower (short term), but I will add some periodically. My avg is a 35% profit over a 2-day avg hold (or short) period. |
| Market Correction (Score:1) by Nick (nshreders@NOSPAM.netscape.net) on Monday May 08, @08:28PM EDT (#291) (User Info) http://worldzone.net/business/nds |
| This is something I had suspected all along once the huge ".com IPO's" started occuring. As everyone else starts "following the herd" and investing everything into tech stocks, we see this nice rise in the market and everyone is happy - for now. As history has proved itself before, as the market gets pretty huge gains in a very short period of time, we get what is called a market correction. We see sharp drops in the market in a short period of time, like a day or so. It "corrects" itself. Some economists theorize that the casual investor sees himself making huge amounts of money in a short period of time figures he should just sell right away and take that profit, since everyone else is getting rich, and they may get the same idea. So a few people do this, and others start it as well, then the snowball effect occurs. Remember back in June or was is July of '98? This same thing had occured. The tech stocks were rising sharply and over a few days the DJIA dropped 500+ points over a couple days. The Dow Jones Industrial Average was more or less composed of technology stocks at the time. For those of you who don't know, the DJIA is basically an index of the top 10 (or is it 30?) or so stocks basically, and they use that index's performance to "guage" the market and see how it is doing. (If you want a better measuring stick, use the S&P 500.) Since all of these or most anyway were tech stocks it drove the DJIAA way down and everyone started to panic a little bit, selling their K-Mart and McDonalds stocks as well. I will be investing in a few technology stocks myself, but my portfolio will more or less consist of companies that produce things that we humans need for survival, not just want. (i.e., paper, textiles, livestock industries) ProcessTree Network For-pay Internet distributed processing. |
| Katz and stating of the obvious (Score:1) by mTor on Monday May 08, @09:41PM EDT (#296) (User Info) http://www.groundandpound.com |
| This article on Katz is rather interesting. -- GroundAndPound.com News and info for martial artists of all styles. |
| NCSA Mosiac first released in 1993 NOT 1994 (Score:1) by James_J_Collins on Monday May 08, @11:33PM EDT (#308) (User Info) |
| Get your facts straight. And don't tell me "I was talking about Mosaic Communications' browser..." |
| Same prediction, different reason (Score:1) by leenelson on Tuesday May 09, @03:48AM EDT (#310) (User Info) |
| In late 1996 Shiller and Campbell had a meeting with Alan Greenspan (which later produced the famous "irrational exuberance" _question_, by Greenspan). At the time Campbell and Shiller claimed markets were way over valued and the herd has taken over. Is it any wonder that 4 years and 3X later he still thinks so? What bugs me is pegging it on technology. It seems to me that technological advancement (new technologies like the internet, or getting over technology-blockers like M$) is at the heart of any economic boom at any time. In previous periods it was just different technologies, but there was just as much skepticism about them at the time. Also, a quick note on herd mentality: What was not mentioned in the article, and probably also not in the book, is that there is a whole body of economic and financial research on rational herd behavior. This research shows that it is in fact rational for investors to follow other investors' actions (since they infer information from that action). This would put the herd mentality and irrational exuberance at odds. By the way, the herd is most likely to break under a volatile environment in terms of underlying information (not necessarily stock prices). Perhaps the DOJ action (which increases the uncertainty re:M$'s prospects) is acting as a catalyst and forcing the (rational, or close to rational) herd to re-evaluate it's information. If you'd like more information on rational herd behavior, you can check http://www.stern.nyu.edu/~lnelson/Myfiles/hdraft.pdf and the references therein (this paper connects herd behavior in a changing environment with the IPO decision). |
| Pyramid Scheme (Score:1) by Aceticon on Tuesday May 09, @05:26AM EDT (#311) (User Info) |
Actually the current ( hopefully not so current anymore ) trend with tech-stocks seems very much like a pyramid scheme:
|
| This is a surprise? (Score:1) by asako on Tuesday May 09, @09:14AM EDT (#316) (User Info) |
