Are we just Lemmings?

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Not that I have a heckuva lot of dough in the markets(always preferred cash, actually)I sure am wondering today what the hell is going on in the markets. It is not just the dotcoms anymore. I have certainly read about the Japanese banks, and I have certainly followed the earnings reports of the last three quarters-certain business sectors seem to be cycling through recessions.

Are all bull and bear markets lemming-like reactions by exuberant or paranoid humans? I mean unemployment is still below 5% and though yesterday's report showed very slight inflationary pressure, I do not understand why all the money is going out of stocks across the board based on one or two bad business quarters?

Loaded question-Are we truly going to be fucked in the next ten years/five years? I am at a loss for words watching all the red ink on the boards-have reapportioned my meager 401K, both in terms of moving existing funds and future % conttributions to a more defensive position.

Am I one of the lemmings? I was not concerned about selling low on certain funds-not much there to have lost. But I wonder if I am paranoid, or if there is something going on beyond our awareness. I know this is an open invitation to conspiracy theorists, but after all, beneath each one of us who remains here,we love these theories as heart felt or as things to debunk.

-- FutureShock (gray@matter.think), March 22, 2001

Answers

The simple answer is yes. For the most part, investors are idiots. Dotcoms with no earning potential went through the roof in the last few years, bringing everything else with it. Now sheer paranoia is bringing it all down. Neither direction was based on any sound investment methodologies. The stock market is volatile and always will be.

I wouldn't be terribly concerned about the 5-10 year time frame. Our economy is not nearly in as bad a shape as the markets indicate. As usual, though, the markets exaggerate both the highs and lows. Instead of "irrational exuberance" we now seem to have "irrational paranoia." This too shall pass.

-- (what@i.think), March 22, 2001.


We're all gonna die!

-- (Time@has.come), March 22, 2001.

What I think is that we are about to see the global meltdown that was barely avoided by the LCTM bailout a few years ago. Rate cuts cannot indefinitely postpone the inevitable.

-- 2 cents (me@peanutgallery.com), March 22, 2001.

FS:

My history with the stock market indicates [to me] that it's sometimes simply unexplainable. I have an IRA that made good money in the stock market, but I chose to exit the market in 1998. My broker didn't agree, but my experience with brokers told me that if they knew what they were doing, they'd be rich. So, following my preference, he invested in something more secure.

Last summer, when I wanted funds for school, I talked to him again. I needed a monthly stipend for living expenses, as well, and we decided on $600/month. Since I MUST receive that $600/month until I'm 59.5 years old [per his accountant], we decided it would be a good idea to invest at least a portion of the IRA in something a little riskier that would [at the least] make up for the withdrawals. He suggested the market, and I said I still felt uncomfortable with the market. I think we decided on some bonds for half the accumulated IRA figure. That's worked out well. Even with monthly withdrawals and tuition and books, I've not lost any money from my original principal. If I've grown any money, it's too little to notice.

I'll be dealing with him again this summer for educational funds for my son. We may go back to the drawing board to figure out yet another way to preserve funds while spending them.

The goal [IMO] is to move your money from what isn't working to what IS working, and there's always SOMETHING that's working. When the stock market falls, CD rates rise and vice-versa. If bonds start falling, move the money to something that's rising. I lost $24,000 [on paper, of course] once by just sitting on stocks as a long-term investment. It would have been better to sell once the stocks started to fall and buy back in later.

-- Anita (Anita_S3@hotmail.com), March 22, 2001.


The profit outlook for many companies is not very good right now. Stock prices won't be going up until profits improve for tech firms and others. The Fed can cut interest rates, but it's profitability that counts for everything now.

Stocks between 1995 and 2000 went up in a way not seen since between 1924 and 1929. The 20% or more per year stock market rise of the late '90s just wasn't sustainable. It's called a "bubble".

-- No conspiracy just (rampant@stock.speculation), March 22, 2001.