I must confess, my first reaction to the subject matter of this book was "we need a $20 hardback to tell us this?". Ok, granted, opinions look ever-so-much more respectable when they're presented in twenty-buck bundles of chopped up dead tree with a shiny cover, but I can't help feeling the author is insulting the intelligence of his readership[1] by presuming that it's not already blindingly obvious to them[2]. Disclaimer: IANAE; my name doesn't have a nice shiny little "MEcon" after it, which is apparently required for you to have an opinion on the business world these days. Oh well. I'm going to have an opinion anyway. Damn The Man. From my perspective, whilst there are some sharemarket players who do the logical thing, stick to the really high return blue chip stocks and "manage their money wisely" (whatever that means) this is not true of most people. A simple analysis of the market reveals this: if everybody share-shopped "rationally" (ack, I'm sounding like an economist!) the whole world would own stocks in IBM, Cisco, and a handful of others, Amazon.com would be bankrupt, and the "dot.com proliferation"[3] would never have happened. Most market speculation[4] is about shopping with the gut and to a lesser extent with the ears. Shopping with the gut is just my fancy name for playing your instincts and intuition: buying into something you think will do well, no matter whether it has in the past or not.[5] Ditto shopping with the ears: most commentators I've observed agree that part of the impetus that pulled the NASDAQ out of its slump/correction/downturn/downward hurtle (pick your verb) was the fact that it was talked back up; "business confidence" is so important because a skittish marketplace won't engage in the volume of share-trading needed to keep prices from stagnating (or plummeting). As for a "crash", booms and busts are inevitable in the market economy; especially in this circumstance, where tech stocks (as Cringely[6] points out best) are absurdly overvalued. The question is simply whether enough confidence can be retained that the adjustment of the overvalued stocks can be accomplished over a long period of time or if there will be a huge, sudden slump. Actually, I wouldn't mind a sudden slump overly, except that it'd retard market confidence generally, rather than just dropping tech stocks down to what they should be at. I have no sympathy whatsoever for tech-stock speculator billionaires who will be reduced to impecuniary if the 'daq resets itself; can you tell? I seem to have digressed a bit, but my point is this: if something like this is obvious to a Politics major like myself, why do we need a tarted-up twenty greenback thesis to explain it to us? As a final note, given Jon Katz' propensity for tackling issues (whatever one may think of how he tackles them) I was rather disappointed that this article was not much more than a synopsis of the book and didn't attempt any critical evaluation. Footnotes:
/* My opinions, dammit. Mine. If you want to adopt them, that's your problem. */ |
| Um... (Score:1) by ivan256 (jbaboval@wpi.edu) on Monday May 08, @11:11AM EDT (#70) (User Info) |
| I understand that it is important for you to miss the point in order to feel good about yourself, but perhaps you should think about what you're saying before you trust everything to blind faith. Just because you unconditionally believe in a "God" doesn't mean you can get away with unconditional belief of how you think american society works. For example, you say This shows itself in the US's love affair with the gun - USians view the right to take other's life with ease as being an integral part of the culture, and fight viciously any attempts to take this "right" away. Despite the highest murder rate in the Western world, and any number of high school massacres, USians still seem to think that the owning of guns, a tool used only for violence, is something that is required for civilisation. But that assumes that americans cherish the right to own guns because they glorify the distruction of life. This is simply not the case. Americans cherish the right to own guns because this is a young country whose citizens remember governmental oppression, and the right to own guns is a symbolic representation of the fact that americans will not allow their freedom to be taken from them again. Don't allow blind faith to rule your life. Try reading a newspaper rather then just the bible. Open your eyes! |
| just a second... (Score:1) by grarg (thatsaboutenoughspamthanks@hotmail.com) on Monday May 08, @01:59PM EDT (#236) (User Info) http://matrix.netsoc.tcd.ie/~morpheus |
| Okay, we're way down along a totally off-topic thread at this point but sod it. I just have a minor off-off-topic pointrelated to this: Americans cherish the right to own guns because this is a young country whose citizens remember governmental oppression, and the right to own guns is a symbolic representation of the fact that americans will not allow their freedom to be taken from them again Come off it; there are a hell of a lot younger countries than yours, some located a lot closer to their original oppressors than yours who have much stricter gun laws because they recognise the simple fact that if guns are freely available, they will be freely used and vice versa. The US's right to bear arms is an archaic law that stems back to right after the War of Independence when there was a total lack of law enforcement or protection from thieves, highwaymen etc and the only way a person could have any hope of surviving was by carrying a gun. Not even with the most overblown exaggeration can you claim this to be the case now. The Catch-22 now is that because of those self same laws, the US has one of the highest gun-related death rates in the world, but all you have to do is lose the guns, and voilà! "The conclusion of your syllogism", I said lightly, "is fallacious, being based upon licensed premises" |
| Re:just a second... (Score:1) by aetius2 (aetius@SPAM-THISmindspring.com) on Monday May 08, @05:14PM EDT (#275) (User Info) |