IMO, the stock market and all markets, are driven more by crowd psychology (fear and greed) than by reason. IMO the idea of an efficient market, that at any time has all the info factored into it and so therefore accurately represents "value" is way idealistic. Markets are irrational and unpredictable. That is why they are so much fun and so much anguish.

I do not believe that markets are consistantly manipulated by dark forces. Feel free to disabuse me of that notion, anyone.

Fellow greater-fools, I am off to the tulip festival.

-- Lars (larsguy@yahoo.com), March 22, 2001.


Somewhere long ago I read a newspaper or magazine article about a study of the business cycle. This study took an unusual approach. The researchers created an economic simulation where they hired college students from business courses to act as business owners. The business owners were given simulated economic projections, formed business plans, borrowed money, made capital investments and so on.

The idea was that by using simulations, they could provide students with several lifetimes worth of "experience" at running businesses. So it would be a teaching tool. They also wanted to see if they could capture enough data about the dynamics of their simulated economy to derive hard and fast rules for successfully running businesses. They were especially interested in seeing if business owners could be taught behaviors that would smooth out the business cycle.

The researchers ran the simulation a number of different ways, using a large variety of inputs to the business owners. What the researchers discovered was that, even though the business owners learned about the pitfalls of overinvestment in capacity from earlier runs of the simulation and they began to alter their business strategies in later runs to avoid it, nevertheless, every single run of the simulation resulted in most business owners overinvesting, getting caught with idle capacity, creating inventory runups that couldn't be disposed of, and the whole business cycle repeating itself.

Their conclusion was that the business cycle is embedded into the capitalist system at a very deep level. So much so that individual business owners could not learn any behavior that allowed them to avoid it, no matter how many chances they were given.

Of course, that's just one study, but empirical data from history seems to point to the same conclusion. The economy has ups and downs. It expands too far too fast and then goes through a contraction. Seven fat years and seven lean ones. You know the drill.

History is full of bubbles, too. The one thing they all seem to have in common is irrational exuberance. The exuberance is usually founded on good grounds. For example, when radio came in it was a technical revolution! The business grew like gangbusters. RCA was the Microsoft of its day. There was good reason to be exuberant. The money was rolling in! At some point, though, the exuberance takes on a life of its own and it just takes off into the blue sky.

That's where the NASDAQ went in 1999. People started to believe in magic. All our problems would be solved by the Internet. You can't throw too much money at it, because it always comes back to you doubled. The ultimate fairy tale for the greedy. Now we're all gonna pay for all that wasted money. Shit!

-- Miserable SOB (misery@misery.com), March 22, 2001.


Bursting of the Tech Bubble Has a Familiar 'Pop' to It (WSJ)

-- (Learning@from.history), March 22, 2001.

Lars understands. Equities are just an auction wherein noone cares a wit about the product. Been out of equities since June '99. Missed a good run up but my euro dollar puts are doing just fine today. It's a game nothing more.

-- Carlos (riffraff@cybertime.net), March 22, 2001.

"When the stock market falls, CD rates rise and vice-versa. If bonds start falling, move the money to something that's rising."

This is not necessarily true all the time, and this time it's different. When interest rates fall, so does the interest rate on CD's, T-bills, savings, money market accounts. Thought these are safe investments, they do not pay well when interest rates are low. In this falling market, even bonds are not the safest haven to be in. There's a lot of money sitting on the side lines in money market accounts waiting to see what's going to happen. Mortgage rates are tied to the Bond index Fund. I would like to refinance my home, but home mortgage rates are NOT coming down despite the recent rate reduction. Why? Because investors are not parking their money into bonds, and mortgage lenders are concerned about the economy, job loss, and hyperinflated real estate.

There's plenty of confused investors, and millions of Americans are in a daze wondering what the future holds for them. Millions have watched their IRA's and 401k plans lose over 50% of their value. Whether it's a paper loss or a hard dollar loss, it has a psychological effect on you. Many people who planned to retire in a year or so, now have to work longer than anticipated. That's the breaks.

-- wide eyed (wideeyed@wideeyedd.foggy), March 22, 2001.



Is It Time Silicon Valley Learn From Japan?

`New Job Reality'

http://quote.bloomberg.com/fgcgi.cgi?ptitle=Latest%20Columns&touch=1&s 1=blk&tp=ad_topright_bbco&T=markets_fgcgi_content99.ht&s2=blk&bt=blk&s =AOrkk0xQiSXMgSXQg

The number of homes on the market in Silicon Valley is up more than 200 percent from a year ago; sales are off by more than a third. Commercial vacancies in the notoriously tight San Francisco market have quadrupled in the past year, to 8 percent. Auto dealers, retailers, restaurants -- they're all smarting, and they all know there's worse to come. Rather more ominously, Bay Area school budgets are going to get clipped.

The newspapers are filled with pieces on ``layoff survivors'' and ``the new job reality.'' A clever columnist named Sue Hutchison writes of Sudden Poverty Syndrome in the San Jose Mercury News, which is covering the bubble story better than anyone around.

Life goes on. The talk here is of recovery, not reform -- just as it long was in Japan. And it's right around the corner, of course. There was a special advertising section in one of the dailies the other day suggesting that biotechnology is ``the next big tech thing.'' Some people never want to wake up, you have to conclude.

Bubbles Alike

I see plenty here to justify trans-Pacific comparisons. Easy credit fueled the American and Japanese bubbles alike -- and produced the same gross misallocation of capital, the same wholly unjustified capital expenditure, and the same property frenzy in Silicon Valley as we saw in the Japanese industrial belt.

The resulting dreams were different, but no less idiotic. The Japanese bought trophy properties at silly prices and sprinkled their coffee with gold flakes. Americans bought stocks with four- figure price-to-earnings ratios and fetishized technology to the point where you wondered whether your neighbor belonged to a cargo cult. From here America's private debt can look every bit as nasty as Japan's public-sector liabilities.

Just to complete the suggestion that we may be witnessing an economic model that has run its course, the blackouts caused by the deregulation of California utilities resumed a couple of days ago.

Reaching Deep

Now we're pinning our hopes on the same kind of weak, politically painless remedies that we've long faulted the Japanese leadership for pursuing. Dropping interest rates in this environment is going to prove ineffective in the long run. In the long run, Bush's tax package will prove no less irresponsible than anything the Liberal Democrats in Tokyo have tried since the market tipped southward on that first trading day of the 1990s.

There's a larger point to consider here as San Francisco's dot-com crowd decides whether to keep on buying hundred-dollar olive oil. The bursting of Japan's bubble has gradually led the Japanese into a thoroughgoing rethink of the way they live, work, spend, vote, govern, and relate to others. Not much less than a new national ethos is gradually taking shape.

``The Japanese are looking for something and they don't know what it is,'' Ron Morse, an American scholar long resident in Japan, told me recently. It's the single most astute observation I heard during a long visit back to Japan recently.

If this is our burst bubble, will Americans be able to reach that deeply into themselves? I wonder.

`Warfare in Peacetime'

When the Japanese first saw the American economic system at close range 130 years ago, a diplomat in that early mission famously called it ``warfare in peacetime.'' How prescient he was.

``Today's business is a battle, and companies are looking for their best generals. For the companies and the employees, it's a life-or-death issue. This is how wars were fought.'' That's an executive recruiter telling a reporter from USA Today the other day why large-scale layoffs are a fine, sensible thing in an economic environment such as this one.

I love this kind of talk in one respect. The unconscious is so perfectly undisturbed. It is so piercingly revealing of what Americans have made of themselves without even knowing it. But it's troubling, too, of course. It suggests that this nation is going to keep on dreaming even after it wakes up, as San Franciscans may now be doing.

-- rooster (rooster@roosttime.egg), March 22, 2001.


The truth is the disney crew chased the lemmings over the cliff...made for a great wild life documentary. As for the periodic lemming migration to their death, it is bullshit.

As for people, oh yeah... they follow real good. I hope the lemmings are getting this stampede on their little TV sets.