Not to jump into a waaaay offtopic discussion, but... Actually, I believe the gun-death rate has been decreasing in the U.S. for several years now, even in the high-risk demographic sectors (young black male being the worst and the demographic where most of the gun-deaths are concentrated). There have always been large numbers of guns in American society -- it is only recently that gun-deaths have surged drastically, and that can be directly associated with the surge in crime rates (and has been by some researchers). There is still a general lack of enforcement or protection from thieves, highwaymen, and burglars -- and there always will be, since the police are not required in any way to protect anyone from anyone. And, as a fun little flame, there were strict gun control laws in Kosovo, too, and look where it got them. Personally, I'd rather live in a country where lots of people have guns, as it tends to prevent that sort of idiocy. Our government should live in fear of us, not the other way around. Aetius |
| Re:Um... (Score:1) by UnknownSoldier (mpohores@NOBLOODYSPAMsfu.ca) on Monday May 08, @11:48AM EDT (#140) (User Info) |
| > All I can say is don't allow your societal brainwashing to rule your life. The truth is out there if you can ignore your society's attempts to make it politically correct. You mean like the fact there is no law that REQUIRES a person to have a Social Security Number, a Driver's License, Marriage License, etc, but yet you still can Work, Travel and get married without the government's permission ;-) |
| Numbers please (Score:1) by jigmasterj on Monday May 08, @03:41PM EDT (#262) (User Info) |
| baseball bats kill more people in the US than guns If anyone can substantiate this claim with hard numbers and sources I am sure a lot of people would be quite interested to see that. Even if that number is true, baseball bats didn't kill numerous kids at Columbine |
| Re:Does this explain... (Score:1) by Oarboat_7 on Monday May 08, @11:13AM EDT (#73) (User Info) |
| You don't have to reach far to see the reason that ANDN and LNUX have tanked. Any good book on the subject from 1972 explains it nicely. |
| Re:The irrationality of "the next big crash" omens (Score:3, Insightful) by dominion (mchisari@nospam.usa.net) on Monday May 08, @11:15AM EDT (#86) (User Info) http://www.tao.ca/~dominion |
There is little cause to worry. "ATTENTION, AMERICA! EVERYTHING IS JUST FINE! PLEASE STOP CARING AND START WATCHING HOURS UPON HOURS OF WWF WRESTLING! YOUR LEADERS WILL TAKE CARE OF YOU!" There *is* cause to worry, in fact there's a lot of them. We'll start with the easiest, which is the fact that the majority of the "safeguards", that you're referencing such as the Glass-Steagall Act of 1934 that made sure that banks and insurance companies stayed out of other markets, are being repealed left and right. I'm telling you, the people in power are going absolutely apeshit this time around, and if there is a crash, this time it's going to be *big*. And it's not going to have anything to do with economics, I would guess, since the ruling economic institutions have found themselves to be able to keep things seemingly good no matter what happens... No, if there's a crash, it will most likely be environmentally based. Think about the fact that we can eat over 30,000 different types of fruits and vegetables, but yet we focus on 30 specific types/strains? What about the fact that this group that we do rely on is becoming increasingly genetically modified, pesticide-ridden, irradiated, etc? What about the fact that the World Water Forum has concluded that the next World War will probably be fought over access to clean water? What about the fact that, despite this, they're looking to privatize water supplies (rivers, lakes, oceans, etc) anyways? The truth is that people and the environment are not governed by the rules of "the market", and either we can help destroy this economy of ours, or some horrid environmental issue will do it for us. Also, look here for a perspective on the corporate state. For how long are we going to watch people like Donald Fischer (The Gap CEO) exploit sweatshop labor and destroy old growth forests? How long can we let Monsanto have it's way with nature? How long will we allow the corporate press to wax ecstatic about an economy that's completely fake? How long will we buy their bullshit before we turn around, find ourselves a big stick, and clock these bastards upside the head? As for me? I hope for the land of do-as-you-please. Michael Chisari mchisari@usa.net -- www.infoshop.org -- www.spunk.org -- www.radio4all.org |
| Re:The irrationality of "the next big crash" omens (Score:1) by warmi on Monday May 08, @12:28PM EDT (#173) (User Info) |
| Heh, Dude ... It would be rather strange if World Water Forum suddenly declared that the next war will be fought over ... grain and therefore WWF is not really needed anymore. These people live off donations, based on scaring off people ... They have to come up with some gruesome scenario just to stay in "business". |
| The coming Stinky Sock Crisis (Score:1) by Error 404 (meq@mail.com) on Monday May 08, @04:54PM EDT (#273) (User Info) http://geocities.com/Athens/2111 |