-- Will (righthere@home.now), March 23, 2001.


http://www.dismal.com/todays_econ/te_032201_2.asp

Where the Money Trail Leads

By Scott Anderson

03/22/01 12:00 PM ET

A noticeable shift in investor behavior has swept through financial markets over the last six weeks. True, tech stocks have been crashing for a year now, but only recently did the financial pain of the tech reversal finally curtail investor risk tolerance. This change in market sentiment has accompanied the decline in consumer confidence, and should serve as a warning to the the Fed that financial risks continue to build.

Up until February of this year, much of the financial pain had been contained in the technology sector. The Nasdaq plunged more than 44% since its March 10th peak, while the S&P 500 lost only 1.6% over the same period, and the Dow Jones Industrial Average actually gained 10.6%. Investment in the equity markets continued, even though investors increasingly avoided high-tech issues in favor of the presumably "safer" large cap equities of the Dow.

However, since February, equities have declined on all the major indexes. The Nasdaq is off another 34% since February 1st. The S&P 500 tumbled over 18% over the last month and a half, while the Dow is off nearly 14%. Undoubtedly, there has been a change in market sentiment as investors have increasingly avoided equities of all stripes and colors. With over $4 trillion in market cap wiped out in the past 12 months, equivalent to 40% of U.S. GDP, caution is now the rule.

Anecdotal evidence of the change in sentiment can be found in the financial press. Financial analysts are reluctant to call the market bottom, as they have already been burned too many times. Advertisements for mutual funds now tout their bond and income funds, rather than their latest aggressive growth or high-tech offerings.

An analysis of investment flows bares out the rush toward liquidity. According to the latest equity mutual fund data just released from Lipper Analytical, equity outflows from mutual funds totaled $11.4 billion in February (see chart). This was the first monthly outflow in 10 quarters, when the 1998 Russian financial crisis scared investors out of equities. This corroborates previously released numbers from fund flow tracker Trim Tabs, that estimates equity outflow in February of $13.4 billion. Furthermore, equity flows for March are on track to continue the outflow trend. If this occurs, it would be the first two consecutive months of equity outflows since Iraq invaded Kuwait more than a decade ago. One must go all the way back to the stock market crash of 1987 to find a similar period, when stock outflows occurred for eight consecutive months due to domestic troubles.

So if money is leaving the stock market, where is it going? The short answer is it's going into cash. Savings deposits at banks and thrifts are up 11% from one year ago. January inflows into money market mutual funds saw a five-fold increase over the previous month to $102.8 billion (see charts). The largest monthly inflow ever recorded. The majority of the new cash heading into money market mutual funds is institutional money, i.e. pension funds, banks, corporations, insurance, and investment companies increasing liquidity.

Bond and income funds also saw a substantial $10 billion inflow of cash in January, according to the Investment Company Institute. This was the first inflow of cash into this fund category in 17 months, and the largest inflow since November 1998.

The escalation of risk aversion in financial markets should not be taken lightly. Now that all equities everywhere are declining, a wider cross-section of businesses, not just tech companies, will become more cautious with their future investment and employment decisions. Meeting short-term earnings targets will become more important, and long-term productivity enhancing investment projects will suffer.

Consumer confidence could also continue to slip, taking the economy with it, as consumers begin to hunker down to wait out the financial bear market. One of the only things keeping consumer confidence up at this point is the belief that Fed will do whatever it takes to keep consumption going. However, that faith in the Fed is being sorely tested in the stock market. If such a crisis of confidence were to befall consumers, the economy would be in great danger.

Many analysts and consumers look to the stock market as a leading indicator of the economy, and the recent acceleration and spread of the decline to other major indexes, even as the Fed is loosening interest rates, does not bode well for a quick v-shaped economic recovery. The rush to liquidity may be inevitable for any equity market correction, but the fact that it's only happening now, means that we may have a longer wait than expected before the economy improves.



-- (Follow@the.money), March 23, 2001.


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