| The Sweat Sock Forum has concluded that the next world war will be over access to laundry-deficient athletic facilities. And yet, every day, people all over the world thoughtlessly toss this vital resource into the nearest washing machine or (in developing countries) scrub it on rocks in streams. Our secret is gamma-irradiated cow manure Mitsubishi ad Email address meq@mail.com works as is. |
| Re:What's with the l's? (Score:1) by Oarboat_7 on Monday May 08, @11:21AM EDT (#98) (User Info) |
| I don't know about you, but I get a zen-like buzz from sitting down at the old IBM Selectric and using a lower-case L for the numeral one. The immediacy of seeing your words appear directly onto the paper. You probably wouldn't understand. Just move on, nothing to see here. |
| Katz anti-`1337? (Score:2, Funny) by pingflood on Monday May 08, @11:27AM EDT (#109) (User Info) |
| Why does Katz always feel the need to use l instead of 1? I think Katz is just, in his own way, protesting the whole `1337 h4x0r3r movement. Or, maybe he's an agent of the letters intending to recover lost territory from the evil digits. -pf |
| Re:SCG SEEKS OSCM!! SMILING CAVE EYES LOOKING FOR (Score:1) by Oarboat_7 on Monday May 08, @11:41AM EDT (#127) (User Info) |
| About a decade and a half ago I bought a used dumb terminal (I think it was a Televideo 950) and hooked it up to my Altos CP/M box to use as the console. It for some reason would only enter text in ALL CAPS. It bewildered me, as there weren't any dipswitches setting it to all caps, like on a Lear-Siegler ADM-3A (the predecessor of the iMac.) Upon disassembling it, I discovered that the switch for the caps-lock key had been bridged, with a little piece of wire tack-soldered on. So check your keyboard, Ooog-whatever. We know you don't have modern tools to do so with, but as the old adage goes: "The only tools needed to work on computer equipment are a hammer and a cold chisel." Improvise, in other words. |
| Re:The irrationality of "the next big crash" omens (Score:1) by mr on Monday May 08, @11:46AM EDT (#134) (User Info) |
| >Back when the united states had the great depression in the 1930's we put ecconomic safeguards that essentially prevent something like that from happening again. Really? Because it has not happened YET does not mean it won't happen again. The only way to prove the system does not work is for the system to fail. >There is little cause to worry. Sure....you just keep telling yourself that. If it was said on slashdot, it MUST be true! |
| Re:SCG SEEKS OSCM!! SMILING CAVE EYES LOOKING FOR (Score:1) by Fr05t on Monday May 08, @11:47AM EDT (#137) (User Info) |
| Does OOGA stand for Object Oriented Genetic Algorithum? |
| Re:The irrationality of "the next big crash" omens (Score:1) by clink on Monday May 08, @12:11PM EDT (#158) (User Info) |
| Acutally if you read up on the 1987 crash you'll find that our banking system came very close to collapse. The banks weren't able to meet the margin calls from the brokerages on Monday. The Federal Reserve had to step in and guarantee that the banks would meet those obligations or else many of them would have gone out of business that day. |
| clap, clap! (Score:1, Flamebait) by anonymous cowerd (WKiernan@concentric.net) on Monday May 08, @12:17PM EDT (#163) (User Info) http://www.concentric.net/~Wkiernan/index.html |
Good one! I wish I had moderator rights right now so I could throw a point toward this excellent, wacky troll. Oddly I find this post especially charming because I myself agree that Americans (that is, U.S. citizens, "USians," in this context I want to exclude all the millions of Americans who live in Canada, Mexico, Brazil, etc.) are more irrational than the human norm - in this I agree with Mencken, who stated that we share our specially excessive national dumbness and hysteria with the Russians - and also I feel that our "USian" gun fetish is both aesthetically disgusting and also a pointless danger to life and limb. The gleeful irrationality of this post, swooping and looping as it does in and through and out of Capital and Exodus, does kind of undermine my position. But over and above all these political considerations, I like art and I can appreciate a literary job well done, and this is one! So you go, troll! Your fan, WDK - WKiernan@concentric.net |
| Re:Financial advice from JK (Score:1) by Oarboat_7 on Monday May 08, @01:10PM EDT (#207) (User Info) |
| Hold on a minute there. You're claiming that the text you've entered onto this bulletin board as an "Anonymous Coward" is your property and Katz better not use it in his next published work? It seems to me that as you've not even taken the step of attributing the text you posted under A.C. by signing it at the bottom with a real name, or even an email address, that you've just contributed to the Public Domanin. Or were you planning on getting a court order that forces hAndover to handover (hee!) the weblogs, so that your Intellectual Property (snicker!) can be protected??? |
| Re:Financial advice from JK (Score:1) by Fat Lenny (Fat Lenny at Bald and Sexy dot com) on Monday May 08, @01:54PM EDT (#230) (User Info) http://www.ween.com/ |
| I think that's the point -- Katz can't use his IP w/o permission, and there is no way for him to even ask for it. I certainly wouldn't want him to use my comments, but since I have never contributed anything constructive to his articles, it won't make any difference. I'll certainly make a point NOT TO in the future... -- |
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